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By Michael J. Wiener
In his book Tightwads and Spendthrifts, marketing professor Scott Rick promises advice for “financial aspects of intimate relationships.”
What got my attention early is that his guidance “is rooted in rigorous behavioral science.” Applying the scientific method to human interactions is challenging, but it is generally better than relying on opinions. The book gives useful insights into how people think about spending money.
The introduction gives a four-question quiz designed to place the reader on a scale from 4 to 26. Those at the low end of the scale are called tightwads, and those at the other end are spendthrifts. Roughly half the respondents fell in the middle third of the range and are called “unconflicted consumers.” Most of the book deals with tightwads, spendthrifts, and their interactions; little is said about unconflicted consumers.
Demographic differences
Extensive surveys revealed some interesting demographic differences between tightwads and spendthrifts. “Tightwads are slightly older than spendthrifts,” but it’s not clear why. Do people become tighter with money over time (perhaps from getting burned by debt), or are there differences between generations?
“Women were somewhat more likely than men to be spendthrifts, and somewhat less likely than men to be tightwads. Tightwads were somewhat more likely to be highly educated, and they tended to opt into more mathematical majors, such as engineering, computer science, and natural science. The most popular college majors among spendthrifts were social work, communication, and humanities.”
How tightwads think
Being a tightwad is not the same as being frugal; “the highly frugal love to save, and tightwads hate to spend.” “The highly frugal are generally much more at peace in their relationship with money than are tightwads.”
It might seem intuitive that people are the way they are because of how much income they have available to spend, but “in survey after survey, we find no income differences between tightwads and spendthrifts.” However, “tightwads have far more money in savings and significantly better credit scores than spendthrifts.”
Having higher savings “offers no guarantee that tightwads feel financially comfortable. Subjective feelings of financial well-being are only loosely related to objective aspects of financial well-being.” For many tightwads, financial “anxiety stems from economic conditions early in life.”
Tightwads tend to think in terms of opportunity costs when considering spending some money. In one experiment where some participants had opportunity costs highlighted to them and others didn’t, “spendthrifts were twice as likely to buy the cheaper option” when opportunity costs were highlighted. “This framing did not influence tightwads.”
While tightwads spend less than spendthrifts in almost every area, “the amount of money both types had donated to charity was the same.”
How spendthrifts think
“Spendthrifts report high susceptibility to shopping momentum and what-the-hell effects. They commonly report going to buy one thing, then getting carried away.” “Spendthrifts are significantly more impatient than tightwads.” Interestingly, spendthrifts tend to understand these facts about themselves, and are not surprised when they later regret their purchases.
“Spendthrifts and compulsive buyers might spend similarly on any given shopping trip, but their underlying psychology differs significantly. Spendthrifts do not appear or report to be driven by anxiety management or mood repair.”
“Spendthrifts score slightly lower than tightwads on a financial literacy quiz.” However, Rick says that this is not a defining difference between tightwads and spendthrifts.
Is “spendthrift” an oxymoron?
The word “spendthrift” appears to blend contradictory elements: spending and thriftiness. However, “thrift here is used as a noun — meaning ‘savings ’— as it was in the seventeenth century. So spendthrifts are traditionally defined as people who recklessly spend their savings.”
Compensating for financial tendencies
Rick offers ways for tightwads and spendthrifts to compensate for their feelings about money. The first is to change “payment salience.” The book offers ways for tightwads to feel the pain of paying money less, and for spendthrifts to feel it more (e.g., by using cash more often).
Tightwads can reframe high-end purchases to think of them as a means to get high quality items. They can add a line item for indulgences into their budgets to make spending a “to-do” item. They can also reexamine their finances to confirm that all is well and, hopefully, reduce financial anxiety.
Spendthrifts can be mindful of opportunity costs, try to delay spending (e.g., sleep on it), and set saving reminders for themselves. Interestingly, spendthrifts might understand “better than tightwads” that “the excitement that comes with a new product usually fades over time,” but this knowledge doesn’t appear to help them reduce spending.
Relationships
When we consider marriages among tightwads and spendthrifts, but not including any “unconflicted consumers,” 58% are between a tightwad and a spendthrift, and only 42% are between two people at the same end of the tightwad-spendthrift scale. “We tend to marry people who share characteristics that we like in ourselves. However, a key insight about tightwads and spendthrifts is that they do not particularly enjoy being tightwads and spendthrifts.”
Although some prominent people who advise their followers on personal finance topics consider any money secrets between spouses to be “financial infidelity,” Rick thinks there is room for a small amount of secrecy as long as it’s not the cause of financial shortfalls. How much secrecy is desirable or tolerable probably varies from one couple to the next.
“Latte factor myth”
Rick adds his two cents to the endless debate on whether we should engage in small indulgences by siding with those who say it’s fine to buy expensive coffee. Like most others, Rick approaches this debate as a binary choice: lattes are either universally good or universally bad. Continue Reading…
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