Mind over Money

The Psychology of Money and How to Use It Better

Claudia Hammond

• Publisher: Harper Perennial
• Year: 2016
• Print ISBN: 9780062317001
• eBook ISBN: 9780062317018
• Topic: Personal Development
• Subtopic: Business General

The acclaimed author of Time Warped tackles the very latest research in the fields of neuroscience, psychology, and biology to provide a fresh, fascinating, and thought-provoking look at our relationship with money—perfect for fans of Dan Ariely and Freakonomics.

We know we need money and we often want more of it, but we don’t always think about the way it affects our minds and our emotions, skews our perceptions and even changes the way we behave.

Award-winning BBC Radio 4 host Claudia Hammond delves into the surprising psychology of money to show us that our relationship with the stuff is more complex than we might think. Drawing on the latest research in psychology, neuroscience and behavioural economics, she draws an anatomy of the power it holds over us. She also reveals some simple and effective tricks that will help you use and save money better—from how being grumpy can stop you getting ripped off to why you should opt for the more expensive pain relief and why you should never offer to pay your friends for favours.

An eye-opening and entertaining investigation into the power money holds over us, Mind over Money will change the way you view the cash in your wallet and the figures in your bank account forever.

Mind over Money is an invaluable resource for anyone fascinated by the dynamics of money and for those wishing to learn how to maximize its power and greatest benefit.

 

 

 

 

 

1

FROM CRADLE TO GRAVE

Where our relationship with money starts, why money is both a drug and a tool, why we hate to see money destroyed and how it wards off our fear of death.

If you are like me and enjoy the occasional bar of chocolate or the odd glass of wine, every time you indulge, your neurological reward system responds. A pathway is activated in your brain. You experience a spike of dopamine, which gives you pleasure. Do it again, your brain seems to be saying. Do it again and you’ll get another reward.

It’s easy to see how parts of your brain might become active in these circumstances. A chemical and neurological chain reaction takes place. Yet the same thing has been shown to happen when people are given money.¹ In one study, winning money and having tasty apple juice squirted into the mouth produced similar responses in the brain.² And the reward doesn’t even have to be a coin or banknote as long as it represents money. When neuroscientists put people in a brain scanner and gave them vouchers as prizes when they won in a quiz, the brain’s limbic system released dopamine.³

Dopamine is all about immediate reward rather than delayed gratification. And what’s remarkable here of course is that there’s no direct link between consumption and reward. Money and vouchers are promissory. They promise you can do something in the future. Okay, you could rush down to the corner shop to buy wine or chocolate (maybe even with the vouchers) but the gratification still isn’t instant.

Money is acting like a drug, not chemically but psychologically. Money hasn’t existed for long enough in evolutionary terms for humans to develop a specific neural system to deal with it. So it seems as though a system usually associated with immediate rewards has been co-opted to deal with money. Sometimes neuroscientific studies can feel as though they simply reflect in the brain what we already know to be true from our experiences. Here neuroscience can tell us something more curious.

For a promise of money – someone merely saying they’re going to give you money but not handing over notes or a voucher – doesn’t have the same effect. When this happens, different regions of the brain are activated. We don’t view the prospect of money in the same way as actual money (or even vouchers), despite the fact that the latter can’t be spent immediately either.

So it appears we desire money for its own sake. It’s a kind of drug. Of course money isn’t physically addictive as such, but as I’ll show in Chapter 2, we’re all drawn, to varying degrees, to the thing itself.

Yet, at the same time, we desire money because it helps us to accomplish what we want in life. In other words, money is a tool: a way of getting the things we want.

Psychological research on our attitudes to money has tended to concentrate either on money as a drug or as a tool. But the British psychologists Stephen Lea and Paul Webley surely echo common sense in suggesting it’s both. Sometimes money seems to control us – money over mind; sometimes we are able to use money in the way we want – mind over money.

But of course it’s more complex than that too. Money affects our attitudes, our feelings and our behaviour. And these three dimensions interlink, merge and decouple in fascinating and downright strange ways.

Yet to complicate things even further, when money is destroyed our brains revert to seeing it simply as a tool.

Time to think back to that night on Jura, when the K Foundation burnt a million pounds. What was it that upset people so much about the destruction of cash?

In 2011, the husband-and-wife cognitive neuroscientists Chris and Uta Frith conducted a study that might shed some light on it.⁴ They slowly reversed prone volunteers into a brain scanner, where a mirror angled at 45 degrees allowed them to watch a series of short videos on a screen. Each film lasted 6.5 seconds and every one featured the same woman wearing a black jumper and sitting at a shiny white table.

