CLOSE
Original image
iStock

5 Ways We Trick Ourselves Into Bad Financial Habits

Original image
iStock

Being smart with money is easier said than done. Despite our good intentions, we overspend, bust our budgets, or derail our debt payoff goals—and we only have ourselves to blame. Here are five habits and biases that affect our financial decision-making. 

1. WE OVERESTIMATE OUR WILLPOWER.

“Most people believe they are better at many things than they actually are, from driving to investing,” Certified Financial Planner Benjamin Sullivan tells mental_floss. And when it comes to budgeting, we tend to be overconfident with our willpower. You vow to cut your restaurant spending to zero, assuming you’ll be able to successfully fight off your sushi cravings throughout the month. You know you can go a month without buying another pair of shoes online—if you could only block all of the ads for sales... This overconfidence can backfire when you eventually give in and wreck your budget.

In a study published in the journal Psychological Science [PDF], researchers put a series of volunteers to the test to find out how strong their impulse-control actually was. In one test, they looked at the "empathy gap." This is the tendency to underestimate our impulses (such as hunger), because while we can remember the circumstances and strength of impulsive states, we can’t remember how they actually feel. (For instance, you can remember that you were hungry because you skipped breakfast, but you cannot recall that growling sensation in your stomach.) So when we’re not experiencing a craving, it’s easy to overestimate our willpower.

In another test, the researchers convinced some heavy smokers that they had a strong control over their cigarette cravings, while members of another group were told that they had very little self-control over their cravings. They were then all given a test to win money that involved a cigarette—such as, holding an unlit cigarette in their mouths without smoking it in order to win €8. The subjects who were told they had high control had a significantly higher failure rate than those in the group that were told they had low control, largely because, as the paper says, “many of these smokers exposed themselves to more temptation than they could handle” because they felt that they had self control.

“Whether it's picking stocks or frequent trading, overconfidence leaves investors focusing on games they can’t win,” Sullivan says. “Instead, investors would be better served by focusing on what they can control—their own behavior, including their overall asset allocation, and their spending and saving habits.”

2. WE STICK TO WHAT’S FAMILIAR.

“In investing, our bias toward the familiar is why many people invest most of their money in areas they feel they know best rather than in a properly diversified portfolio,” Sullivan says. “The known feels safe; the unknown feels risky.” 

This behavior is also known as status quo bias [PDF]. We prefer choices that feel familiar and don’t disrupt our lives very much. Fear of risk is one thing, but sometimes we simply fear what’s not comfortable. If you’re used to living above your means, for example, it can be tough to change your spending habits and cut back on certain areas—it’s uncomfortable and unfamiliar territory.

Similarly, the bandwagon effect can impair our judgment, too. Instead of making decisions that are good for our own unique situations, we simply do what’s considered popular or socially acceptable. For example, your friends have nothing saved for retirement, so you figure there’s no harm in postponing your own retirement savings. (This is false; you should start saving today!)

3. WE ANCHOR PRICES.

Sullivan brings up another interesting habit: anchoring. Anchoring is our tendency to use a given figure as a point of reference for our decisions. For example, you’re at a restaurant and you see a $25 entree on the menu; this seems overpriced at first glance, but now the $15 entree seems cheap in comparison.

“This tendency to fixate on a point of reference may seem like an easy mistake to spot, but in practice, it can be hard to dislodge a perception that is anchored this way.”

Research from the Institute of Psychology at the University of Würzburg found just how effective the anchoring effect can be. Researchers approached mechanics with a used car that needed repairs, asking the mechanics to name the value of the car—but only after the researchers themselves gave an opinion as to the value. Half of the researchers posited the car had a low value (DM 2800) and half suggested it had a higher value (DM 5000). When the researchers gave a high anchor, mechanics valued the car DM 1000 more.

Advertisers use this tactic quite often (on restaurant menus, for example) but it can also come into play with negotiating. Let’s say you’re interviewing for a job and expect the compensation to be in the $40,000 to $50,000 range. Your potential employer throws out a figure that’s much lower: $25,000. Suddenly, your own expectation seems ridiculously high, so you're more willing to make a bigger sacrifice with your counteroffer.

4. WE MAKE DECISIONS BASED ON “SUNK COSTS.”

“Not only do we tend to cling to what we know and anchor to historical prices that are clear in our minds, but we generally avoid facing the truth of a financial loss,” Sullivan says.

Our aversion to loss results in the sunk cost trap, the pressure to follow through on a decision because you've already put a lot of time and effort into it. In practice, this might come up if you’re shopping for something specific, like a pair of jeans, and you can’t find the pair you want, so you impulsively buy something else at the store to justify the time and effort you’ve already spent (I couldn't find any jeans, but at least I have new sunglasses!).

“In Economics 101, students learn about sunk costs—costs that have already been incurred,” Sullivan explains. “Students also learn that they should typically ignore such costs in decisions about future actions, since no action can recover them.”

