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Can frugality be learned? — Pop Economics

Can frugality be learned?

by Pop on September 23, 2010

Post image for Can frugality be learned?

“Today” is important, too.

I read a comment on a popular personal finance blog a week or so ago that went something like this: “My philosophy is that you can never save enough for retirement.”

It pains me to see someone write something like that. I’d guess that the commenter is in his late 20s or early 30s—I’m basing that completely on the readership of PF blogs in general—and might have had the frugality mantra beaten into him just a little bit too much.

I mean, of course, you can save too much for retirement, right? We make a big deal about the compound interest effect of savings in your 20s, but there’s also interest on the experiences you have during your formative years. Sure, a free day in the park can be fun, but you won’t remember 20 free days in the park as well as you remember the first time you look out over the Andes or jump out of an airplane.

Scientists have identified such a thing as “self-control regret”, where tightwad subjects actually started to feel wistful about spending they had passed up on earlier in life.

Generally, I think our goal of saving for retirement is to smooth out our standard of living. So when you retire, you’re able to achieve about the same kind of life as you had the day before retirement. Saving too much, and ending up with a bonanza at age 66, just cheats the version of yourself you’re enjoying now.

But putting that aside, the commenter’s thought did get me to thinking about those extreme frugalistes among us. The general thesis of a frugality blog is that frugality can be learned. But are there fundamental differences between those who are frugal and non-frugal people that can’t be overcome?

The “pain” of spending

Think about the last time you walked into a grocery store and considered the purchase of a candybar. How did you weigh the pros and cons? If you were a completely rational person, you would anticipate the pleasure the candybar would give you, offset by the loss of pleasure that dollar might have given you had you saved it.

But that’s not how we act. Instead, we’re hardwired to compare “immediate pleasures” to “immediate pains.”

Brian Knutson, a psychology professor at Stanford, put test subjects in an fMRI machine to see what areas of the brain lit up when they were making a decision to buy or not buy various products. While inside the scanner, they looked at a small video screen that showed a product and later showed the price. They were then asked if they wanted to buy the DVDs, books, games, and other products that were shown.

As subjects pondered the pictures of the products, areas of the brain associated with dopamine and desire lit up. When the price appeared, the area of the brain associated with value judgments and goals showed activity. But most interesting, the subjects who ultimately decided not to buy showed activity in the insula, an area of the brain associated with unpleasant emotions and the anticipation of loss. It’s literally the same part of the brain that becomes active when you smell something foul.

It turns out that frugal people “feel” that pain of paying much more strongly than normal people (and especially spendthrifts), or so says George Loewenstein, an economist at Carnegie Mellon. Loewenstein and his colleagues have found that you can survey subjects on how they feel and effectively predict future spending patterns based on how strong those pains are.

In short, many psychologists believe the characteristics that make someone frugal are either learned very early in life or are hereditary. One Stanford psychologist even compares the traits of severe tightwads to those of people with OCD. Frugal people wonder “what if I need this dollar someday?” in the same way those afflicted with OCD rationalize not discarding junk.

Does that mean you can’t “learn” to be frugal?

That’s a little bit of a straw man. We all know of tons of people who didn’t start frugal but changed their ways over time.

But there’s no question that naturally frugal people have it easy (or hard, depending on your perspective). They look at that candybar and feel enough pain to automatically keep them from the purchase, whereas you only look forward to the pleasure. You’ll probably never be able to re-wire the areas of your brain that react that way, but there are a few small tricks that might help amplify the pain.

1. Use cash. – No, not because it ensures you won’t go into debt, though that’s true too. Using cash makes the loss more immediate. Credit card spending, which doesn’t have to be paid off for at least a month, is an anticipated pain, and not as acute.

2. Spread out purchases. Don’t buy a bundle of products and services or commit to long subscriptions. If you instead make yourself make each purchase separately, you’ll give your brain multiple chances to experience the pain of a purchase.

3. For expensive items, consider the purchase twice. Don’t mull an idea for a long amount of time. That just gives your brain time to warm up to the idea. Instead, put the purchase on hiatus (go do something else), and come back to re-consider later. If you can replicate the pain of the potential spend twice, you might just find yourself walking away from a decision you’ll regret.

Of course, depending on how steeped you are in the ways of frugality, you might have the opposite problem. So just take all those steps I listed and reverse them!

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{ 9 comments… read them below or add one }

Sandy L September 23, 2010 at 11:13 am

It’s funny, I just wrote a post last week about the feeling physically ill when thinking about a vacation home purchase. The emotional and sometimes physical reaction people experience when parting with money is real. It’s origins..well in my case I don’t know if it’s upbringing or genetics as we were frugal out of necessity.

