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Locus Pocus

If you have something happen to you, do you blame it on yourself, or blame it on external causes?

It’s an odd question, but an interesting one as it deals with your personal locus of control. But, that’s jumping ahead. Let’s start with defining a locus of control.

In psychology, the locus of control is a scale that defines a person’s beliefs about what causes good or bad results in their life. For example, you might know someone who always blames themselves when things go wrong, or someone who credits only good or bad luck for what happens to them. People like these define either end of the spectrum on the locus of control. People who blame themselves for everything in their lives have an internal locus. People who blame higher powers, luck, or the environment for occurrences have an external locus of control.

Now, it’s worthwhile repeating that this is a scale, not an either-or proposition. People can display different characteristics of either locus for different issues. The big question we’ll ask here though is: What is your locus of control with money?

When you can’t run out of cash, is it because you had bad luck and needed to spend more than you had thought? Or is it because you forgot to plan ahead and have an emergency fund? Knowing your locus of control with regard to money can help you to plan in ways that work with your financial psychology as opposed to against it. And a plan that you can work with is a plan you’re more likely to follow.

Don’t let your psychological beliefs get in the way of you being financially successful. A good financial plan can help to protect you against both internally and externally caused problems.

Keeping up with the Jones…. In Reverse

We know that humans are a competitive species. In this blog, my fellow writers have brought up the concept of “status” and its perils.

So, we know it exists. The question we have to ask ourselves is how we can use this to our advantage.

Can we? It seems a big stretch, but perhaps we can be just as competitive about getting our finances in order as we were about messing our finances. Well, there is a school of thought on that. It’s called Debt Club.

If you’re thinking of the rules of Fight Club, I did that too when I first heard of the concept, but it’s quite different. While the rational and reasoning behind it can be explained in a number of different ways, social competition is essentially a cooperative effort for us to ruin ourselves. If we can work together to get in trouble, we should be equally capable of working together to get out of it.

I find the concept of debt club to be a fantastic one. Yes, there is a cooperative aspect, but as I mentioned earlier, this does allow you to tap into that competitive nature and use it for good purposes.

Remember, when we talk about how our brain works in this blog, we want you to be able to use that information to your advantage. Sometimes, your brain and your way of thinking can be an obstacle to financial security, so you need to figure out how to use how you think to your advantage.

Negotiating and Culture

Firstly, my thanks to Million Dollar Journey and their entry Confessions of a Car Salesman which discusses negotiating techniques used by used car salesman. Reading that blog got me thinking on the topic of negotiation.

Through my travels, I have often been fascinated by cultural attitudes towards negotiation.

In a number of places in the world, prices are flexible. They can be negotiated, bartered or otherwise influenced. Some individuals are raised in a culture of negotiation. They always try to talk their way to a different price.

Many of us in North America have been raised in a culture of price tags. What we see is what it costs. We look for sales and can try to maximize our value through those, but ultimately, we pay the listed price. Now, is this bad? Not necessarily. It means that in day-to-day life, you don’t have to worry about negotiating. However, in a few remaining areas of North American life, negotiating is common and almost required. These areas include buying cars, arranging salaries and asking for raises, and buying houses. Also, in a not so coincidental way, areas such as these are ones in which many of us feel uncomfortable.

Why do we have issues with negotiating? There are a multitude of reasons. First and foremost, for many of us it comes down to issues of appearances. If we negotiate, we can feel poor or vulnerable. I have had the privilege of witnessing master negotiators at work, and they let no sense of shame interfere in their bargaining process. They will claim poverty, starvation, the need to support a family and many other items as they push the price in the direction they want. Frankly, a good negotiation between two skilled parties is a fascinating spectacle. Not all negotiations are showy and loud though, everyone has a different style of negotiating that can work for them.

We need to look past the “price tag culture” in which many of us have been raised in order to see the benefits that lie in negotiating. A fraction of a percentage point lower interest rates for a mortgage can lead to savings of thousands of dollars over time. A few well placed words can cut hundreds or even thousands of dollars off of a car. Price tags make simple things like shopping trips to the grocery store faster and more convenient. However, by accepting prices on the larger ticket items, we often might be throwing our hard-earned money away.

