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Weird ways our brains control our money habits

By Kristin Wong

For Get Rich Slowly

Published: Thursday, July 17 2014 8:32 p.m. MDT

According to the University: “In five different studies, the researchers gave subjects new or old bills and asked them to shop and spend. In all the studies, people spent more and took more chances with older worn money … ‘Basically, the physical appearance of money matters more than traditionally thought,’ said Theodore Noseworthy, a professor in Guelph’s Department of Marketing and Consumer Studies ….”

They go on about how we tend to think of money as symbolic rather than a product itself. But this study shows that we do see some intrinsic value in money, in and of itself. And this is weird, because a dirty $10 bill will buy you the same amount as a clean $10 bill. We know that, and, somehow, we still value the clean bill.

We can use this knowledge to our advantage when it comes to paying with cash. You might try to only keep new, crisp bills in your pocket, for example. It might seem impractical and silly, but if these studies are any indication, human behavior often is impractical and silly.

We’re less likely to spend larger bills

Similarly, we’re less likely to spend larger bills. Researchers Priya Raghubir and Joydeep Srivastava conducted a series of studies that found when people had larger bills, they were less likely to spend it than people with smaller bills or coins.

But there was an interesting twist: When the subjects did decide to spend money, those who made purchases with large bills spent more, overall, than those with small bills.

It’s actually been coined “denomination effect.” In their paper, the researchers conclude:

“The results suggest that the denomination effect occurs because large denominations are psychologically less fungible than smaller ones, allowing them to be used as a strategic device to control and regulate spending.”

In an article for Psychology Today, researcher and author Art Markman explains that this happens because of how we associate different values of currency. Simply put, small bills remind us of small purchases — like buying a cup of coffee; large bills are associated with large purchases. Our brains make these associations, and the associations affect our spending.

Markman suggests a pretty simple way to use this information to your advantage:

“If you are the sort of person who tends to blow through a lot of money making lots of small purchases, then you should probably avoid carrying lots of small bills with you. … If you are the sort of person who tends to make large purchases on impulse (that is, you are penny wise and pound foolish), then you may want to avoid carrying around large bills. … Instead, you should probably carry around a small amount of money in small bills to keep yourself from over-reaching.”

A lot of this seems ridiculous, right? Our brains should think practically and logically. We should understand that five $20 bills are the same as one $100 bill.

But again, money is more about mind than it is about math. This is why, as silly as it might seem, the envelope method works. It’s why the debt snowball method works.

Often, our brains aren’t practical. They’re weird. Rather than try to deny that fact, it might make more sense to understand it. These studies are always debatable, but a little awareness about human nature can help you work with your habits and develop better ones.

Kristin Wong is a freelance blogger who frequently writes about relationships for MSN’s The Heart Beat blog. After paying off her student loan debt, Kristin decided it was time to pursue her dream and also put her English degree to use.

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