1 In the space of 50,000 years, we've gone from the Stone Age to the Computer Age by using this strange wrinkly-shaped blob inside of our heads. While you can update your smartphone, you can't update your brain. And because money's a pretty recent concept ` it's only been around for a few thousand years ` we don't have a special part of the brain for dealing with it, which is why money is so difficult for us to get our minds around. In this series, we'll explore the psychology behind the decisions we make with money. I say, 'This is how much I can spend this week,' and every week, I blow it. We'll find out the things we do that make no sense. So, you went for the $5 now? Yeah. And the things that simply make us human. Do you have a savings plan? In a word ` no. And hopefully we'll find a way to work with our Stone Age brains so we can understand why we all get a bit weird with money. Copyright Able 2017 Why do people get weird about money? I think people get weird about money because you're afraid of offending anybody who maybe doesn't have it or calling out somebody who does. It's almost one of those last taboos that you don't really talk about money. What would it feel like if someone came up to you and started asking you how much you make? Yeah, that would make me... a little bit, um, apprehensive. I wouldn't like to tell them how much I've made or even my yearly salary. It's just uncomfortable, and it's kind of a little bit weird that people ask that question. If you're too poor in their eyes, people say, 'Ooh, you're too poor.' And if you're too rich, they think, 'Ooh, you're rich.' So it's best not to say anything. Dealing with money is often difficult, boring and stressful, and maybe that's because we kinda don't know what we're doing. It's a very different feeling from when we're cruising along in our car, free and in control. But the truth is even in this moment when we feel free, everything is completely controlled. We have to memorise this entire book of rules, and then they test us on it to see if we've learnt it all, and if we pass, then we get a licence, but they can take that away at any time. Then when we're on the road, there are reminders of all the rules that we've learned. Just in case that's not enough, there are people to take money off us if we break any of the rules. And we accept all of that. We want it because we know that's gonna stop some people from doing the dumb stuff that would either hurt themselves or hurt the rest of us. But here's the strange bit ` even though we have all these rules about driving, there are no rules around what we can do and should do with our money. We have to pay taxes, but apart from that, we're left to our own plans. And our Stone Age brain has only had 3000 years to figure out money, so it's often not so good with the making plans bit. Todd is an accountant ` a really good one. Are you good with money? (CHUCKLES) It's embarrassing. Professionally, yes. Personally, no. And you'll find that with so many professionals. We're really good with other people's things. And for the last 15 years, that's been my job ` to make sure everybody else is good with money. I know what I should be doing. I know that I shouldn't spend more than I earn. I know that I shouldn't rely on credit cards. I know that everything should be paid off every month. That's the paradox. You do astoundingly complex things with money in your professional life that I wouldn't even begin to understand, but in your personal life, just like the rest of us, you don't always make the best financial decisions. I've gone into a store and looked at something and gone, 'You know what? I want that.' And then the next day I've gone, 'Oh God, what did I do that for?' And Todd isn't alone. We all do our own weird stuff with money. How do you make sense of the fact that humans are amazingly clever and we've done all these amazing things and built amazing things, but we're just not good with money at all? As a professional, I can be very analytical. There's no emotion in there for me. It's not my money. I can look at it and weigh up all of the pros and cons. There's no emotion. But when it's personal, there's feelings attached to that, and I actually want to act on those feelings. I know that I shouldn't do it, but it feels good, and I'd like to do it. How would you make yourself better with money? (SIGHS) It's really, really tough, because I know everything that I should be doing. It's just the satisfaction of not doing that with money seems to be so much more. So we've got to figure out, somehow, how we can change our relationship with money, how we can change that emotive feeling to help actually make a rational decision. But we're not rational at all. And I'm gonna try an experiment I think will show that. I've got myself a bunch of wallets with fake IDs and $50 cash, and I'm gonna drop them on the street. Now, if human beings were economically rational creatures, I should never see these again, because why go to all the trouble of