close Facebook Twitter Instagram LinkedIn

Dan Ariely: Saving Up Is Hard To Do — Transcript

This week's episode of Simplify sees Caitlin dive into the secrets of saving money with behavioral economist Dan Ariely. Read the transcript here!
by Natallia Darozhkina | Aug 30 2018

Caitlin: Welcome back to Simplify. I’m Caitlin Schiller.

Ben: And I’m Ben Schuman-Stoler. This episode is a pretty big departure from the last one, I think.

Caitlin: Well, yes and no: it’s about money, not deep matters of the soul and emotion, but this episode does deal with how money is actually pretty emotional, and what we do with our money, and how wisely we spend it is dictated quite a bit by how we feel.

Ben: You said “money” like six times.

Caitlin: I did.

Ben: All right, so I’ll share a story. One time I was in a mall and I was like 15, way too young to throw a temper tantrum.

Caitlin: Deep in suburbia…

Ben: No, it wasn’t.

Caitlin: Wait, you said you were 15? You were way too old to throw a temper tantrum.

Ben: Yeah, sorry. Way too old to throw a temper tantrum. And I just threw a fit about a sweater that I really wanted.

Caitlin: What does that mean for you, “a fit”?

Ben: It means it was too expensive to afford with my like pocket change, I had a summer job in the mall, and I couldn’t buy it. And my parents wouldn’t buy it for me because it was stupid and they were right. But I don’t know why you throw a temper tantrum, like why did I care about the sweater? I really wanted to buy it, but I didn’t buy it. I couldn’t buy, I wasn’t allowed to buy it. And that was probably good like now, but back then I just remember just seeing red wanting that thing, wanting to own that item.

Caitlin: I’m so desperate to know what this sweater looked like.

Ben: It was like a beige sweater.

Caitlin: I don’t think beige is even your best color.

Ben: Do I have a? Anyway, there I share them on this story.

Caitlin: OK, cool. I guess my stupid spending story is that I once bought this really beautiful pair of knee-high like pine wood color leather boots. They were so special and beautiful. And they were really expensive and they were actually a size too small for me––it was when I was still getting used to European sizes––and I bought them, even though, I think, I was just using magical thinking that they would fit at some point. I wore them once. I still have them. I never wear them. I just hate the idea of getting rid of them, but I spent money on this and it was just so stupid.

Ben: So I think, what we’re trying to say is buying stuff is weird. When we think about money, it’s pretty messed up.

Caitlin: And what we’re willing to give up to have stupid impulse purchases, like pine colored leather boots and beige sweater…

Ben: Dump tight beige sweater.

Caitlin: Ben and I are really really into beige apparently.

Ben: So but like obviously we’re doing this to tie it into the interview. So do you want to walk us….

Caitlin: Yes, Ben. I’ll tell you about the interview. So I talked to Dan Ariely who is a behavioral economist and you’ve probably heard him on the Hidden Brain a bunch of times. He’s all over podcasts: like call up any NPR Podcast on like irrationality or even money, and you’re gonna find Dan Ariely. And Ben, you talked with him on the old Blinkist Podcast, right?

Ben: I did. I talked to him way back in the winter of 2016. And he said that he’s interested in things humans do that are not ideal. I think that’s a really good way to sum up what he does. It also it’s a funny sentence and it makes sense because he’s kind of a quirky guy and anybody who’s ever seen his TED Talks––which have like tens of millions of views––or read his books, like Predictably Irrational or The Upside of Irrationality or Payoff, came out a couple of years ago, It’s a fun book about motivation. Anyway, all of these things are about behavioral economics. And he’s kind of become the voice on the circuit about behavioral economics. Because as I hope you learned, like, he tells a good story, and he knows how to tie in sort of scientific research and behavioral economics to things like, why I really wanted to buy a stupid sweater, and why you can’t throw out some expensive leather boots, right?

Caitlin: Yes.

Ben: So why did you want to talk to him?

Caitlin: I wanted to talk to Dan Ariely because I was hoping for some answers. So, I am ostensibly a grown-up––whatever that means––and I still don’t always make awesome decisions with money, particularly when it comes to saving.