For starters, buying a new pair of sunglasses won’t make up for the time you’ve lost searching for your jeans.

5. WE SUFFER FROM BUYER’S “STOCKHOLM SYNDROME.”

You’ve just impulsively purchased a laptop you can’t afford, destroying your budget in the process. Maybe you have a bit of buyer’s remorse, but you justify the purchase by telling yourself you’ll use it all day, every day; it’s been a while since you’ve had a new computer; it was a solid, smart purchase.

This is post-purchase rationalization in action, also known as buyer’s Stockholm Syndrome: We tend to look for information that supports a choice we’ve already made. In other words, we justify a purchase to avoid dealing with the remorse of that purchase. It could be anything from a small splurge to a bad investment; either way, post-purchase rationalization keeps us from looking at our financial decisions objectively.

Original image
iStock
arrow
Weird
Switzerland Flushes $1.8 Million in Gold Down the Sewer Every Year
Original image
iStock

Switzerland has some pretty valuable sewer systems. As Bloomberg reports, scientists have discovered around $1.8 million worth of gold in the country's wastewater, along with $1.7 million worth of silver.

Scientists at the Swiss Federal Institute of Aquatic Science and Technology examined sewage sludge and effluents, or discharged liquid waste, from 64 water treatment plants and major Swiss rivers. They did this to assess the concentrations of various trace elements, which are "increasingly widely used in the high-tech and medical sectors," the scientists explained in a press statement. "While the ultimate fate of the various elements has been little studied to date, a large proportion is known to enter wastewater."

The study, which was recently published online in the journal Environmental Science & Technology, revealed that around 94 pounds of gold makes its way through Switzerland's sewage system each year, along with 6600 pounds of silver and high concentrations of rare metals like gadolinium and niobium. For the most part, these metals don't harm the environment, researchers say.

With gold and silver quite literally flowing through their sewers, is there any way that Switzerland could turn their wastewater into wealth? Scientists are skeptical: "The recovery of metals from wastewater or sludge is scarcely worthwhile at present, either financially or in terms of the amounts which could be extracted," the release explains.

However, in the southern canton of Ticino, which is home to several gold refineries, the "concentrations of gold in sewage sludge are sufficiently high for recovery to be potentially worthwhile," they conclude.

Switzerland is famous for its chocolate, watches, and mountains, but it's also home to major gold refineries. On average, around 70 percent of the world's gold passes through Switzerland every year—and judging from the looks of it, much of it goes down the drain. As for the sewer silver, it's a byproduct of the chemical and pharmaceutical industry, which is a cornerstone of Switzerland's economy.

[h/t Bloomberg]

Original image
DON EMMERT/AFP/Getty Images
arrow
Lists
14 Things You Owned in the '70s That are Worth a Fortune Now
Original image
DON EMMERT/AFP/Getty Images

From old toys and housewares to books and records, these pieces of '70s memorabilia have aged (and increased in value) like fine wine.

1. THE LORD OF THE RINGS KNICKERBOCKER PLAYSET

A vintage ringwraith toy from Lord of the Rings by Knickerbocker toys, still on the yellow blister pack.

eBay user butamaru999

Peter Jackson wasn’t the first one to take a crack at J.R.R. Tolkien’s The Lord of the Rings trilogy. In 1978, Ralph Bakshi directed an animated version with the voices of John Hurt, William Squire, and Anthony Daniels, among others. There was a toy promotion to go along with the movie, of course, and though the action figures look a little cheap by today’s standards, they’re anything but. According to eBay, a complete set can sell for up to $17,000.

2. DAVID BOWIE’S DIAMOND DOGS ALBUM

Photo of David Bowie
RALPH GATTI/AFP/Getty Images

Check your old vinyl! In 1974, David Bowie released the Diamond Dogs LP, which featured artwork of a cartoonish Bowie-dog. The top half of the creature was Bowie, while the bottom half was all canine—including its genitals. Right before the album was released, RCA decided to avoid controversy and had the artwork retouched to remove the offending parts. However, some enterprising employees were able to snag some of the originals, and in 2003, one of them sold for $3550.

3. LUKE SKYWALKER ACTION FIGURE

Luke Skywalker action figure still in the Kenner packaging from the 1970s.
DON EMMERT/AFP/Getty Images

OK, you probably didn’t own this exact Luke Skywalker action figure with double-telescoping lightsaber when you were a kid, because there are only 20 known toys in existence. If you are one of the lucky few, though, get thyself to Sotheby’s: In 2015, this 1978 Kenner toy sold for a whopping $25,000.

Even if you don’t own this ultra-rare figure, don’t despair: Your old Star Wars toys could still be worth hundreds—or even thousands—of dollars.

4. THE SEX PISTOLS’S “GOD SAVE THE QUEEN”/“NO FEELINGS” 45

The Sex Pistols
Graham Wood/Evening Standard/Hulton Archive/Getty Images

The infamously offensive Sex Pistols signed to A&M Records in 1977—and were dropped by the label exactly six days later for proving to be just too much to handle. But in those six days, 25,000 copies of the band’s “God Save the Queen” single had already been pressed. Just nine copies have surfaced over the years, making the rare records worth a pretty penny: In 2003, a copy with the paper sleeve sold for £13,000 (about $17,600).