returning them when it's the easiest $50 that you'll ever make? Oh. Thank you. Oh. I seem to be surrounded by completely irrational people returning my wallet for no financial gain whatsoever. Oh. Thank you. Let's try somewhere else. Maybe the people round here are a bit more interested in $50. I'll drop six of them around the place. Inside is a fake name and a real number to call. (CELL PHONE RINGS) Hello. All six of my wallets are returned. Humans are obviously not to be trusted with money; they keep returning it to strangers. So why are we like this? When it comes to money, we're supposed to be logical and rational, but there are actually two sets of money rules that we operate under. The first is the logical and rational ones, and the other are the strange things that we do as humans. If you mix up those two sets of rules, you're probably gonna act a bit weird. When you're invited to a dinner party, it's often considered polite to bring a little something for the host. So, I was gonna bring a bottle of wine, but I ran out of time, so I thought I'd give you the $14.95 in cash instead. So that's... 'From a financial point of view, what I'm doing is logical, 'but we all know I'm breaking the unwritten rules of society. 'These rules often affect how we deal with money.' ...70. And we'll just round it down. 90. They say there's no such thing as a free lunch, but if you're not concerned about looking weird, there really is. So, are they, uh, free, uh, samples? Absolutely. Help yourself. Again, what I'm doing is financially logical but something that makes most of us feel a bit uncomfortable. And imagine if we were completely rational from a money perspective when we were choosing who to settle down with. Blowtorch tuna sounds quite nice. Do you`? Do you have any savings? It makes sense to find out if someone is financially aligned with your goals. And why wait until it's too late? It's logical to work that stuff out on your first date. So maybe just get you to run through, uh, some forms. This one is earning potential, so things like... 'I think it's fair to say we're not the cold, calculating, emotionless people 'that economists think we are.' And this is just a general money quiz, so things like 'What's a compound interest?' and whether it's best to float or fix your mortgage. So I'll just` just leave you to get started with those. If we can understand our flaws ` flaws like our love of chocolate and our love of revenge ` I reckon we can be better with money. So, are you gonna accept the deal or reject the deal? 1 We're beginning to discover our brain may not be the best one to be looking after our money. In fact, it often works against us. In this experiment, we're going to try and figure out why we're happy or why we're upset when we get a bill. Hello. Kerry. How are you? Good. Dave. Good. Nice to meet ya. Kerry needs her lock changed, and Dave the locksmith could do it in 10 minutes, but for us, he's going to take an hour and make it look really difficult. How's the lock coming? Uh, bit of a bugger, this one. It's a bit hard. Yeah, these locks are quite tricky, but, um, we'll get there. OK. (CHUCKLES) Just takes time. All done. Sorry it took so long. Just a bit of a tricky one, that one. All right, Kerry, so, that took about 55 minutes. What was the bill? The bill was $129.37. And does that feel like a good rate for that amount of time? I mean, it did seem like a pretty tough job. It did seem like a tough job. The locksmith actually mentioned that throughout his work today. I'm quite happy to pay that amount of money for that amount of time. So, it felt like 55 minutes, quite a hard job, that's a reasonable rate. Yes. I feel happy. Now Sarah needs the same thing done. This time Dave is his expert efficient self and gets it done in just over 10 minutes. Hi, Dave. Hey, Sarah. Here's your keys. All done. There's your invoice. You have any problems, just give us a call. Thanks. Cool. OK. Have a good day. Bye. Thank you. So, Sarah, how much did that job cost? It came to $129.37. And that was about 14 minutes and 40 seconds, or thereabouts? Yeah, give or take. Does that kinda feel like good value for money for you? Uh... (LAUGHS) Honestly, um, a little expensive, but I needed the keys done, so... Why does it feel expensive? 