So Dan wrote this book called Dollars and Sense about why people aren’t very good at money and how we can be a little bit better at it. So I wanted to see if I could find out why I have such a problem with saving.

Ben: And did you find out?

Caitlin: Sort of, yeah. So here’s what’s interesting. And I think it’s really the thing that stuck out to me most in the interview. So the thing is that environment really really matters in personal economics –– so, savings. People back in bartering times, they had a leg up on us in terms of being prudent with resources and good savers because their resources were not invisible in the bank, they were in the pig pen or on the field. They were visible things because we could see savings our own and those of our neighbors, we had more of an incentive to save rather than an incentive to spend which is what we have now in this delightful age of deep capitalism. So because we can see one another’s purchases, but not what we save, we’re more motivated to spend than we are to save our resources.

Ben: Yeah. Well, I guess if you want you can come over and look at my, I have a fanny pack full of pennies in my apartment––seriously––because I don’t know what to do with them in Germany. So you can come and check that out.

Caitlin: Wow. That’s a really nice offer, but I… I think I’m good.

Ben: Well, offer’s there. So let’s just go to the interview.

Caitlin: Let’s do it.

Ben: I want to hear it. And at the end of your talk with Dan Ariely, we will be back for the Bookend where, if you don’t know, we will make some reading recommendations. So if you want to find out more about the things that Caitlin and Ariely talk about, you can dive right in.

Caitlin: Cool. See you then!

Ben: Alright, see you soon.

Caitlin interviews Dan Ariely

Caitlin: Hi Dan! Thanks so much for joining me today. Could you introduce yourself, please, the way that you like to be introduced.

Dan: So, my name is Dan Ariely. How do I like to be introduced… My mother thinks I’m very special.

Caitlin: I’ll take it! And you’ve written books like The Upside of Irrationality, Predictably Irrational and Payoff. And we will talk today about your newest book that you have co-written, it’s called Dollars and Sense. And your research is around human behavior, and the ways in which we do some really weird things for really weird reasons.

Dan: And you know, yes – weird, but mostly I’m concerned with the kind of things that we do that is not ideal. So, look at the world around you and ask yourself, how much of the trouble that we get into, how much of human misery is caused by natural disasters, and how much is caused by us. And I think lots of it is caused by us. And I don’t just mean war and global warming, but we just create lots of ongoing damage in all kinds of ways to ourselves. And I’m basically kind of look at the the human potential that we have and where we’re at, and I think about this gap.

And my research is aimed at trying to understand where do we get things wrong. In this particular case about money, but also about health, and other things. And every time that we understand where we’re getting things wrong, we can also think about how do we bridge that gap, what do we do to make ourselves behave slightly better.

Caitlin: So, this newest book is concerning money. I want to lock down some basic definitions before we start actually talking about all this stuff. So let’s start off with the easiest one of all, or at least the basic one. What is money actually?

Dan: Yes, so if you think about money. And first of all money is a great thing. It’s an amazing invention. And basically before money we had to do a barter, right? And so I would raise chickens, and you would grow broccoli, and you and I will meet, and we will have to figure out the exchange rate between broccoli and money. And of course it will take time, and we will have to negotiate. And maybe you didn’t want the whole chicken, you would want just half, and I didn’t want all your broccoli. That took a tremendous amount of time. So we invented money, and money is a common good. And what it means is that everything can be mapped into money, right. There’s this exchange rate between broccoli and money, and chicken and money, and so on. And I don’t have to buy broccoli directly, I can sell my chicken for money, and I can store the money, then I can buy a small amount of broccoli from you or something else. And this is what is called the common good, everything––almost everything––maps into money. And it means that by getting money we can get the opportunity to buy lots and lots of different things. We don’t have to focus on a barter, which is the one-to-one exchange.

But that also means that money is really about opportunity cost. That every time we buy one thing, we can’t buy something else. And that’s where the greatness of money is also its weakness. So let’s say, I have ten dollars, I can do lots and lots of things with those ten dollars. I can buy a slightly better watch, I can buy a few cups of coffee, I can get a popcorn at the movie, I can save it, and maybe in 20 years buy a slightly better bike. I can do all kinds of things with money. But because there’s so many ways to spend the money, and I don’t really feel what I’m giving up.