So, look past any insecurities you might have on the topic, and examine the benefits you might receive from negotiating. Rather than sacrificing any self-esteem, you might end up thousands of dollars ahead for putting in a little time. As a good starting point, take a look at the entry on Million Dollar Journey, it can help you see just how easily we get sold up on prices, and how we can turn those tricks to our own use. Remember, sometimes you CAN look beyond the price tag.

Addictions – Retail Therapy

We’ve discussed the ventral striatum in this blog before. It’s a component of the brain involved in processing rewards in the brain. When you do something that makes you feel good, it helps to release a positive neurotransmitter such as dopamine.

Scientists believe that this rewards mechanism served an evolutionary purpose in that it helped reward people for trying and exploring the unknown. When the world was full of obvious harm, such a feature was dangerous, but it also helped to develop the drive to explore that helps to define humanity. However, in a modern world, where the wildest place many of us explore is the local mall, such instincts cause problems for us.

Marketing and sales build up products so they take on grand proportions. New and novel, these products play on that ancient brain response, triggering a positive sensation. Some indications link this response to stress relief, which can be addicting in itself depending on your personality type.

Our defense against this is the conscious brain. If something makes you feel good, ask why? Are you buying because of novelty? The tragic part of novelty is that it does resemble drugs. Eventually you build up a resistance, and you require more and different types to break through that resistance. That new novelty often costs more and more to achieve.

Don’t buy for novelty, buy for value and true pleasure, the results last much longer.

5 Ways our Brain Works to Wreck our Finances

1. Redefining Needs

Perhaps it’s marketing or perhaps it is our culture, but we’ve gone from wanting certain possessions to NEEDING them. Whether it’s a top model car or a specialty coffee, we confuse the difference between wants and needs. We only really NEED food, shelter, companionship, and a job to pay for the food and shelter. That’s it.

2. Psychological Addictions

Not all addictions are physiological. Some are much more complex. Smoke breaks are both times to smoke and a break. Often it’s the “break” aspect that helps people relax. The same applies with coffee breaks, impulse shopping, or gambling. These things make us feel better in our brain, and as a result, we become addicted to that feeling.

3. Unrealistic Understanding of Risk

Whether it is through denial or simply overconfidence, people often invest money they can’t afford to lose in investments that are at a higher risk Or, we assume because an investment has performed will in the past, it would

4. Procrastination Rationalization

Our brains are often magnificent at rationalizing actions or lack of them. This can keep us from acting at times that would most benefit us. We avoid making changes in the present that can benefit us in the future, and we always have “good” reasons.

5. Inability to Admit Mistakes

Because we often attach our own self worth to the effectiveness of our decisions, mistakes are viewed as diminishments of ourselves. Because of this and many other reasons, we tend to avoid admitting when we’ve made a mistake, which prolongs the time until we work to resolve it.

Scapegoating the Credit Card Industry

While the review itself is on the later side, I’m happy at this review I found for the movie “Maxed Out: Hard Times, Easy Credit and the Era of Predatory Lenders” because it deals with an important aspect of psychology and finances.

For those of you who don’t know, MaxedOut is one of the many documentaries that came out over the last few years. If you’re interested in reading the review, you can click here to see it.

By the use of “predatory lenders” in the title, it’s pretty clear that MaxedOut describes the darker side of the credit card industry. Now, up front, I want to honestly say that I haven’t seen this movie, it just provides a wonderful introduction to my concept.

Having worked in the financial industry, I’ve seen from experience that customers often blame the industry for their problems. I’ll be the first to say, banks, credit card companies and check cashing stores are industries that can often maximize their profit at the expense of their customers. However, I don’t think that they are the biggest problem. I think our fundamental failing as a society is the lack of basic financial education that we provide. The biggest issue with scapegoating a particular financial industry is that we then avoid attacking the real problem.