14 minutes. $120. But there are keys and labour, service call, so it does break it down, which is really good. We don't know how to evaluate Dave's locksmith skills and a lot of other services we pay for, so instead we base our judgement on something we all understand ` the sweat and toil that went into the work. For Kerry, Dave acts like an unskilled locksmith, and Kerry is happy. Now, if I said, uh, that Dave could actually have done that in 10 minutes, but he faked it to make the time spin out... If you'd got a $129 bill for 10 minutes' work, how would you have felt then? That might have been a little bit different if it only had taken 10 minutes. So probably would have felt a little bit, like, short-changed, if you like, for the amount of money that you pay for the time. And for Sarah, Dave uses all of his experience and knowledge, wasting less of her time, but Sarah is unhappy. The reason we did this experiment is that humans do this weird thing. So, actually what you wanted was a lock put on the door, good quality, good job, all that kinda stuff, which you got, but because it takes a short amount of time, it can't be worth very much. Whereas, if the job took an hour but you still got the same quality at the end, would you have felt any differently? It makes you re-evaluate the cost, and it does make sense, and you are paying for good quality. Valuing a job by how long it takes is clearly not always the right thing to do, but unfortunately, we have other flaws too. We'll deliberately harm ourselves in the name of revenge. Here we've got two people who don't know each other, separated by a wall so they can't see each other. We're giving this person $20 and telling them they have to split it with the person on the other side. Then... this person has to decide if they're going to accept or decline the offer. But if they decline it, no one keeps any money. So here's the rational, logical, economic choice. Take $19 and offer $1. The $1 won't be turned down, because then you'd end up with no money at all. But what do humans do? Vick gave away $17, and of course, Janet accepted this weirdly generous offer. So you decided to go with a super generous offer. You keep $3, and the other person gets $17. Yes. Silvija has kept $12 and given Oscar $8. Take the deal or reject the deal? I'll take the deal. It actually had nothing to do with the value. I would've accepted any amount that they gave me. I don't know the other person's situation, so I don't know if they need the money more than I do. Richard has kept $11 and given Claire $9. So, you're gonna accept the deal or reject the deal? Yeah, I would accept that. Even though that person got, like, $1 more? That's all right. If you were to try to really push it, what would you've pushed it to? Kept $15. Kept $15. Wait right here. If he'd kept $15 and given you $5, would you have taken the deal or rejected the deal? Absolutely not. I would've rejected it. Rejected the deal. Yeah, turns out that was quite a good decision. (LAUGHS) And next, Patrick decides to do exactly that ` keep $15 for himself, leaving only $5 for Leanda. Will Leanda accept this unequal offer? Now, based on the fact that you've got $5, are you gonna take the deal or reject the deal? Reject it. Revenge. Leanda rejects the deal to get revenge on Patrick for putting himself first. He gets no money, but she also punishes herself. She gets nothing. What was your thinking there? Oh, I was kinda thinking that some money's better than no money. Basically, you know, if you take $5, you get $5 more than what you had when you started. Experiments overseas have shown that when someone's offered less than about $7, they generally reject the deal. All of which points to the undeniable fact that our emotions play a significant role in our financial decisions. But if we really want to get a handle on why we're so weird with money, we have to understand how our brain works. All of us tend to operate with two kinds of thinking ` fast thinking and slow thinking. Fast thinking is that instinctive gut reaction stuff, and it's good for, among other things, smashing a tennis ball into oblivion. (HIP HOP MUSIC) (CLANG!) Clearly, I'm not very good at the fast thinking elements of things like tennis. Perhaps I'm more suited to slow thinking, which is better for solving complex problems like investing money and plotting revenge. The problem is that slow thinking takes a lot more energy, and so our brains are always trying to save energy by sliding in some fast thinking. Here's an example ` and I apologise for making you do maths ` if a racquet and a ball together were worth $1.10, and the racquet was worth $1 more than the ball, how much does the ball cost? Now, if you think the ball's worth 10c, you're wrong, because if this was worth 10c, this would be $1.10 and together they'd be $1.20. In fact, the ball is worth 5c, which makes this $1.05, and together, $1.10. And next, a little nudge in the right direction can solve our financial problems. (LAUGHS) Oh, hey, Leah. 1 Procrastination with money is a super common problem, and it can end up costing you. Leah is a procrastinator. She puts off her ironing and ends up using hair straighteners as she rushes off to work. Behind me here is our spare freezer, which we've known we've had to defrost it for a while, but I just keep avoiding it. It doesn't look so bad. Well, it's taped together. Can I have a look? Y-Yeah. (LAUGHS) See, even I look at that and go, 'Whoa.' See, that's` I don't even know what that is. And the main thing Leah procrastinates about is paying her bills. I'm a bit useless at paying off my credit card, so that sort of builds up without me knowing that it's building up in the background. And then I` it's not until I get a