So imagine I had chips, like poker chips, but they were for things, right? So, I had the poker chips for coffee, and I had a poker chip for breakfast, and I had a poker chip for an iPhone. If I gave you two poker chips of coffee, I knew exactly what I was giving up. If I gave you $10, because there’s so many different things I could do with these $10, I’m not really sure what I’m giving up. And indeed most people don’t think about the opportunity cost. So you and I, when we go to buy coffee, we don’t think to ourselves “what am I not going to be able to do now or later because I’m buying this cup of coffee.” And that kind of the blessing of money and the curse of money.

The blessing is that inventing money allows us to trade things with all kinds of other things. The curse is that it forces us, it demands that we think clearly about opportunity cost. But that’s not something we do very well. And because of that, we end up not thinking about money the right way, we end up thinking about money the wrong way. And most of the book is about all kinds of ways in which we think about money in the wrong way.

Caitlin: Right. Oh and one of the ways that we think wrongly about money – this kind of broke my heart I have to admit – is you debunk the envelope method of budgeting, which is basically – for people who are listening and don’t know what it is – you break up cash for different categories of your budget, and you keep each allotment for each category tucked in a separate envelope. And when it’s gone – that’s it.

It sounded so easy and sensible to me, and I’ve thought about trying it many times, and it’s always stuck in my head as a kind of thing I could try when I want to get, you know, serious. But in your book, you explain why the envelope method of budgeting isn’t all that great. And it’s because of something called mental accounting, right?

Dan: Yeah. So first of all, there are good things about the envelope method. And the good thing about it is seeing the money run out. And it’s actually important. So let me take a step back. Imagine you woke up every morning, and every morning I gave you $50.

Caitlin: Sounds great.

Dan: Sounds great. But that’s all the money you had to do it. That’s all the money you have to deal with. Very quickly, you would realize the opportunity costs, right? You would realize, that if you’re buying an extra large breakfast, you don’t have money for lunch. And if you spend money on a big lunch, you don’t have money for rent, and so on, and so forth.

What would happen if I gave you $350 for the whole week? What would happen is on Monday you wouldn’t think you have opportunity cost. On Thursday, you would realize money’s running out, but it will be too late.

What would happen if I gave you the money for the whole month? What if I gave you the money for the whole month, but I also gave you student loans, and car payments, and the mortgage. All of a sudden, things will become much much more difficult.

Caitlin: Yeah, that sounds a lot like real life.

Dan: And the thing to recognize is that a lot of the amazing financial tools we have, like credit cards, and mortgages, and student loans, and they have all kinds of advantages, don’t come without the cost. And the cost that they come up with is that it makes it hard for us to think about trade-offs. Because if you walk around in the street today, and you see a new bicycle, that’s great. And if you buy this bicycle, I would say, where’s the money coming from? What’s the opportunity cost? Very hard for you to think about it.

But if you had cash for the rest of the month, and it was a $1000, you would know exactly that if you use that money, you will have to give up lots of other things. And you could realize that you can’t do it, or you shouldn’t do it. So the envelope method, what it does well is to help us see the money running out. And that’s a good thing by itself.

But the many challenges with the envelope method, one of which is that sometimes it forces us not to make the right decisions, right? So imagine if you have an envelope for going out, and an envelope for grocery shopping. And you finished the envelope for going out, and you have lots of money left over in the envelope for grocery shopping. By not being able to reshuffle the money between envelopes, you might actually miss out on some some good opportunities that you have. So that’s obvious.

And then the other thing, very sadly, is that sometimes the envelope method is just so hard that people don’t do it at all. So it’s a little bit like counting calories. When you tell people to count calories, mostly what people do is they start very happily, but then they end up doing nothing because it’s just too painful.

So having some envelope-like approach is good, but having it to specific with too many envelopes end up being counterproductive. And the method we end up suggesting is to have one envelope for all of your discretionary spending. So to say, let’s take an envelope for all the things that you could scale up and down. Includes grocery store, and beer, and Uber, and having lunch at the office, and have a budget for all of those. That’s one. Not break it.