Essentially, what we’re doing when we create negative stereotypes of financial institutions is undergoing the “Texas sharpshooter fallacy” (Texas sharpshooter fallacy — the fallacy of selecting or adjusting a hypothesis after the data is collected, making it impossible to test the hypothesis fairly.). We make our judgments on these industries based on the fact that people have bad experiences with them.

The other issue we encounter is a vast social ignorance when it comes to the damages that can be caused by something as simple as a credit card. We require licenses to drive cars and training to operate heavy machinery, but on the scale of human suffering, that small piece of plastic is just as dangerous and can ruin lives just as easily. For as long as there has been money, there have been people who didn’t handle it well. This isn’t new. However, as we’ve made the monetary system more complex we haven’t taught people how to properly use it.

Feel free to watch MaxedOut. I’m a big fan of documentaries myself and might look it up. There are indeed some genuine tragedies in the credit card industry. People down on their luck with no where to turn, who were brought there through no fault of their own will always exist, and they should be helped as much as possible. However, a great number of people with credit problems are people who make mistakes that eventually snowballed on them, or are just victims of poor choices.

Depression and Finances: Can Money Buy Happiness?

Can Money Buy Happiness?

We’ve spoken a bit in this blog about how the brain can effect our financial decisions, but what about hour our financial health can effect our mental health?

Make Love, Not Debt bills itself as a Relationship Finance blog. It’s a bold statement, but at the same time an interesting perspective to take. Recently, the author has taken to speaking about depression, as he has been diagnosed with it.

There were two posts that caught my eye on the topic. The first “Depression is expensive, denial much more so.” deals with the idea that people often try to buy their way out of depression. This touches upon what some of the other blog posts here have discussed. The most telling post for me though was “Depression and Finances: Socioeconomic Status“.

What really jumped out at me from that post was this quote: “In one British study, actual poverty or unemployment increased the duration of any existing depression, but it did not appear to play any important causal role. Feelings of financial insecurity, however, both caused and prolonged depression.

Think on that for a second. It really is an immensely freeing statement. If you’re feeling depressed, and your feeling financially insecure, the two could be related!

So, to tackle the question that started this post, can money buy happiness? No. Not directly. However, managing your money and eliminating feelings of financial insecurity seems to help eliminate depression, so I think that’s as good of a reason as any to get your finances in order.

Addictions – Fatty Foods

We’ve looked at the addiction to caffeine, but are there other addictions that impact our financial and physical health?

When people are stressed, often we turn to our comfort foods. Foods that might help bring up happy memories, or just ones that we associate with relaxation.

A lot of food companies try to tap into this as well. They use different marketing tools to try and get us to associate relaxation with their chocolate brownie sundae, with their cake, or with any other “sinful” dessert treat that we “deserve”. Each of these treats comes at a cost, both to our health and to our pocketbook. Treats such as these are in excess of our ordinary food budget. A single chocolate bar a week adds up to about $50 per year. Make that a $5 dessert instead, and you’ve spent $250 on food you don’t need.

It’s easy to argue that it is needed. It’s a luxury. It’s something that makes us feel better. Well, some studies have shown that fatty food does in fact create a physiological response in the body that can help to reduce stress. So, you have something that you can eat which makes you feel better. That is definitely the definition of a comfort food, but also something to which you can become psychologically addicted. Why change your lifestyle when you can just eat something to feel better?

Now, the kicker to this is that this same positive feeling can be achieved WITHOUT the comfort foods. Comfort foods are an easy path to the result, but they are one of the many factors leading towards higher rates of obesity. This in turn starts a downward cycle of lifestyle. We then spend money to counter that downward cycle by joining gyms, buying exercise equipment and so on.

So, get out of the cycle. Rather than getting yourself a sundae for your stress, take a walk. Rather than having a chocolate cappuccino, get an extra half hour of sleep! You save yourself money in the short-term AND save your health in the long-term.

