Your Money Personality: Tightwads or Spendthrift?
| April 9, 2012 | Posted by Roshawn Watson under Uncategorized |
By: Roshawn Watson
Were you clenching your wallet or purse strings straight from the crib? It is interesting how some people are characterized as being naturally gifted with money whereas others appear challenged from the beginning. I always stress that most of personal finance is behavior; however, we often ignore what drives that behavior. Surprisingly, it is not all about discipline. There are reasons frugality comes easier to some. Over the years, numerous publications have shed light on the origins of financial behavior. In this article, we will discuss some of the biological etiologies of our spending orientations.
Could Biology Explain Your Spending Tendencies?
It turns out that most of us are relatively unconflicted about many purchases; however, some of us are either super-sensitive (tightwads) or distinctively blunt (spendthrifts) to spending money. Recent research has indicated that insula, a neural substrate involved in conscious urges, may hold the key to explaining some of this variability. Insula determines the amount of pleasure (too little insula) or pain (too much insula) derived from events, such as spending money or smoking. Tightwads have too much of it resulting in pain, and spendthrifts have too little and consequently experience pleasure.
A recent study looked at the brain scans of volunteers after they were shown an item and then the item’s price. About 30% of the volunteers had elevated insula (tightwads) and 20% had reduced insula (spendthrifts). In both cases, there was regret. Spendthrifts became regretful because they were more likely to overspend. Tightwads experienced regret for not spending enough and were relatively less happy than their unconflicted and spendthrift counterparts.
More Than Just Feelings
The implications of our spending orientations go beyond feelings. For example, spendthrifts are three times more likely to be in debt than tightwads regardless of income (Scott Rick, George Loewenstein, and Cynthia Cryder, 2008). This highlights perhaps the biggest limitation of focusing solely on increasing income: you cannot outearn bad spending decisions, which is why some degree of frugality is important. This creates a perplexing situation: what’s one to do when his or her biology is warring against common sense?
Marital Bliss
Some people counterbalance their natural spending orientations by selecting partners who differ in their spending habits. This is a true case of where opposites attract. Both spendthrifts and tightwads tend to marry spouses’ with the opposite spending orientations. In such unions, the partners tend to balance each other out initially, so they don’t go to either extreme. The tightwad may like the spendthrift’s sense of adventure and fun whereas the spendthrift may like the tightwad’s dependability and stability. Moreover, spendthrifts that marry tightwads generally do better financially than couples made up of two spendthrifts. However, as time progresses, important conflicts arise, particularly with larger purchases, such as homes and vehicles. Obviously, these purchases have a much greater impact on long-term financial goals compared with simply choosing a recreational activity. Accordingly, such purchases can result in marital discord when spouses can not get on the same page. Ironically, the very spending differences that initially attracted them to each other become the source of contention.
Incidentally, when two people of the same spending orientation marry (two spendthrifts or two tightwads), they generally have a much happier marriage. Not surprisingly, couples comprised of two tightwads are the best off, financially speaking.
Pain of Paying Cash
One of the first things that came to mind when reading these studies was the pain of paying with cash. Recall, one study indicated that participants spend 12-18% more when spending plastic money compared with paying with cash. The data from the fast food restaurants suggests the number may be as high as 50%. It is no wonder why debit and credit card machines are so ubiquitous now. Clearly, the ability to use plastic money affects our spending behavior. In exploring the mechanism behind this, researchers found that some individuals actually experience pain when they are forced to part with dollars and that this pain is diminished (blunted) when using plastic money.
In light of the insula research, I now suspect that the operative phrase is “some people.” I wouldn’t be surprised if they performed a subgroup analysis, they would possibly find that a disproportionately high number of people that experienced pain when paying for purchases with cash are tightwads. That certainly is in line with what the insula research has shown thus far: tightwads derive some degree of pain from spending. Moreover, the potential implications of the insula research are particularly interesting for the spendthrifts: suppose aberrant insula response predisposes spendthrifts to not experience the “pain of paying cash.” Obviously, they have little to no qualms utilizing debt (recall they are indeed three times more likely to be in debt than tightwads), so it is not a stretch that perhaps they may not have the same apprehension to spending their paper money either. If this is true, what other contrived checks and balances commonly used to keep our finances in order are not particularly suited spendthrifts? The possibilities are truly endless. This is why in 4 things to stop doing with your finances, we discussed the importance of recognizing the biological etiologies for poor financial behavior.