The second thing is to have it for a week – not for a month – because if you have it for a month, it’s too long and people run out too quickly. And if you have it for a week, and the recommendation is to start the week on Monday – not on Friday – because if you start the week on Friday or on the weekend, you spend too much, and you run out on Wednesday. But if you start on Monday, you don’t run out, you save your money for the weekend, and then you have some left. And if you need to modulate your expenses, the weekend is the right time where you can modulate it.

Caitlin: OK. That’s cool. That sounds doable. So that takes some of the burden off of us doing mental accounting. You also described something else called emotional accounting. How is that related?

Dan: So, if you think about emotions in general… And actually can I take one step backward because there’s one other thing I wanted to mention.

Caitlin: Yes, definitely. Be my guest.

Dan: I am your guest.

Caitlin: I was just thinking that!

Dan: So perhaps for me, one of the most interesting studies that we have done in recent years on financial decision-making has been the study that we did in Kenya. And this was a study that we did on very poor people. And we try to help them save a little bit of money. And this is not money for retirement, it’s money for a rainy day.

And you know, if you think about somebody very poor, they live hand-to-mouth, they have no extra, and then from time to time bad things happen. The roof is leaking, they have a goat, and maybe their goat is unhealthy, somebody in the family has health expenses. And if you live hand-to-mouth, and you have no extra, something bad happens – you need to borrow. And in Kibera, the interest rate can be up to 10% a week. So you live hand-to-mouth, you have nothing extra, something bad happens, you start borrowing, and then things start escalating downward.

So we wanted to to help people keep a little bit of money for a rainy day. And we wanted to design a system that will help them do that. And the first principle of this system was friction. Let’s make putting money into savings account easy, and let’s make taking it out a little difficult. Because if it was easy to put in, easy to take out, people would take it out. But if it’s easy to put in, and hard to take out, maybe more money will stay in the system.

So we created a system with M-Pesa, the Kenyan payment company, and with investment bank. And the system was such, that it was easy to put money in, but every night M-Pesa would move the money to the investment bank. And because of that, people couldn’t take the money back through M-Pesa. They had to take a bus, go to the city, go to the bank, fill a form, wait an hour, get the money, take a bus back. It could take four or five hours. And this was on purpose, right? Because we wanted them to have access to the money, if they really needed it, but we didn’t want everything to become an emergency.

OK. And then on top of that, we said “OK. Saving is not sufficiently motivating by itself. Let’s add some motivations to it.” And we tried lots of things: we tried a weekly reminder in the text message, we tried reminders from their kids, we tried to give them 10% bonus, 20% bonus. But we also tried this method, where we gave them a coin, the coin had 24 numbers written on it, it was a coin that we made. And we asked him to put the coin somewhere in their hut, and we said, “Every week take the coin, take a knife, and scratch the number for that week. Scratch it one way if you saved, in a different way if you didn’t save”. And what was amazing is that this coin created much more saving than anything else.

And the question was why. And I’ll tell you how I started thinking about the coin. So I was in Soweto – a slum in South Africa – and I was sitting in a place that sells funeral insurance. So in South Africa funerals are very expensive, in Soweto people easily spend a year to two years of income on funerals. It’s the biggest celebration of their life. In the Western World, people spend a lot of money on weddings, in South Africa it’s funerals. And before you judge them as being irrational, I just want to remind you that with funerals at least, you know, you only have one in your lifetime.

Caitlin: And there’s no registry for it. I had no idea, so interesting. Okay, sorry, go ahead.

Dan: So I sat in this place, and they sell funeral insurance. And this father comes in, and he buys funeral insurance for a week. Which means that it will cover him only if he dies in the next seven days. And you know, this is a very poor person. He buys insurance for either a week or a month, in this case he bought it for a week. And he takes a little piece of paper, and in a very ceremonial way gives it to his son. And as he gives it to his son, I think to myself, you know, what is this father doing? Why this ceremony?