The people watching the video never saw the woman’s face, but they could see her torso and also her hands, which held a banknote. Sometimes the banknote was real, but worth a lot (the Danish krone equivalent of £60); sometimes it was real but worth a lot less (the equivalent of £12); and sometimes it was the same shape and size as a banknote, but featured scrambled-up pictures (making it obvious that the note was worthless).

As the people lying in scanners watched, the woman held up one of the notes, slowly moved her fingers to the center of the top of the note and then ripped it very deliberately – from top to bottom. The reactions were what one might expect. When the woman was tearing up the obviously fake notes, people were fine about it. But when real money was destroyed they felt uncomfortable, particularly with the higher denominations.

In many countries, it’s illegal to deface or destroy money. In Australia, such action lays you open to a fine of up to A$5,000 or a two-year prison sentence.⁵ These were punishments that some felt the prime minister of the country should have faced back in 1992. Paul Keating was visiting the Townsville Oceanarium in North Queensland when a local artist asked him to autograph two A$5 banknotes. He did so, was filmed in the act and a storm of outrage followed.

It turned out the artist was protesting the new design of the A$5 note, on which a portrait of Queen Elizabeth II had replaced that of the nineteenth-century human-rights campaigner Caroline Chisholm. (As we’ll see in the next chapter such changes can stoke strong feelings.) But to add fuel to the flames, it was a time when the future of the Queen as Australia’s head of state was the subject of much controversy, and Keating was also known to have reservations about the change. Angry royalists pointed out that another man who had stamped a protest message on banknotes had been convicted, so why not this artist and the prime minister?⁶

Another Australian, Philip Turner, discovered that defaced banknotes were rendered worthless when he was handed a A$20 note in his change at a petrol station. Written in felt tip pen on one side was the message: ‘Happy birthday.’ (Nice – though it wasn’t Mr. Turner’s birthday.) While on the other it said: ‘Suck it. Now you can’t buy anything.’ (Not so nice.) The unknown author of this two-faced foolery was right, though. Shops wouldn’t accept the defaced note, the garage refused to take it back and not even the bank would exchange it.⁷

Writing on money is nothing new. What better way of literally getting your message into people’s pockets? In Britain the suffragettes did it. On display in the British Museum is a penny minted in 1903 and subsequently stamped with the slogan ‘Votes for women’.⁸ It was a clever method of protest, as such a low-value coin was likely to be passed around a lot before being taken out of circulation. But whoever stamped the coin took a big risk – at the time, defacing money could result in a prison sentence.

What of going a step further and trying to destroy money altogether? In the United States the seriousness with which the burning of banknotes is taken is clear from the language used in Title 18 of the United States Code that prohibits it under the heading ‘Mutilation of national bank obligations’. In practice, convictions seem to be rare. Desecrating flags is taken far more seriously. Across the border in Canada, the melting down of coins is banned, but for some reason notes aren’t mentioned. While in Europe, the European Commission recommended in 2010 that member states must not encourage ‘the mutilation of euro notes or coins for artistic purposes, but they are required to tolerate it’.⁹

But these are the rules set by institutions. How about our personal feelings about the act of destroying money? We return to the Friths and their colleague, Cristina Becchio, who together measured the reactions of people watching as Danish banknotes were torn up. The experimenters did not fear prosecution as they’d obtained permission from the Danske Bank to go ahead with the study. Even so, this destruction of money was clearly a transgressive act in the minds of most people.

As I mentioned earlier, the volunteers in the brain scanners described their distress as they watched the real notes being torn in half, but what was of real interest were the areas of the brain which were stimulated. It was not the regions usually associated with loss or distress that saw raised activity, but two small areas of the brain, the left fusiform gyrus and the left posterior precuneus. The first of these areas has been found in the past to have an involvement in the identification of pen-knives, fountain pens and nut-crackers; in other words, tools with a purpose. This suggests that the idea of money as a tool is not just descriptive. The association we make between printed sheets of paper and their usefulness is so strong that our brains appear to respond to them as if they were actual tools.

And this of course fits with the reasons many people have given over the years for feeling so upset about the K Foundation’s actions. They tend to emphasise all the useful things that could have been done with that money. They’re not, in other words, distressed at the destruction of the physical artefact (though in the next chapter I’ll show we are also attached to money’s concrete forms) but at the idea of the loss of its potential.

