The Not-So-Scientific Science of Spending

While out to dinner with a friend recently, I was faced with the seemingly small decision of choosing which glass of wine to order. With prices ranging from $10 to $17, my least favorite variety was available at the “bargain price” of $10, and a delectable Nebbiolo was available for $16. I was very tempted to splurge on the Nebbiolo, rationalizing that being out to dinner with one of my best girlfriends was occasion enough to justify the price.

Then, it dawned on me: I hardly ever spend $16 on a bottle of wine, so why was I willing to spend that much on one, single glass? Why does dinner out justify such a dramatic increase in my willingness to spend? Am I totally irresponsible with my money?!

Our poor parents – it seems like they get blamed for everything. However, we cannot blame them for our spending habits, unless you’d fault them for giving birth to you...

According to Dr. Hersh Shefrin, a professor in the finance department at Santa Clara University’s Leavey School of Business, our propensity to spend and save money is coded into our DNA. Much like athletic ability, we are pre-programmed to be good (or bad) with money!

When faced with a spending choice, such as how much to spend on a glass of wine, there’s a specific gene that helps determine our decision. Dr. Shefrin explains, “Only 25% of us are born with the ‘good’ variant of that gene. Some people are simply better than others at self-control, and neuroscientific studies have shed light on why this is the case.”

Knowing that science isn’t on my side and there’s a 75% chance I’m genetically predisposed to making bad decisions with money, I decided it was time for a bit of reflection. I looked back on recent bank statements to examine my spending behavior over the past couple of months, and began to realize that while I have several “spending rules” for myself, they don’t always make sense…

I’ll spend $8 per month on Hulu, but am not willing to splurge $4 extra dollars for the ad-free subscription – even if it would save me a ton of time by skipping the ads. I will, however, shell out $15-20 on Uber’s each week to save myself some time.

I’m dumbfounded by the $17 price tag for on-demand “Movies That Are Still In Theatres,” but will happily spend $50 going to the movies with my husband. (Once you smell the popcorn, you can never resist!) What makes my bias against on-demand movies all the more mind-boggling is that I prefer to watch movies from the comfort of my own home.

I’ll tip my barista a dollar each time I buy coffee, but asked to spend 99 cents on an app upgrade… forgetaboutit!

My rules for spending seem to make perfect sense in isolation (~$10 on a bottle at the store; $10-14 for a glass at a restaurant), but become completely irrational when laid out next to each other. Fortunately for me – and anyone with contradictory spending rules – it’s less important that our rules make sense together, and much more important that we simply have rules.

As rational or irrational as they may seem, the rules we set for ourselves make-up our holistic spending habits. According to MIT’s Professor Drazen Prelec, we create these rules based on past experiences and future expectations. We then use our rules as shortcuts to everyday purchasing decisions, saving time and brainpower.

If or when we break our rules, we’re haunted by good old fashioned [Catholic] guilt. Professor Prelec explains, “Let’s say I decide to splurge and buy cheese that costs $20 a pound. The guilt I’ll feel about breaking one of my rules will probably ruin some of my enjoyment of eating the cheese. I call that sting the ‘moral tax on consumption.’ It interferes with the pleasure of consumption.”

While this piece has focused mostly on price limits that we set for ourselves, spending rules go beyond cost. Rules can be as easy as not going grocery shopping on an empty stomach, to more serious ones like not spending more than you make.

Recognizing that my own spending rules play a large role in determining my bank account balance, I decided that it might be time to take inventory of them all. While I found it helpful to look at each rule individually and as part of the whole, I realized that even seemingly contradictory rules serve a purpose.

I’ve also found great benefits in surveying others about the rules they’ve set for themselves. (There is no rule that you can’t claim someone else's rules as your own!)  In the spirit of giving, and to help you beat holiday spending pressures, here are a few helpful spending rules from the team at Sylvain Labs:

  1. To avoid overspending at the grocery store, shop online so you can edit your cart before check-out, ensuring that you actually need everything you’ve put in your cart.

  2. Shop by unit price to easily compare products and get the best deals.

  3. For ladies buying toiletries, always check to make sure the men’s version isn’t less expensive. According to a study done by The New York City Department of Consumer Affairs, products (including toiletries) ‘marketed to girls and women cost an average 7 percent more than similar products aimed at boys and men.’

  4. Wait to buy things online, especially if you’re on your computer most of the day. Feel free to put it in your cart, then wait a few days to make sure you really want it. Also, some companies will incentivize your purchase if they see an item in your cart.

  5. Start frequent flyer programs with any and all airlines, and save your miles for last minute plane tickets; actual prices tend to go up closer to a flight, but milage prices tend to drop.

  6. Speaking of flying, if you have a subscription to Amazon Prime, Showtime, Starz, or Encore, never pay for a movie or television show on a flight again; simply download their app and movies or shows prior to your flight.

  7. Always check Craigslist before buying certain items for your kitchen (juicers, KitchenAids, etc.) These items are often gifted or purchased on a whim, and available in great condition for much less than you’d pay at the store. If you’re looking for something in particular, you can set up alerts on Craigslist.

  8. Hit up the $1 Chinese store for housing basics.

  9. Embrace free trials. From exercise classes to home-delivered meal kits, you can save a lot of money while broadening your horizons.

  10. Speaking of home-delivered meal kits; they’re a great way to eat well for a reasonable price, and ensure you never waste food.

  11. Cook in big batches and freeze meals for later.

  12. Install and use the Honey Google chrome extension that finds available coupons or discounts when you’re shopping online.

  13. If you can walk or bike, do it! You’ll save money on transportation and get valuable exercise at the same time.  (If you’re living in NYC and biking to work, you’re saving over $1400 each year on the metro.)

  14. Shop for flights on Tuesday.

  15. Share a bottle of wine in social settings. (Good thing that my friend wasn’t drinking on the evening that sparked the idea for this piece!)