Now, think about the very poor family, where the bread winner decides to diverge some money into saving or insurance – what is the family going to see tonight? They’re going to see less, right. At that level of poverty, every schilling or every dollar that you put away into a different path, every rent, is going to mean less food, less water, less kerosene, less something tonight. If you’re not as poor, it will be less this week. But in general it’s going to be less food on the table. And what this father was doing, and also what our coin was trying to do, was to say to the family it’s lot less it’s different. It’s true that you see less food on the table, but there’s another economic activity that was invisible before and now is visible.

And for me, the whole point was about this idea that two thousand years ago, people saved in goats, or cattle, or chickens. And when we saved in livestock, this was very good because we could see how much our neighbors were saving. You could come home from the office, and you could see how many chickens your neighbor has, and you could compete on who has more chickens. And we could compete on stored value, we could compete on who has more savings. But as we invented money, and then digital money, it became harder and harder for us to understand what our neighbors are saving.

On the other hand, it became much much easier for us to see how much our neighbors are spending. So imagine if we have these two activities: spending and saving. One of them is completely invisible – the one called saving. One of them is very visible – the one called spending. Which one are we going to focus on?

Caitlin: We’re going to focus on the material. Sorry.

Dan: That’s right. No, we’re going to focus on the one that you see.

Caitlin: Right, the material goods. And I guess that’s why jealousy also arises too.

Dan: Yeah. But you know, you can imagine the jealousy would have been great, if we would be jealous in how much other people are saving. But of course, we’re not jealous of that. We don’t know how much we’re saving. So we got the society that is emphasizing to a very large degree spending.

And here’s the the question, like, I don’t think, we did it on purpose, right. I don’t think, somebody sat there and said, “Let’s get people to stop saving and buying insurance, and let’s get people to spend more”. But we inadvertently created money in a way that was not very helpful. And now the question is can we do something to fight that tendency? So if you and I were sitting together, and we said, “Let’s invent the next electronic wallet. Can we invent a new electronic wallet that would be better? That would help people think about saving.” And we’ve started doing all kinds of things like that, and it turns out it’s possible and actually very helpful as well.

So for me, you know, one of the big lessons from behavioral economics, is that the environment matters. And we can design one kind of environment and get one kind of behavior, different kind of environment get a different kind of behavior, but we have to think about what environment we’re creating. And in the case of savings, I think we kind of went the wrong direction. And we also going the wrong direction on spending. So you remember, in the book, we talk about the pain of paying.

Caitlin: I wanted to eventually get there. I’m happy you just led us right to it.

Dan: Yes. So the pain of paying is this incredible force that when you think about it, you recognize it. So you go to dinner tonight, it’s a $100. When do you feel more unhappy: if you pay in cash or when you pay with a credit card? And you know, everybody has this strong feeling that credit card is easier. And the question is why? Why is the credit card so much easier? And the answer ends up being very very simple: it’s because when you pay with a credit card, it’s really unclear exactly when you paying. When you pay with cash, it’s very clear that the money is leaving your wallet right now.

And we can make it worse, right? So imagine that I own the restaurant. And I figured out that people pay $50 for 50 bites on average. And I came to you and I said, “Because you’re such a wonderful kind human being, I’ll only charge you 50 cents per bite”. Most people eat 50 bites and pay $50, a dollar per bite. I’ll charge you half price, it will only be 50 cents for bite. And not only that, I’ll only charge you for the bites you eat. The bites you don’t eat, you don’t need to pay for. And then we can ask, how much fun will that meal be?

Caitlin: Oh my god, not very much. But it sounds like it might be a good diet strategy.

Dan: That’s right. It’ll be a diet strategy, you will eat less, you will think more about each bite, but certainly not pleasurable. When I teach my students about the psychology of money, I sometimes bring pizza and I charge them 25 cents per bite. And what happens – huge bites. And you would think that they would take one huge bite and they would learn that this is not a good strategy, but they don’t. They take one big bite after the other, and they end up not enjoying the whole process. But every time they stand there with a pizza, they have this temptation to try and, you know, just push a little bit more in. And make it slightly more more effective, but of course very very unpleasant.