I have observed however, that the threshold of feeling ill has increased as my earnings have increased. I won’t stress about a candy bar purchase, but I may stress about a car or vacation purchase. It’s definitely gotten better as the gap between my income and my expenses has widened.

Jacq @ Single Mom Rich Mom September 23, 2010 at 3:06 pm

Loved the post Pop! Very timely for me as well as I recently vowed to overcome my uber-frugal ways and try to spend close to what I make. I don’t regret saving enough to retire modestly, but do regret not having some balance along the way as I’ve decided that retirement isn’t all it’s cracked up to be. I come from one of those abnormally frugal upbringings and it’s hard to change your thinking – particularly because in the PF blogging world, we’re inundated more with how to stop spending more than how to put your money where your enjoyment is. One thing I do know is that I don’t want to end up like my Dad – a multi-millionaire who never learned how to enjoy using money. Being the richest person in the cemetery isn’t a goal of mine.

Pop September 23, 2010 at 7:24 pm

That’s really interesting, Jacq. Sometimes I wish I could be inside other people’s heads for a few moments. It would be enlightening to feel the “pain” that an uber-frugal person feels when spending money on a purchase I might not give a second thought to. If you didn’t have that pain at all, I wonder if it would be liberating or scary.

Catie September 23, 2010 at 11:34 pm

Yeh I agree.
Ofcourse you can have too much for your retirement.
When you’ve got too much money, it just becomes useless cash,floating around in your bank account or wallet.

Now don’t get me wrong its great that people can save that much that they have spare money floating around. But it’s not great when those people sacrifice their happiness and well being, in their youth and all throughout their life in fact, just to get that brilliant, perfect nest egg.

You only get one shot at life, and it’s good to have direction and drive. But when does direction turn into narrow mindedness and drive into obsession???

Catie

Jacq @ Single Mom Rich Mom September 24, 2010 at 8:26 am

I have a friend that doesn’t experience any of that pain – and has been in a lot of debt for 20+ years. Part of it is also impulsive tendencies that do not go unchecked at all. One thing I’ve noticed — she tells herself quite often that she NEEDS a particular something and works herself up into a real state of longing until she finally explodes and buys the toy or books the trip. There also seems to be a real lack of understanding of long term consequences – ie. spend everything now and have 0 saved for retirement. Spend your paycheck and pay $400/month interest and $100 overdraft fees. I’ve tried to help to explain how to change, but I can’t get through. I can understand all that in 20-somethings, but in 40-somethings?
For naturally uber-frugal people, I think most have a very high drive for independence so aren’t influenced by marketing, friends, etc.
Have you read any of Steven Reiss’ books on motivation? He’s got two – Who Am I? and The Normal Personality. Some of the major motivators are saving, power and independence – all of which can lead to over-saving. OTOH, if you have a high desire for social prestige, fear of rejection etc., that can lead to over-spending. And if you have high curiosity? You’ll just spend lots on Amazon, and probably be ok with it as your one indulgence. ;-)

Rob Bennett September 24, 2010 at 2:07 pm

In my case, the conversion was related to the way in which one personality type perceives the concept of “frugality.”

I am an INFJ in the Myers-Briggs personality assessment system. INFJs tend to be teachers or ministers. They are idealistic caregivers. My view was that money was green pieces of paper. I used to toss pennies received as change in the trashbin. That act revealed my attitude toward saving.

Then I came to see (by reading “Your Money or Your Life”) that saving could provide me independence in the work I do. INTJs are very big on independence. Once that idea kicked in, I saved like a madman (in my best year I saved $88,000).

It’s how you look at things. I think that one problem is that most people in the field share the same personality type (money people tend to come from the personality types that like numbers — NOT INTJs). They say things in ways that make sense only to others from their same personality type.

Rob

anne nimick September 29, 2010 at 9:04 am

Rob, if you are either a teacher or a minister, how could you possibly save $88.000 in one year? I would think that your income would not be around $88,000.

anne

Nicole October 1, 2010 at 9:28 pm

Great post! Good summary of this research.

FB @ FabulouslyBroke.com October 6, 2010 at 5:27 am

I think frugality can totally be learned. I’m my own best example.

I was not a frugal person in the past, but after actually starting to see what money could do for me in terms of security and freedom, I changed my tune immediately.

Now I’m keeping expenses low, saving as much as possible and sleeping a lot better at night.

I’m also not over saving for retirement or life, seeing as I only spend on things/experiences that I value, such as traveling (am planning on going to Asia for a month or two on a $10k budget).

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