Of course, it is unclear whether the pain experienced when paying with cash is indeed the result of insula.
Closing Thoughts
Perhaps the biggest challenge in reviewing this literature is my concern that spendthrifts will disavow all responsibility for their financial decisions because of purported biological predispositions. Clearly, the origins of our behavior are multifactorial, so there is no one cause for all misbehavior, regardless of whether exploring biological, psychological, or other origins implicated in spending orientation. For instance, research has also shown that smokers with damage to insula have disrupted addiction to smoking: they can “quit smoking easily, immediately, without relapse, and without persistence of the urge to smoke.” Clearly, this finding doesn’t mean that smokers with normal insula have an inability to quit. Likewise, spendthrifts with low insula must similarly find means to reign in their spending too, regardless of their biologic proclivities.
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Reader Questions: Given what we have just discussed, should tightwads be celebrated for what comes naturally? In contrast, should spendthrifts be vilified when they are suffering from an insula deficiency?
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Very interesting post Roshawn. Implications are numerous, from marketing to taxation, from home buying to national debt.
At the end of the day, it is about understanding our difference; however, you bring up a great point. There are numerous implications. It is just a matter of time before someone does exploit our biology (yet again) in order to better market something to us.
To me this is a tricky area. I think there is an in between. I have no problem on spending for what is important to me. Sadly, some tightwads live unhappy lives because psychologically they have a problem spending. I had a single lady client once who was an executive at Oracle. Her car was constantly breaking down and yet she was in a position whereby she could easily buy 3 new cars without blinking. Convincing her to buy a new car which she ended up thrilled with was an accomplishment!
On the other hand you won't find me loaded down with popcorn and candy at the movies. I bring in my own munchies!
Agreed. This is definitely a slippery slow indeed. I do think your client would be happier as a spendthrift, but she would also likely have some financial challenges. There's definitely an in between: the in between are the unconflicted, which represent the majority of the population. I think the challenge is sometimes we consider everything to be the result of how we are socialized, and now here's a potential biological explanation that adds texture to the already complex issue.
Extreme behavior at either end of the spectrum is bad. I wonder if this label is true across the board or depends upon the item being bought? For instance it pains me to a great extent to pay a library fine even if it amounts to pennies! For other expenses, I won't go overboard, but at the same time won't be too miserly.
It definitely depends on the items being bought for many individuals. We can rationalize so much. I would suspect that purchases that are deemed more valuable to us, for whatever reason, will somehow find a away to override this natural inclination. It's just a thought, but honestly this area is ripe for future research.
We are both tighwads. 🙂 I definitely spend less when I use cash rather than plastic. It's too easy to swipe the card and I barely hesitate to use it. When I pay with cash, I am much more conscious about how much is leaving my wallet. I'm glad the Mrs. is not a spendthrift.
I understand. I don't know if we qualify. I'm sure some would refer to us as tightwads, but then others would probably say we're not frugal enough (I know we're more frugal than most for whatever that's worth). I agree with you regarding paying cash and can concur that a frugal spouse is a beautiful thing.
Interesting stuff Roshawn. Re: marital bliss…I always joke to my wife, as she's naturally very frugal, nay 'tight' with money that she should take care of the pennies, while I'll look after the pounds! We make a good team like that.
Thanks so much Drew!!!!
That sounds like a good team indeed. It's cool how wives are often more frugal in millionaire household, so you're in VERY good company.
I think that even though this is partially biological, it can be contained or subverted by whomever is spending too much, as long as they figure out what they are spending too much on
Jeff, I definitely agree. Since this isn't new biologically but newish to our awareness, I know that countless people have somehow gotten through these natural "urges" to spend before. Somehow they made it, so this definitely doesn't give any freedom to be reckless.
Paying in cash is always a good way to control spending… more than anything because you notice how many times you get money out so more than anything else you can track the amount going out your account. If you are just putting a card in you don't see the rate money goes out of your account. Using cash leaves a visible trail you can't ignore, which means you force yourself to put your spending at a rate where you want it to be.
