cofounder and strategy director of The Decision Lab, a Montreal-based nonprofit that uses behavioural science to improve outcomes in the public and private sectors. For similar reasons, we also tend to overvalue objects that we

already own, what researchers call the endowment effect. We perceive money as being less “real” than objects, says Krastev. Once we’ve made a purchase and converted an abstract — money — into something tangible, we ascribe more value to it. “You own it, it’s yours and becomes part of your identity. But valuing something doesn’t necessarily mean you’ll enjoy it more,” he cautions. “People are generally bad at predicting what makes them happy.”

How to make it work for you Once you’ve decided on a diversified investment portfolio that aligns with your risk tolerance and time horizons, tune out the daily market reports. “Turn down the volume, look away,” says Kramer. “If you’ve made a sensible allocation, there’s no reason to be looking at your portfolio frequently. Annually should be enough for most people.” And don’t shoot for unrealistic returns. “If you try to outperform the market, chasing funds that had good returns in the past, you can end up with a below- average rate of return,” she says. “Being an ‘average investor’ is better than giving in to all of these impulses.” In terms of spending, paying cash triggers the pain of loss

aversion to a greater extent than paying by credit, because you have to hand over the money (while the credit card is returned). If you go cash-only for discretionary items, you’ll likely

reduce your spending. Finally, don’t agree to any free trials unless you’re sure you

want to buy that product or service. Marketers count on the magic of loss aversion, which is why they offer you that 30-day money-back guarantee.

Mental accounting According to traditional economic theory, all money is fungible — or mutually interchangeable. But anyone who has splurged on a vacation aſter receiving a tax refund or bought a ridiculous outfit with a clothing-store giſt card knows that we don’t treat all money equally. We rarely spend “found money” in the same manner we spend hard-earned funds, and we create all sorts of mental “rules” for money, depending on the circumstances. For example, in a 1983 experiment Kahneman and Tversky

came up with two hypothetical scenarios involving a $10 ticket to see a play, and asked participants what they would do. In the first case they posited, you bought a ticket ahead of time, but upon entering the theatre realize you lost it. In the second sce- nario, you didn’t buy a ticket in advance, but upon entering the theatre notice you lost a $10 bill. While both situations involve a loss of $10, just 46% were willing to buy another ticket in the first scenario because they felt as though the cost of admission had doubled, but 88% — nearly twice as many — said they would buy a ticket in the second case because they had not yet mentally allocated the lost $10 bill to the cost of seeing the play.

How to make it work for you By putting savings into a separate account, you’ll reduce the temptation to spend it. Even better, open multiple savings accounts for various purposes — say, a vacation fund and an emergency fund — and have your tax refund or bonus auto- matically deposited in the latter. For discretionary spending, the classic jars or envelopes labelled for entertainment, take- out/restaurant meals, clothing, etc., can be effective. Once the cash you put in for the month is gone, you’ll be less likely to overspend what you budgeted.

Social norm bias Commonly known as keeping up with the Joneses, this bias prevents us from making independent decisions based on a solid cost-benefit analysis, and instead causes us to do whatever our peers are doing. Social norms can also explain the rationale behind any sudden buying trend — from Furbies to coconut water to the latest must-have tech stock. The social norm effect is so strong that neighbours of lottery

winners have higher-than-average bankruptcy rates, because they buy conspicuous assets such as cars and boats in an attempt to keep up. According to a Canadian study co-authored by University of Alberta business professor Barry Scholnick, for every $1,000 increase in lottery winnings, there’s a 2.4% increase in the number of bankruptcies for those who shared the winners’ postal codes — that is, their immediate neigh- bours — in the following two years. Social media — and the so-called fear of missing out (FOMO)

it breeds — has exacerbated the situation, according to a 2016 survey of 874 Canadians conducted by A quarter of respondents say FOMO is their main motivation to shop, and 70% attribute up to a quarter of their debt to FOMO spending. Half of the millennials in the survey say they feel FOMO on social media, with the main culprits being Facebook and Instagram. On the plus side, the UK tax agency used social-norms mes-

saging to increase tax payments, as noted in a 2016 report by Deloitte and Prosper Canada entitled Insights to Impact: Harnessing Behavioural Science to Build Financial Well-Being. “They added a single sentence to their reminder notices that ‘9 out of 10 people in your postal code pay their tax on time’ and repayment rates jumped dramatically.”

How to make it work for you In the same way Weight Watchers uses positive peer pressure to help dieters lose weight, joining a savings circle or investment club might take advantage of our collective yearning to follow the crowd. “In a savings circle, the group holds members accountable for setting specific savings goals and making small monthly savings contributions to achieve them,” states the Deloitte report. “By doing it in a social setting, there is more pressure to meet commitments, which leads to greater savings.” To help counter the social media FOMO effect, consider


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