Why finding £20 doesn’t make up for losing a tenner
MARCUS BERKMANN
AS SOMEONE who has been broke for as long as I can remember, I need this book. In fact, the only way I could need it more would be if its pages were hollowed out and filled with banknotes. That really would be helpful.
Small Change is subtitled Money Mishaps And How To Avoid Them and is aimed squarely at those of us who thought we had a spare fiver in that trouser pocket and turn out not to.
They start with gambling. Don’t do it, at all. You won’t win. No one ever does. The authors tell a terrible tale of a man who went to Las Vegas with $5, and through extraordinary luck increased this over a weekend to $300million. Then he bet the lot on the turn of a card and lost. When he got home he was asked how much he had lost and he said $5. This is the gambler’s mentality: self-denial to the point of mental illness.
Dan and Jeff are excellent on the pain of paying for things. Jeff goes on honeymoon and pays for the whole thing upfront. He has friends who go on the same holiday and pay for things as they emerge: drinks at bars, meals at restaurants, absurdly expensive deckchairs on beaches. They probably pay less than Jeff and his wife do in the end, but the agony of constantly having to cough up ruins their holiday.
The best way to stop buying stuff, therefore, is to increase that pain. Dan and Jeff talk of ‘salience’, which is the grown-up term for awareness of something — in this case payment. Paying with cash has built-in salience. We hand over the notes, and we get only coins in change, so we know that something has cost us. Credit cards have much less salience: we’re putting off paying until much later, so we can forget about it. And digital payments have barely any salience at all.
Have you ever bought anything off the internet late at night when slightly drunk? Were you at all surprised when the delivery men turned up with a sofa three days later?
We value gains and losses differently, to the extent that if we lose a £10 note, the pain of doing so is about twice the pleasure we’d get if we picked up £10 on the street. In fact, the pain of losing £10 is equivalent to the pleasure of finding £20. Bonkers, if you think about it.
People value effort over expertise. A locksmith tells them that, when he started out, he took for ever to open a lock and often broke it in the process. He charged for the parts as well as his standard fee — people were happy to pay it and tipped him freely.
As he became more proficient and opened a lock quickly without breaking it, customers not only didn’t tip, but argued about his fee.
To whom do we turn for guidance in times of doubt and uncertainty? Dan and Jeff reveal that the person we trust the most is … ourself. They give countless examples of people making terrible decisions based on little more than a personal whim.
There’s some sound advice here, a lot of it cheerfully counter-intuitive. You won’t make any money from reading this book, more’s the pity, but it could turn out to be the most sensible £16.99 you’ve ever spent.