I agree. I do think it is because you take notice. That's the really downside of paying with cards so often. You can spend without ever even checking the balances. It is downright scary the damage you can do relatively quickly.
Oh, I love reading studies and science and how our bodies interact with our lives. Great post!
In my opinion, I think we are all a bit of both and we lean more to one side than the other. We have all gone bonkers on a purchase and we have all missed out because we were frugal with something. It's more about balance than eliminating one or the other.
Thanks so much!!!!!!
That's really good. We're somewhat duplicitous (double-minded). Hmmm, this reminds me of the regret point that I made earlier; however, what I am curious about is that how many of us are "both" because we're relatively unconflicted. These are definitely the majority of the population, so I wonder if the unconflicted are the real ones that are both.
I would say they are. If you are in balance you don't feel stress or conflict. If you spend and save at the same time, then you will feel in balance.
Yeah, that makes sense.
Well, correct me I am wrong but I seem to recall that a lot of behaviour has biology behind it. This doesn't absolve us from responsibility – although the tendency may be there it can be moderated. I am a rather extreme extravert but have learnt to control the urge to talk all the time (but still draw my energy from outside) – it suddenly hit me that we were given two ears and one mouth for a reason :). Interesting research though.
This is true, and yes you are right biology doesn't usually absolve someone of responsibility. However, there are exceptions to be made. For example, if someone is out of his mind and commits horrible crimes, we get that person help rather than holding them accountable. I know this is more chronic, but one could make the same case for mental illness. I know bipolar people go on huge spending splurges, and their disorder has a pathological root, so my point is sometimes we need to address the biology and then take care of the finances (or do them simultaneously if possible).
I didn't know you were an extreme extravert. That's really interesting!
Yes, I agree – as a predisposition. There are 'clinical' cases. As to extraversion you will get this one when we meet (which I am sure will happen somehow). I need a scene and admirers (I was telling a frind that I am like the vain guy from The Little Prince – there is always another admirer) – well, this is a joke but only just. Have a good weekend, Shawn (I am celebrating Easter this weekend and flying to Sweden).
Sounds great to me. I think you can put that need for an audience to good use professionally. BTW, have a Gr8 weekend!!!
And I do, fried, I do! 🙂
Yeah, there are just so many people with the opposite problem, this trait is really desirable.
interesting research and discussion of the implications. I found during a hypnotherapy session that much of my spending and eating patterns relate to some early positive stimuli rom these activities.
Thanks Joe!!!! That's funny. Thanks for the laugh!!!
Wonderful, as always! My husband and I started our marriage as opposites, although moderate ones (I was a moderate tightwad, he was a moderate spendthrift); marriage has converted both of us into hard core tightwads! I guess we're conservative with our money and liberal with our politics, which is totally random and doesn't make much sense…
Thanks so much Elizabeth! I hope people are fiscally responsible regardless of what side of the political aisle they come from. I find it interesting that you have helped your husband find his inner-tightwad. That's sounds like a really interesting dynamic.
I agree with retireby40 that it's much easier to spend with the plastic. I normally pay by cash. It keeps my emotions in check. I use credit card as a last resort of for business spending only.
That's sounds like a great plan: to make it easier on yourself to suppress the natural urges to spend more with plastic.
I think it has more to do with what you were raised with than anything naturally occurring.
Environment versus biology: the eternal conflict. I think our money personality is likely multi-factorial. I would suspect that spendthrifts who have undergone bankruptcy that possess a true awareness of the circumstances that led there and that experienced trauma from that event would not rush to go back there. Sadly, I'm not sure the data support this suspicion.
Never thought before about the "biology" impact. Would this be genetic? I suppose so if it is "biology". I just hope people will not start using it as an excuse "sorry, I spend my last dime again… but I can't help it you know, it is in my genes… can you borrow me some more?". I think that will power triumphs biology in this field.
they describe it as a "neural" factor; however, they never specified the type of biomolecule, so I could speak in more specifics although I did look before I even published the post. I agree will power is definitely key, and just because you may have different challenges due to biology, this doesn't differ from many other things, such as being overweight. One can learn to deal with a natural tendency to put on weight in undesirable places.
