Lynda Moore ticks off how many biases can sublimily sway your spending decisions. And store salespeople know exactly which triggers will get you to 'yes'

“Sorry, did I hear you correctly, you are buying a new house for the dog, is it just for the dog, or are you planning to live there too?

“Of course, I’m going to live there, we need more space, the garden’s not big enough, so I’m selling up and buying a house that works better for the dog”.

Yes, this was a real conversation.  From a dog lover perspective, I could completely understand the rationale. My 12yr old Labrador, Coco, passed away 12mths ago and I miss her dearly.  I would love to have another dog, but it’s not possible where I live right now.  Would I buy a property with my pet as a major consideration? Probably not.  But this is what happens when we make financial decisions from an emotional viewpoint, not logic.

So, what is going on here? We don’t just make financial decisions from an emotional or logical perspective; we are also influenced by Money Biases that are on a subconscious level. They are ticking away in the background all the time when we are making financial decisions.

Let’s explore just a few as we go through the process of deciding whether we are going to spend money or not.

I’d like to take you back a few years and share this story with you.  It’s a great example of how money biases come into play and how we can run with them or debunk them.

It was just after Xmas when I found myself at one of the larger shopping centres to meet a girlfriend and as I was walking past a furniture store, a rather nice-looking red leather lounge suite caught my eye.  Now I didn’t need it, I don’t think I particularly wanted it either, but as I had some time to kill, I wandered in to have a look.  At this point I am thinking quite rationally.  I’m killing time, I have no intention to buy.

Next minute, along comes the salesman, did I like it, was I interested. No, I replied. I’m not.

Would I like to go on the mailing list, just in case I ever was interested, said the somewhat persuasive salesman?  Why not, I thought, it killed a bit more time. 

I left the store and thought nothing more of it…. Until a few days later I get a phone call….

It went something like this.

“Hi’, remember the red leather lounge suite you were looking at?  We’ll I just thought I’d let you know that it’s now on sale and the price has been reduced by $1,000, plus we’re offering free delivery as well”.

So now the anchoring money bias is kicking in.  When I first looked at the lounge suite I was anchored to the full price, that set my benchmark for any leather lounge suite.  Now, I’m being told it’s on sale, so our mind goes to WOW, that’s a bargain, you’re saving money.

At this point I still don’t need to purchase, but the want is growing.  So, I follow my own Money Mentalist advice and do nothing for 24hrs to let my rational brain kick in.

I could have used this time to debunk the leather suite anchor by doing some research to see if this really was good value, or I could have thought about how lovely it would be to sink into the red leather and watch a movie.  I, of course did the latter.  A few days later I found myself back in the furniture store having another look at the lounge suite.  Now fate could have stepped in and someone else may have bought it, but it hadn’t.  The next day, said red leather lounge suite turned up at home, and I sank into with a cool glass of chardonnay and settled in to watch the first of many movies I enjoyed over the next few years.

What was the final hook that got me to purchase?  Interest free payment terms. Not only could I enjoy the lounge suite now, but I didn’t have to pay for it immediately, I could pay it off interest free for the next 18 months. The Spending Rationalisation Bias has popped up.  I had divided my purchase of 18 monthly instalments into the number of days, and at $5.92 per day, that was easily found in my budget. I really could afford this piece of furniture that I now desperately needed.

There is one more bias that comes into play here, and that is the Confirmation Bias.

A week or so after the delivery of my leather lounge suite, my girlfriend and I are chatting and she is dutifully admiring my new acquisition, she then happens to mention that she saw exactly the same piece of furniture online for a lower price than I had paid.

“No, I say, that can’t be, this is better quality, will last longer etc etc.  Your’s will be a cheap import.”

Being a rather detailed person, my friend pulls out her phone and pulls up the link to show me.

‘It is the same’ she says (somewhat smugly I might add). 

Even with the picture in front of me, I still emphatically deny that what I am looking at is the same piece of furniture.

The confirmation bias reared its head.  When we have made a purchasing decision, we are right! Regardless of evidence to the contrary, we cherry pick information that fits and confirms we made the right decision.

There are about 25 different money biases, my story has highlighted the most common ones that we come across, not just when we are buying a big-ticket item, but smaller ones as well.  Once you are aware of them, they are easy to debunk and allow our rational, not our emotional brain to make the best decisions for us.

By the way. Both the dog and the dog’s owner love the new house they bought. It was a great decision for them both.  In this situation, emotion trumped logic.