It’s called the framing effect. We view money differently depending on the source, and what is even more interesting is we generally aren’t even aware that we are doing it.
Imagine you are walking down the street, minding your own business, when you happen to look down, and there right in front of you is a $10 note. You look around to see if you can see anyone who might have dropped it. No one is there so you pick it up and pop it in your pocket. You are probably thinking “this is my lucky day; I’ll go and buy that magazine I was looking at”. This is the framing effect in action found money you can spend on anything you want.
I can still clearly recall receiving my first week’s wages when I started working as an 18 year old. I was so excited; I had never had that much money at one time. I went out and shopped and spent most of it. My prize purchase was a beautiful white sheepskin rug.
I was brought back to reality with a thump when I got home and my mother asked me to pay my weekly board. You see I was spending as if the money had been given to me by my grandparents for my birthday; it didn’t matter what I spent it on. I know now that this was my first experience of getting framing wrong.
I quickly learnt that you allocate your wages carefully to the things that need to be paid first like board or rent, closely followed by food, transport and so on down the list, and if there is anything left over that’s the frivolous bit. I had re-framed my perception of my income as being something that needed to be spent carefully.
Our hard earned savings, well we only dip into that if it is an emergency.
When you receive the unexpected bonus, tax refund or an unexpected win, the temptation is to spend it. We weren’t expecting it; we hadn’t allocated the money to anything specific (unlike our salary or savings) so we aren’t really going to miss it if we spend it.
If you feel yourself thinking like this, stop and ask yourself,
If this was my salary would I still buy this ??? (insert your own word here)?
Is this something I will value tomorrow and have no regrets buying?
Psychologists aren’t the only ones who have studied framing. Advertisers also understand it very well and use it to help us with our decision making; we think we are being rational, but maybe we aren’t.
Let me take you to the supermarket. You are in the meat department and there are two packs of steak and you are trying to choose which one to have, they both weigh the same but the one labelled,
“75% lean” and the other labelled “25% fat”.
Which one would you choose? This question was asked in a study about framing and most people choose the 75% lean, it sounds healthier and more positive than 25% fat. But if you think about it both packs are exactly the same.
What if the 75% lean was more expensive than the 25% fat, would you still buy it? Quite possibly; particularly if you are prepared to pay more for ‘healthy’ food.
If you are like me, when I am racing round the supermarket I don’t study every label and price in detail so you may not even notice the framing and that both packs are exactly the same.
Another way that framing can catch us out is thinking in terms of percentages rather than $.
I have done this myself without realising. I have driven to a shopping centre 40 kilometres out of my way to save $5.00 on a $20 set of mixing bowls, and given myself a pat on the back for saving 25%. But I couldn’t be bothered to drive into the city (20 kilometres away) to pay $190 for a dress when my local shop had the same thing for $200 it wasn’t worth the effort to save 5%. Hang on, if I do the maths, isn’t 5% of $200 $10.00? My logic doesn’t look quite so logical now.
The moral of the story is to slow down and think a little more carefully before you spend your Christmas bonus on a new TV, when you could pay off that credit card, or reduce your mortgage.
Take a bit more time when you think something looks like a good deal, is it being framed to make you think that way.
Do the maths when you are looking at % savings, convert it to $ and see if it is worth your time and effort to go the extra distance or not.
Lynda Moore http://www.mymoneyseeker.com