Interesting – I went from getting a lot of pleasure spending money to someone who finds it painful. I think my "natural" inclination is spendthriftery, but I'm not 100% sure, as that may have been a reaction to growing up without a lot of spending money and not being allowed to have a job, to graduating from college and suddenly finding myself with a decent paycheck. Years later, in more financially tight times, my youthful spending indiscretions make me cringe.
This is interesting. It sounds like your hypothesis is that your nature is the same, but your environment caused you to "rebel." That's absolutely fascinating. Environmental pressure can definitely affect how certain traits manifest or are suppressed. Thanks for sharing!
I wonder if two spendthrifts would really find marital bliss. Eventually, the lack of money might well foster discord.
Agreed. I don't really have anything to add there. They will be broke and happy, but for how long?
Very interesting study! My husband and I are both tightwads… and it works out quite well. Neither of us enjoy shopping, but we compile a "shopping list" at home – and then eventually get around to buying those items. Price is always on our mind though.
This past weekend I went shopping with my mother-in-law… and came to realize that she is of a very different mindset than my husband and I. We went to buy some fresh jumbo shrimp. The store had jumbo shrimp advertised for $19.99/lb… and "large shrimp" for $10.99/lb. My instinct was to go with the large shrimp since it was almost half price… and close enough to the "jumbo shrimp" we were there to buy. My mother-in-law didn't hesitate, and immediately requested a bag of the jumbo shrimp! I was blown away.
This is great to hear. This is like a wonderful series of case studies. That's so very interesting. I definitely have people in my family like your mother-in-law. If it wasn't out of concern that some of them may wander onto this blog, I would be more specific. I think my wife and I would be like you. I wonder if that makes us tightwads… I am still unsure. Sometimes, I think I rebel against my own nature. I am happy it is working out for you though, and I guess you have to be careful not to do too much financially-meaningful shopping with your mother-in-law. LOL!
i can certainly agree to this. I am the tightwads and it was great when it can to little things and having some one pull you do to things you were not comfortable with. But when car purchases and homes come into the picture as will as savings then come the problems. Not saying that things can't get better but its a struggle.
I definitely understand. The big purchases seem to cause the hiccups (contention). I can understand a spendthrift saying "how can I be in an "inferior" car for the next X years? Why do we have to suffer so much?"
Such an interesting text! I've never thought that our financial behavior could have some biological reasons as well. It could explain my overspending habits, so it's not my fault, it's just the nature's law which I cannot resist:)
Haha Anna. I definitely found the research intriguing as well. While it may not be our "faults" that we are wired a particular way, it is still our responsibilities. Fun comment!
There has to be a balance. Being a tight wad can make you lose money. Not being able to spend money to ease your workflow can make you achieve money slower than you could have had you delegated or invested in someone. Balance is key.
Fascinating post Roshawn! My wife is a spending opposite, but we are opposite in many other areas as well. I always thought opposites attract. I'm curious about your comment that two partners of the same spending type are happier. I'm sure they have less conflict on finances, but could things get boring in other areas?
Thanks Buck!!! Opposite do attract; however, I think it largely depends on how the couple interacts with each other about those differences (i.e., respect versus contempt and resentment). All I can say is sometimes "boring" to one person can be "peaceful" or "zen" to another. It's relative. After some relationships, I'm sure some people are praying for a little bit of boredom 🙂 LOL.
Money personality is indeed true! This is sometimes called the financial blueprint. Just like any other characteristic, the main contributor are the parents who influence their children with leading by example. The good thing about this financial blueprint is the fact that with strong conviction it can be enhanced/changed.
Yes, I'm familiar with financial blueprints. I find literature on this subject to be particularly interesting. I think often we don't think about the role biology can have on our personal finance behaviors. It kind of adds a layer of depth to a topic that is often handled relatively superficially.
Interesting research and discussion of the implications. I found during a hypnotherapy session that much of my spending and eating patterns relate to some early positive stimuli rom these activities.
[…] simplistic to presume that money doesn’t influence happiness. For example, it is a fact that there are psychological and biological (including dopamine and insula) rewards associated with spend…, particularly if you are a spendthrift. However, we also know not all purchases are created equal. […]
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