The next time you choose the most expensive bottle of wine on a menu because it tastes better, ask yourself, “Am I reacting to the flavor or the price?”
According to a new documentary, “Thinking Money: The Psychology Behind Our Best and Worst Financial Decisions,” your brain has expensive tastes.
“This documentary shows how our brains, regardless of age, income, race or education level, develop biases that affect our financial decision-making,” said Gerri Walsh, president of the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation.
Ms. Walsh and FINRA collaborated with Maryland Public Television and the Rocket Media Group to develop the documentary, which explores the motivation behind how and why we choose to spend money. It premieres nationally on American Public Television on Thursday.
The George Washington University will host a screening and panel discussion on Oct. 23 at the Jack Morton Auditorium.
“So many of the stimuli around money, from advertisements to movies, connects spending with heightened emotion—not saving,” Ms. Walsh said. “The feelings we connect with spending money impair our ability to make sound financial decisions.”
“Thinking Money” is presented in four acts, said John Greco, Rocket Media Group writer and producer. The first act explains the financial fragility of Americans, who have high credit card and student loan debt and little money saved.
According to the film, U.S. citizens have a collective credit card debt of $700 billion.
Local actor and comedian Dave Coyne narrates the film, a series of vignettes, experiments and discussions with industry experts—including GW’s Denit Trust Chair of Economics and Accountancy Annamaria Lusardi.
Rocket Media Group filmed "Thinking Money" between November 2013 and May 2014. The team checked in with financial literacy and economic experts across the nation who deconstructed the psychology behind financial decision-making.
The documentary’s remaining three acts examine the brain’s response to spending money, the psychological impact of the market on spending habits and creative solutions that “make saving more sexy.”
Dr. Lusardi served as economics advisor to the National Financial Capability Study, a collaborative research survey launched in 2009 with support from the FINRA Investor Education Foundation. The GW School of Business Global Financial Literacy Excellence Center (GFLEC) found that most people are unable to comprehend complex financial decisions or relatively simple ones such as choosing a credit card.
During the most recent study in 2012, 61 percent of Americans said that they did not compare different interest rates when shopping for a credit card.
“We have to be our own CFO,” Dr. Lusardi said. “Meaning that we have to take control of our finances and be aware of the triggers that push us to consume.”
“If you are not knowledgeable about personal finance, you can end up on the wrong path and not even know it,” Dr. Lusardi added.
According to the film, many Americans now consider items that were once a luxury to be a necessity. For example, participants in a study used for the documentary were asked to sample differently priced wine. Participants reported feeling happier when they believed they were drinking a more expensive wine.
The catch?
All of the wine was actually a less expensive $10 brand.
To combat the influence of outside forces and the brain’s desire to spend money instead of saving, the documentary points out, many people are turning to companies that provide incentives for saving, such as HelloWallet and stickK.
HelloWallet offers convenient access to budgeting tools and tips for prioritizing financial goals through a mobile phone application, while stickK uses commitment contracts to help people hit their financial goals. If you violate your contract with stickK, the company will donate a portion of the money you hoped to save to an organization whose politics or mission you disagree with.
Both Ms. Walsh and Dr. Lusardi said that though managing personal finances can be daunting, the most important financial decision people can make is to take the first step toward understanding their finances.
“A lot people become afraid when you start talking about money,” Ms. Walsh said. “They think it’s something to put off until tomorrow, or when they are 40, but we have to trick ourselves into enjoying the process of saving.”