Don’t Shop Till All Your Money Drops


Shopoholism is a condition where the mind pulls the trigger to shoot itself, the bank balance and the social life. Typically, a shopoholic shops till he drops and then he gets up again and keeps on going, and the cycle continues — yeah, shopoholism is a dangerous addiction that can end up ruining finances and isolating you from family and friends.

So, are you a shopoholic? Here’s a small test that can help you find out:

  1. Do you shop when you feel angry, nervous or sad?
  2. Do your shopping habits cause conflicts in your family?
  3. Do you get a sense of insecurity when you find you aren’t carrying a credit card?
  4. Do you buy anything on credit even if you have the cash to pay for it?
  5. Does spending money excite you?
  6. Do you feel ashamed and embarrassed after you’re done with your shopping?
  7. Have you ever lied to your family members about the amount of money you have spent on shopping?
  8. Do you keep thinking about money and shopping most of the time?
  9. Do you postpone important payments so that you can shop now?

If you exhibit any 3-4 of these behaviors, then, buddy, you are a shopoholic.
Causes of Shopoholism
No one knows what causes shopoholism — the easy availability of money (personal loans, credit cards, etc.) combined with the need to feel good and/or impress friends is the most likely cause. Scientists say that 10-15% of shopoholics are prone to addictive behavior due to their genetic makeup. When a shopoholic purchases something, he feels good because the opiate receptor sites in his brain get turned on, and that kind of spurs him on to shop again and again – and he goes for broke. No matter what the causes are — the effects of shopoholism are deadly and if you are a mild shopoholic, then it’s time to enroll with Debtors Anonymous and also see a credit counselor. If your shopoholism has got out of hand then it’s time to see a therapist who will put you on a cognitive-behavioral treatment program before you shop till you drop all your money, friends and happiness, and maybe even yourself.

On Declining Savings Rates

In the times of our parents and their parents, the need to save money was taken for granted. Debt was something undertaken for big purchases, such as houses, cars, and appliances. Most importantly, and this is something you’ll see if you watch an old movie, people stopped going out socially when they ran out of money.

Now, in the miracle age of convenience, we’re not troubled by many worries. It’s become more and more convenient to access our money and credit. In fact, it’s so convenient that retailers seem eager to subtract as much unnecessary waiting as possible, and that includes the time we used to use to think.

That’s right; our brains are an obstacle in the ultimate retail equation.

As a society, we recognize that impulse buying can be dangerous. Many states and countries have waiting periods for the purchase of firearms and other weapons. We know that an impulse purchase of a gun while in the wrong state of mind can be dangerous for a person and society in general. But, when we look at the catastrophe that sub-prime mortgages have caused, where people have bought houses that they truly couldn’t afford, can we honestly say that guns are the only purchase that can damage society?

It used to be that to spend money, we’d need to stand in line at the bank to withdraw what we’d want, or right a check and balance our checkbook. Now, it’s as easy as whipping out a card. They’re making it easier too! I just received a credit card with a microchip that means I won’t even need to sign many receipts.

Many marketers and retailers appeal to our basic impulses rather than our sense of logic. This isn’t deceitful; it’s just how they’ve chosen to market their goods. While it might feel good to satisfy your immediate impulse while shopping, you ultimately benefit more by thinking in longer terms. Here are a few ways to defeat the urge to impulse shop:

1. Shop with a list. Your brain can also be satisfied with the hunt for items. If you go in with a list and then leave, you’ll find that you get less temptation than a wander through store aisles might provide. Shopping with purpose cuts through most impulse urges, while shopping as a distraction opens you up to them.

2. Leave your cards at home. If you don’t have access to money, you’re less likely to spend it. Bring enough to get what you need. Some people actually freeze their credit cards in a block of ice. It ensures a waiting period before use.

3. Do your research online. If you know what you’re looking for and know the details, you’re less likely to be swayed by a last minute deal or a good salesperson.

Remember, while satisfying an impulse might feel good for a moment, being in complete control of your finances feels good for a much longer time. So control your money, don’t let it control you.

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