5. WALK LIVELY STEFFIE BARBIE

Walk Lively Steffie doll

Image courtesy of bklyngrl44 on eBay

Remember Barbie’s friend from the 1970s, Steffie? Not many people do—which may be why a mint condition Walk Lively Steffie doll that's still in its box can be worth nearly $800.

6. THE GARDEN OF ABDUL GASAZI BY CHRIS VAN ALLSBURG

A copy of The Garden of Abdul Gasazi

Your book collection provides you with hours of entertainment, and can also be a great source of extra income. A first edition of The Garden of Abdul Gasazi, a 1979 children’s book by Chris Van Allsburg, is worth nearly $1000 (if it's in “Fine” condition). If you have a collection of Van Allsburg first editions, by the way, you’re doing well: A first edition of Jumanji from 1981 is worth hundreds, if not thousands, and a signed first edition of The Polar Express from 1985 is worth $2500.

7. ONE HUNDRED YEARS OF SOLITUDE BY GABRIEL GARCÍA MÁRQUEZ

The green, floral, leafy cover of the first edition of One Hundred Years of Solitude.
Image courtesy of cnos.mich on eBay

Who knew an exclamation point was worth so much? In some early copies of Gabriel García Márquez’s One Hundred Years of Solitude, the first paragraph of the dust jacket blurb featured an exclamation point instead of a period. That little mistake makes a first edition with the exclamation point worth $740. (Even the version with the intended period is worth some cash, though—about $400.)

8. LIMITED EDITION VERSION OF THE FIRST STAR WARS COMIC BOOK

Star Wars Comic Book
Image courtesy of heisman1944 via eBay

Here’s a riddle for you: When is five cents worth $7500? Answer: When rare Star Wars memorabilia is involved. When the first issue of the Star Wars comic book was released in 1977, Marvel published about 1500 limited edition copies for 35 cents instead of the usual 30 cents. Spending that extra nickel 40 years ago is worth more than $7000 today—and there’s currently one on eBay being sold for more than $10,000.

9. REMCO BATMAN UTILITY BELT

A vintage Batman utility belt stilli n packaging, with plastic handcuffs, decoders, and watch.

This Remco Batman Utility Belt from the 1970s came with all of the bells and whistles: a communicator, decoder glasses, a toy watch, handcuffs, a Gotham City decoder map, a secret identity card, and a secret message, among other things. Not only is it cool, that’s a lot of little pieces to keep track of, so you can see why a complete set in decent condition sells for more than $3000.

10. ALPINE MAN PEZ DISPENSER

Image courtesy of tobor1010 via eBay

To commemorate the 1972 Olympics in Munich, PEZ released the “Alpine Man” Pez Dispenser. There were two variants—a mustachioed figure in a green Alpine hat and a clean-shaven one wearing a brown cap. The green hat can be worth up to $3000; the brown one is worth “considerably more,” but is apparently so extremely rare that no pricing seems to actually exist.

11. ORIGINAL MEGO ROBIN ACTION FIGURE

Tom Simpson, Flickr // CC BY-NC-ND 2.0

The Mego company doesn’t produce action figures anymore—it went bankrupt in 1982—but for a decade, it was considered “The World’s Greatest Action Figure Company.” Many of their figures are worth a nice chunk of change today, but the original Robin the Boy Wonder figure from 1973 takes the cake. The first version came with a removable mask, while later versions came with the mask painted on. As you might imagine, that teeny little piece of cloth was often lost by the kids who played with the toy, so finding a Robin in good condition with the mask is pretty rare; one sold for $7357.

12. IKEA FURNITURE

A car topped with boxes of IKEA furniture
iStock

IKEA has become known for their affordable furniture and housewares, but certain vintage pieces will set you back a bit more than a $9.99 LACK table. Today, a teak bookshelf and cabinet combo from the 1970s can fetch up to $3000—surely a good return on investment.

13. PYREX DISHES

A green Pyrex mixing bowl with red ribbons and holly on it, sitting on top of three pyrex collecting books.

Image courtesy of qualityqueen62 via eBay

Your parents and grandparents shouldn't have passed those Pyrex dishes down—they're worth a lot of dough these days. Whole sets of certain patterns or colors can go for thousands of dollars, but even single bowls can fetch hundreds, like the above Christmas bowl from the early '70s, which is going for $370 on eBay.

14. THE ADDAMS FAMILY LUNCHBOX

They’re creepy and they’re kooky ... and they’re worth a lot of money. This metal lunchbox by King Seeley depicts the cartoon version of everyone’s favorite ooky sitcom family. A good-condition set containing the lunchbox and matching thermos can be worth up to $325.

SECTIONS

arrow
LIVE SMARTER
More from mental floss studios