I’m wary of reading too much into one study, and the authors concede that the changes in brain activity could have been caused by the sheer distress of watching the money get torn up. Previous studies have found that people with damage to a part of the brain called the amygdala stop minding so much about losing money.¹⁰ The amygdala is a walnut-shaped area deep inside the brain associated with some, but not all, emotions. Such studies suggest an emotional connection with money. What’s so fascinating about the Friths’ study is that it hints at the symbolic nature of money: that we know that it can be used as a tool. It goes to show – as I’ll demonstrate again and again in this book – that when we look at, handle, or even just think about a sum of money, powerful reactions are stirred. Some good, some bad, some downright weird. But before that we need to look back to where our relationship with money all starts.

MONEY-MINDED CHILDREN

When small children first encounter money, they see it as something to value for itself. They handle a sparkly coin or a nice, crisp banknote and take pleasure in that. They quickly grasp that these pieces of metal or paper are to be treasured and not discarded, that when a grandparent sneaks a coin into their hand (it’s probably a note these days) it is something special, magical even. I’m not sure that feeling ever stops. Certainly the novelist Henry Miller, in his non-fiction book, Money and How It Gets That Way, didn’t think so. ‘To have money in the pocket is one of the small but inestimable pleasures of life. To have money in the bank is not quite the same thing, but to take money out of the bank is indisputably a great joy.’¹¹

Recently I was in a park with my friend’s four-year-old daughter, Tilly. She’d just been given a sparkly, beaded purse that contained a few coins she’d saved. Every time a stranger passed, she waved her purse and shouted delightedly: ‘Look – I’ve got lots of money!’ When I asked her what the loose change might buy her, she had no idea. That was not the point. She had money, and money was magnificent.

How strongly she wanted to hold on to it was shown when, after half an hour on the swings and slides, she refused to return home with us. We tried leaving her behind and telling her she’d be there on her own. We tried threatening to report her to her mum when we got back to the house. We tried playing a chasing game. Nothing worked. She wouldn’t budge from the playground. Then the little girl’s aunt had an idea. She grabbed Tilly’s purse when she wasn’t looking and ran off with it. She’d only get her purse back if she came with us, Tilly was told. That did the trick. Tilly didn’t know how much money she’d lost, still less what it would buy her, but it was her money and she valued it for its own sake. She was starting her life-long relationship with money.

It’s a relationship that becomes richer and more complex quite quickly.

When I was at junior school, my sister and I had savings accounts at the local building society. Occasionally, we would go in to deposit a pound in our accounts and come out proudly with our updated passbooks. One year, the building society held a competition to create a piece of art depicting their office, a Victorian villa situated on the roundabout just off the high street of the little town where we lived.

My entry was a collage. I made the walls of the building from pale yellow hessian. I cut out pieces of paper to look like people and placed them so that they were leaning out of the upstairs windows waving their passbooks. Looking back, I’ve no doubt it was these cut-out people who helped me to win the competition. But it was not because my artistic efforts so delighted the judges – one of whom was the building society manager. More likely it was down to my massive overestimation of interest rates.

I’d filled in the little cardboard passbooks held by my paper people with figures such as: ‘Deposit: £600. Interest: £300. Balance: £900’. Admittedly interest rates were running high in those days, but definitely not that high! Still, it showed that even as a little girl I had some understanding of how money works, even if I was sketchy on the details. I’d already been introduced to the concepts of saving, interest, deposits and balances. I knew that money wasn’t just a matter of handing over a certain number of coins in order to get a certain number of sweets.

One study I particularly like about our early grasp of money involves a group of six-year-olds in a Finnish nursery school. It’s 2008, and they sit on a carpet to create their own theatrical production. Adult producers are there to help them, but the point is for the children to make as many decisions about the play as possible – everything from the set design to the plot and the wording of the script.

After some discussion, they invent a story they call ‘Six Million Lions’. They select parts for themselves, with one boy insisting that he would play a table made from potatoes, a role that sounds as thou...

Table of contents

• Cover
• Title Page
• Dedication
• Contents
• Introduction
• 1: From Cradle to Grave
• 2: Holding Folding
• 3: Mental Accounts
• 4: To Have and to Hold
• 5: The Price is Right
• 5½: Loose Change
• 6: Money the Motivator?
• 7: Just Rewards
• 8: Money Tips for Bankers
• 9: Money, Money, Money
• 10: Poverty of Thinking
• 11: Bad Money
• 12: Good Money
• 13: For a Rainy Day
• 14: The Joy of Spending
• 15: Money Tips
• Acknowledgements
• Notes
• Recommendations for Additional Reading
• Index
• About the Author
• Also by Claudia Hammond
• Back Ad
• Credits
• Copyright
• About the Publisher