One of the most interesting questions in consumer behavior is how we think about money. The field is rife with examples of how pricing strategies and payment systems can reliably warp the psychological value of money. The way we think about money, payments, and value also deeply impact personal finance decisions as well. 

In this interview, we spoke about behavioral economics and the psychology of money with Merle van den Akker, PhD student in Behavioral Science at the Warwick Business School, and host of the Money on the Mind blog. 

What advice would you have for young people interested in behavioral science? Where would you have them start?

I would ask them to start by reading my blog haha. Now, let’s move beyond the self-promotion.

I think there’s plenty of pop science books out there about behavioral economics and behavioral science. Examples are all books by Dan Ariely (Dollars&Sense, Predictably Irrational and many more), by Richard Thaler (Nudge, Misbehaving), and by Malcolm Gladwell (Outliers, Tipping Point, Intuition, David and Goliath) and many more. I hope someday to be in that list, but I’ll finish the PhD first. And talking about books, I’m looking forward to reading yours!

If you like what you read in those books, dive into the actual research they are discussing. Open Google Scholar and read the actual academic articles. If you can cope with doing that, you can cope with academia and maybe it’s time for you to look into doing Behavioral Science/Economics studies, such as the MSc Behavioral and Economic Science I did at Warwick University. One of the best behavioral science degrees in Europe, if not the best. I would 100% recommend it if you wanted to go the academic route.

Luckily, I have written a much more extensive article about getting into behavioral economics, read it here.

Much of your research is on contactless payments. Why do you think the U.S. lags so far behind Europe in their adoption of this technology?

When I started researching contactless payment methods I was surprised with how little academic research there was, as I started my PhD almost a decade after its introduction in the UK. I quickly realised, that as a lot of research, especially fintech research, is driven from the States, that something must be going on there. Well, there you had the issue: nothing was going on there in terms of contactless.

I have read several articles on why contactless is lagging in the U.S., I have even written an article on it myself. These articles keep quoting the fragmented structure of the market, and how difficult it is to get vendors to accept the technology: a card terminal that will read a contactless chip.

But the problem doesn’t stop there, you also need banks to roll out new cards that have contactless enabled on the chip. Well, banks didn’t seem too keen either, and are relying mainly on the magnetic strip, until that one falls out of fashion, and that might be while as it even survived a massive data scandal in 2013. Although there was a law change in 2015 on who would be liable in the case of another data breach, shifting the blame towards the vendor, not the banks. But even that didn’t seem to have done much to allow for contactless-enabled terminals.

Except for technology, and no bank seeming to want to make the first move (JPMorgan is the only one so far to have announced a contactless card roll-out, and they scheduled it for the end of 2019), there might also be no real consumer demand for it. Americans are known for loving the credit card and having massive consumer debt already, but are becoming increasingly wary of fintech as a result of the data breach scandals that seem to continue to occur. So, maybe they are not too keen on anything that could make the situation worse. And fair play to them. We’ll see if JPMorgan’s roll out does anything, but I’m not holding my breath to be honest.

How do you apply behavioral economics/science in your personal life?

The behavioral science I do is massively personal finance based, and I feel like I almost over-apply it to my own (financial) life and that of my friends...! The amounts of advice I have given to my nearest and dearest on how they should be dealing with their money has driven them almost insane. But at least I do live by it myself.

And it’s not even hard stuff either. One of my favorites is Save First (or Pay Yourself First). Where you simply treat your savings like another bill, and pay it as soon as you get your paycheck and not leaving it till the end of the month. Because if you just save whatever you have left at the end of the month, well, you won’t have anything left. You certainly won’t have enough left to meet your saving goals.

In general, there is a lot known in behavioral science about “nudging yourself to success” and what type of goal setting works, and what doesn’t, and I apply a lot of that to my own life. I mean, who doesn’t prefer achieving a realistic goal to failing to achieve an impossible goal?

Another thing to look out for is mental accounting, and its evil younger sister: co-holding. Mental accounting is the mental division of money into different “jars.” One jar for rent (mortgage), one for groceries, one for eating out, one for insurance, one for the car, etc. It can be a very convenient way of thinking, but it’s also a very difficult mindset to get out of, especially if it turns out to not be beneficial to you: some people have both debt and savings. This is problematic as debt is very expensive, whereas savings generate almost no monetary gain anymore. It would be smart for people to use their savings to (start to) pay off their debt, but most households just don’t, and that can get very expensive… So watch out for that! I at the very least am very wary of this concept, and hope to manage to stay out of that situation!

One last thing hat I’m focusing on is finding healthier ways of “rewarding” myself for doing well. Often, when we have a had a good day/week/month we feel like “treating ourselves.” That in itself is a great habit, but linking it to spending is not ideal. Because this creates the conditioned habit of wanting to splurge and spend money as soon as we do something well, which for most people isn’t financially viable in the long(er) term, so I’m looking into different ways of changing that behaviour for myself, and maybe instead of spending money, find a way of spending more time on something I enjoy instead. It’s just odd that even as a poor PhD student, I seem to have more money than time lying around. And knowing the PhD wage, I’ve got little of the first one to begin with!

Photo by Alexander Mills via UnSplash