monthly statement that a little panic goes through me and I then transfer most of the money that I have to my name to it and can't afford to then get through the week, so then go back to my credit card. (CHUCKLES) Her procrastination is costing her money in lots of ways. I recently had a supermarket voucher that I had sitting in my drawer, and then I knew it expired at the end of the month. Got to the last day of the month, and I panicked, pulled it out, and it expired the day before. I've got this dresser and bedside table that I recently took out of my bedroom and I know I can get money for on Trade Me, and it's sitting there for, uh, four months now. And worse ` she always puts off getting her car serviced... (ENGINE TURNS OVER) ...and getting petrol. Leah's in trouble, and I wanna help her with the Nudge Unit. It's my hand-picked undercover team who'll try to stop Leah's costly procrastinating. Go, go, go. We're ready to do anything at any time to solve the biggest and smallest of problems by giving people a little nudge in the right direction. (LAUGHS) All right, team, so, Leah's problem basically is that she procrastinates a lot. She's got expired vouchers, she's got furniture she hasn't sold, and she's terrible at putting petrol in the car. So, basically, her problem is she procrastinates. We're gonna fix that by solving all of her problems for her and see if that helps. OK, roll cameras. OK, and cue the furniture guy. First, can we nudge Leah into making some money from the furniture she hasn't got round to selling? Hi. Hi. I'm from Nudge Unit Furniture just down the road. Yeah. Quite low on stock at the moment, and my boss is sort of seeing if there's any second-hand furniture you guys might be selling. You know, we're happy to pay for it. We've got cash. How do you feel about that with a matching bedside table? Yup, that could work. What sort of price are you thinking? I don't know. Let's talk numbers. Been put on the spot. 50 bucks? I'd do 75 for both. OK, that's good. Just take both. We'll take both. All right, you got a deal. Yes! (LAUGHS) That's all right. Thank you. Easy-peasy. That's good. This is amazing. After months of procrastinating, Leah is now $75 better off because of the Nudge Unit. And cue the voucher woman. Hello? Hi. How's it going? I'm from the company ` it's 50% for your expired voucher. Yeah, it's a 20. And now Leah's just been given money for her expired $20 voucher. And even though this business makes no sense, Leah seems happy to get something for an out-of-date coupon. OK, that's a go for the mechanic. Finally, can we help her with her car problems? Good afternoon. I'm from Fredco Motors. We're looking for new clients. Offer her a free service. Does, um, your car been serviced or warrant-of-fitnessed? Cos we're offering a free deal for new clients. So, you haven't had it serviced basically since you've had it. I've had it serviced once. All right, that's a go for the petrol tanker. Leah's not finding it unusual to be offered a free service, but we also know that she hates going to the petrol station, so we've brought the petrol station to her. That's good. And now fill her up. Gidday. Hi. How's it going? Good. Gull are doing a promotion, giving away free petrol. (LAUGHS) Is this a joke? Life's a lot easier with your own personal Nudge Unit. It's time to let Leah know that we were behind all of this. Hey, what a great day you're having. Wow. (LAUGHS) So, it looks like you've got all these problems that you keep putting off, and, uh, they seem to have been fixed today, magically. Oh my God, this is so ridiculous. This is, like, the procrastinator's dream, isn't it? It is! Have you ever tried strategies to kinda deal with the procrastination, to kinda get around it? No. (LAUGHS) That's the thing with us procrastinators. Absolutely not. You think, 'I should get around to some strategies 'for dealing with my procrastination at some point. Yeah, exactly. 'Maybe I'll get, like, a book on that or something.' Yeah, exactly. And not read it. Yep. Yeah. Good. I've only ever found one thing that has worked for me. Basically, I tell lies to myself. So if I had to sell that furniture, and I had to do the whole job, I just wouldn't do it. So I lie to myself. I go, 'All right, Nigel, all you've gotta do ` just take a photo of it.' And I go, 'I can do that.' And then I go, 'Well, look, you've done that. 'Why don't you just download them, get them off your phone on to your laptop?' And I go, 'Ohh... OK, I'll do that.' Would that work for you? I could try doing that. Procrastinating is just part of being human. But when money comes into the equation, that procrastination can have serious financial implications. Money isn't just money, sitting there being boring. We project everything on to it. It's about revenge, relationships, procrastination, blood, sweat and tears. The sooner we get that it's not just about understanding stocks and bonds and compound interest but understanding ourselves, the sooner we'll get our mind over money.