Imagine a book that tells you all the wrong things that majority of people do with their money. Imagine that the daily discounts that you’re seeing in the stores are not really discounts at all, but they are there to trick you into thinking they’re discounted when they’re actually the normal price (Kohl’s, JC Penney, anyone?) Imagine that you’re buying a house and the builder is trying to tack on add-ons. Want a wooden floor? Sure, it’s only an additional $2,000 on your $500,000 house, and you think “what a deal!”

Dollars and Sense Book Review by Dan Ariely & Jeff Kreisler

These things are the irrational thoughts we think of whenever we are confronted with money and spending it. We tend to compare the same items and think of discounts and deals instead of what else we could possibly use with the money. An example: Oh, a $50 jacket, 50% off the original price of $100, what a steal! Instead of: for $50, I can buy a one-way ticket on an ultra-low cost carrier (Spirit, Frontier, or Allegiant) from my current airport to some other destination. Which should you choose?

What should we spend on and what can we do to curb spending?

We get so confused when thinking about money, that we think about it a lot. I know I do – as I utilize deals and other ways to save on money as part of our journey to financial independence. We think about it so much that we sometimes deprive ourselves of the joys of life. After all, we enjoyed a little bit too much in the early stages, why not deprive ourselves, right?

The book looks at people’s irrational behavior when it comes to money: how expectations can make you believe that you are enjoying a product more and be more willing to pay more for it: i.e. if you drink wine from a coffee mug, it’s not the same feeling of satisfaction you get as drinking from a fancy glassware and you’re more willing to pay more for the experience of drinking from the fancy glassware.

Another behavior is we feel the ‘pain’ of paying. We don’t like paying for things, period. If something was ‘free’ and they changed their model to a paid one, we refuse to pay anything extra because we’re used to paying for ‘free’. We’re also facing irrational behaviors when we hire someone. If a locksmith comes over to our place, and he asks for $200 for a 5 minute job, we think it’s not worth it.

Same for saving – a lot of people find it hard to think of their future selves because they think they can always save more in the future and just spend and enjoy their money today. After all, the future is so far away, right?

So what do we do to avoid our money irrationalities?

First off, we have to recognize that most of our money irrationalities are actually habits that we formed. To break a habit means that we have to make a new habit, a better one than the bad ones we have (see: Charles Duhigg’s Power of Habits book). We should also recognize to reward ourselves to counteract thinking about the future.

As an example: if I go to the doctor, I make it a point to go to the Walgreens beside my doctor’s office afterward and buying a little treat. That makes me more motivated to go to the doctor’s office and do the annual physical checkups because it will make me healthier in the long run. I don’t really want to go to Walgreens, but the mere thought of going to Walgreens and picking up a $5 treat is more than enough to make me happy.

Same for the dentist’s office: whenever I do my quarterly treatments, I go to the library after and pick up a book or DVD. I reward myself by going to the library after a job well done of sitting through all the drilling noises that I hear.

Thoughts about the book

This book is great – not only does it show you how retailers actually ‘work’, it exposes your money habits as well. Most of the examples above came from the book, or inspired me to look into my own life and think about what other bad habits I have that can help with financial independence.

It’s published in 2017, so most of the examples are fairly relatable, but the part on how to overcome these bad habits is still up in the air. The authors did mention that since we are in the ‘new’ age of information now, they are suggesting multiple apps that can help fight the urge of spending and monitor your transactions in a more real time way. Tech-savvy people can partner with finance people and maybe deliver on the solutions that one needs to address the problem with financial literacy (and temptation).

This book should really be picked up and read by most people. It is a good wakeup call on how marketing works, and how you can also fix your finances so that in the future you could retire comfortably (maybe even early).

If you’ve read this book, what do you think?

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