So let’s think about the pain of paying. As we moved from cash to checks, to debit cards, to credit cards, and now we’re moving to Apple pay, and Android pay, we’re basically getting less and less pain of paying. Have you heard about this new Amazon store, that they’re doing that you get to walk around, and pick whatever you want, and then you don’t see prices, and they just charge you at some point later?

Caitlin: I haven’t heard of this, no. But it sounds diabolical and really convenient.

Dan: Yeah. Yeah. Exactly. So that creates the least amount of pain of paying, but of course, would create much more spending and much less saving.

So now, think about what kind of technology do we want to create, right? So we said, “OK, already we want to create technologies that help people see saving more, and make it more visible. And then we want to make technologies that help us bring back some of the pain of paying. And then maybe the third thing is, we want to create technologies that also help us understand the opportunity cost. You know, I’ll give you another example for this.

So there was a study done in the North of India. This was done with migrant workers. So imagine people in India, who don’t have enough money or employment would they live. And they travel far to the North of India to work and send money to their families. But as you might expect, every place that there is, you know, men working, there’s also temptation. And what happened is that they basically end up spending more and not sending a lot of money back. So in this experiment they compared three things. Condition one: one third of the people got an envelope at the end of the week with all the money for the week. Condition two: people got four envelops. They took the same amount of money, divided equally between four envelopes, and sealed the envelopes. And what do you think happened?

People spend less. And in particular, they stopped at the end of the envelope. This is what is called the decision point. The idea is that once we open an envelope, we just keep on spending. But when we get to a place where we need to open a new envelope, we basically pause and we ask ourselves, “Do I really want this?” And if the answer is no, then we stop.

But the most interesting condition was the third condition, in which they basically gave people the same four envelopes, but they also wrote their kids’ names on the envelopes. So, you know, Johnny, Joey, Beth, Elizabeth, whatever the names were. And now what happened is people thought more about the opportunity cost, right? They basically said, this is money that is aimed at my kids. It’s waiting for them. The opportunity cost is I’m taking it away from my kids. Do I really want to do it? And people ended up spending even less money.

So the electronic wallet of the future, you know, could become one, where we just get people to spend more. But I’m hoping it would become one, where we help people understand the opportunity cost, where we help people be more aligned with their goals, we help people kind of take pride in saving, and we increase the pain of paying, so that people are more thoughtful about their spending.

Caitlin: That sounds like a fantastic idea. But in a capitalistic society, how likely do you think that actually is?

Dan: So, you know, none of the existing big banks have an incentive doing that, right? They’re making lots of money now, why would they would act differently? But I think startups… So here’s the thing, if I tell you, “Look, I have an electronic wallet. It does all of those things. Would you pay me a $5 a month you use that?” You might say yes, right. So it would still be a capitalistic system. But right now, they’re charging you without you knowing, and without you understanding. And it’s not really a system that goes into your interest.

But I’m hopeful that if we could get people to understand where they fall and make mistakes in our financial decision-making, and that new systems would help us behave better, that we would adapt them if we understand the pitfalls of where we fail, I think, we might be willing to pay explicitly for that.

Caitlin: So interesting. For one, I would definitely invest in that wallet because I could really use it.

Dan: We all, we all, right? And the thing about financial decision-making is that it’s, of course, extra tough for the people with low income. But we all make mistakes. And you look at very successful athletes in the US. There was a study that looked at, you know, these people who get, you know, millions of dollars of contracts. And the vast majority of them is broke three years after they retire. And they retire of course at a young age. Dealing with money is just really really complex, and we’re not helping.

And there’s a really interesting contrast between physical and mental. So, if you said what have we achieved in the last 300 years as a human race, I would say a lot of what we’ve achieved is to overcome our physical limitations, right? So, we created chairs, and tables, and lights, and cars, and air conditioners, and all kinds of things that make us able to function in the better way. We can’t stand for many hours – so we have a chair, we can’t run very fast – so we have cars and airplanes, and so on. In the process, we’ve also made our lives much longer – we need to worry now about retirement – and much more complex in health, education, finance, sleep, stress. All of those things are much much more complex.

So we’ve made our lives more more complex. And we need the equivalent tools in our mental lives. So, you know,what is the chair for financial decision-making? What is the plane? What is the lights, the air conditioning? And with physical limitations, we see our physical limitations very clearly. We understand that we can’t stand for many hours. When we come to think about money, or health, or relationship, or whatever it is, we don’t always see our limitations in the same way. It doesn’t mean that they’re not there, we just don’t see them in the same way. But we need to understand that they’re there, we need to figure out what we want to do about it and then improve it.

Caitlin: It strikes me with what you just said is it really just a matter of being able to accurately visualize what all of these mental processes that aren’t so great for us are actually doing to us, and visualizing future outcomes?

Dan: No. And the reason it’s not so easy is because life is tempting. So, you go into a grocery store in the supermarket, let’s say, and you have a plan for what you want to buy, right? But the supermarket has a different plan, right? The supermarket wants you to buy more than what you wanted to, they want you to buy things that have high margins for them. And not only do they have a different plan, they also control the environment. They get to decide what’s at the end of the aisle display. And what you’re going to stand next to, when you stand next to the cashiers. And what you’re going to see on the way to the vegetable counter. And because they get to decide what your environment would look like, they get to influence your decisions.

So it’s one thing to know. But execute is not as easy. This is why the tools of execution, like credit cards versus cash, make a big difference. Because it’s not just about knowing, it’s about at the right moment having the tools, the thoughts, the ability to resist at the right moment.

Caitlin: I do not want to keep you past your hard stop time, but I do have two more questions for you, and I hope that we can get to both of them. But I’ll do the most important one first, and that is: if you could leave everyone listening today with an idea about how to be a little bit less bad with money, what would you tell them?

Dan: So I think, it’s about being more explicit with our financial goals. And our financial goals can be: I want to buy a new car in three years, and I want to spend money on summer vacation, and to basically try to get life not to derail us from those goals. So if we want to spend money on summer vacation, write that goal down and when you pass by a store that has an amazing sale on, you know, whatever computer equipment or hats, don’t get derailed from your objectives. So, that’ll be one.

The second thing would be to try to figure out what kind of things we do in life, that don’t give us as much happiness as we hoped. So, in one study, we went into people’s credit card statement, and we brought the credit card charges one by one, and we said to what extent this was a right decision versus something you regret. And there’s a lot of things people regret. Often people regret going out, not because going out is a bad idea. Just because we go out, we end up eating too much, drinking too much, and waking up the next morning saying, why did they spend so much, ate so much, drank so much. So when we buy something, it’s always forward-looking, we say, what do we want to do moving forward, how happy it will this make me.

From time to time it’s good to look backwards, and say how did it make me feel, was this a good decision? And the things that made us feel good, and we think were good decisions, let’s do more of those. And the things that didn’t, let’s do less of this.

Caitlin: That seems like good advice for pretty much everything, not just protecting your wallet. Thank you. And then the last thing I always like to ask our guests is what have you read lately that you’ve enjoyed?

Dan: So, I’m in the middle of reading, Michael Pollan’s new book on psychedelic drugs (How to Change Your Mind: What the New Science of Psychedelics Teaches Us About Consciousness, Dying, Addiction, Depression, and Transcendence by Michael Pollan).

Caitlin: Yes, I’ve heard about that, I haven’t read it yet though. How are you feeling about it?

Dan: So, I think, you know, so far it seems like a solid piece of research. And really interesting, and I know from interviews with him that he starts by, you know, being more against psychedelic drugs, and end up being more in favor of them. And I’m looking forward to kind of understanding his journey in a better way.

Caitlin: It is just about exactly 10 o’clock the better way let you go so that you can have a day. Thank you so much for spending your morning with me. I really appreciate it. And I will get in touch, when we publish.

Dan: Very good! Pleasure talking to you.

Caitlin: Okay, likewise. Thanks so much.

The Bookend

Ben: Welcome to The Bookend where we end with books.

Caitlin: Hurray! And perhaps more money in the bank than before.

Ben: Yeah. You said money, you guys did talk about money.

Caitlin: We talked about money a lot. I think my favorite part though was when he talked about South African funeral culture. It was so interesting to me: the idea that people there prioritize the party that is the funeral over the wedding even. And I think that’s really interesting. You can’t even be there to enjoy that party. :,-(

Ben: So, are your book recommendations about South African funerals?

Caitlin: Uh, no, but if there are books out there about it, I would totally read them.

Ben: Okay, so you want to go first about book recs?

Caitlin: Yeah. So, this first one is a book that a lot of my friends recommended actually, and I’ve seen it get really good reviews on Amazon. And I’ve resisted it because I think the title is kind of cheesy, but it’s okay because the content is good. I just got it for myself and I skimmed it, and I’m really excited to start actually doing the things that are inside of it. It’s called I Will Teach You To Be Rich by Ramit Sethi. He is a personal finance guy who learned pretty much everything by himself. And the book is actually really funny. It’s very voicy which isn’t something that you usually get from a finance book, and it’s just straight talk and financial advice. I think it’s like a five-week plan to get yourself financially set up. The thing that I really liked about it and the reason that I ended up buying it is because it focuses to a great extent on systems you can set up, so you don’t have to think about savings at all. Just like, do it once and then you’ll be accruing interest forever and ever and ever.

Ben: It’s not that bad of a title because of this voicy thing. He is teaching, it is like a teaching thing. So I Will Teach You To Be Rich is like, it does sound a little bit cheesy, it’s all very small words –– which isn’t a bad thing, but it does have that possibility to look like a kind of shallow book. But I think you’re right that um, oh man, what’s the name of the thing? It’s a crude interest…

Caitlin: Compound interest?

Ben: Yeah, compound interest.

Caitlin: Cool. All right. What are your books? Tell me about them. It’s a secret book list.

Ben: OK, are you ready for this?

Caitlin: Yes, drop it.

Ben: So at one point in the interview, Ariely says, “It makes it hard for us to think about trade-offs” which is like the most Dan Ariely thing to say ever.

Caitlin: Well, the “it” being money and how money is kind of like invisible in an idea.

Ben: Because for some reason we don’t act ideally, we don’t think logically. I mean, we think that we think logically, but many times our brains make mistakes that we’re not aware of which is dangerous.
So, I tried to think about book list about this kind of idea: trade-off, bad decisions, which eventually almost always leads back to behavioral economics. But instead of thinking about topics, I try to think about authors.

Caitlin: OK.

Ben: Because I think, Dan Ariely, the reason why he’s cool, like there are a lot of people that study behavioral economics, but he’s cool because he’s an interesting guy. He burned his face off as a child, or burned almost all the skin off as a child. It’s quite intense. He’s very smart. He tells a good story. He tells a good joke. He does a TED Talk with a shirt with his name on it, which is like got this whole other behavioral economic background.

OK, so the first book is Thinking, Fast and Slow, it has to be. Daniel Kahneman won the Nobel Prize for the research that’s in there.

Caitlin: Shut up… Sorry. LOL

Ben: It has to be Thinking, Fast and Slow by Daniel Kahneman, he’s like the granddaddy of behavioral economics, he won a Nobel prize for the research that’s in the book. It’s only been out for a few years––the book––but when it comes to like popularizing the research and academics behind it, it’s been huge. And I think Ariely has studied with him at some point. It’s kind of like, if you’re interested in all these things, if you’re interested in behavioral economics, you have to at least tip your talent. If it’s too long, and by the way, everybody can just skip the chapter and research specifics obviously, read the Blinks, they’re awesome, I wrote them.

The second thing, The Power of Habit by Charles Duhigg. You talked to Charles Duhigg last year.

Caitlin: I did!

Ben: Do you remember anything from the interview?

Caitlin: I remember that he gave me a time limit upon arrival, and it was not at all what I expected it to be. And he showed up to the interview an hour early and made me feel like I was already late. It was really a ninja trick.

Ben: It was a ninja trick. So he’s cool because he’s not an academic at all –– he’s a journalist. And he has gone and collected all these stories from people about like how he stopped eating a cookie, how to show up for meetings in a way that messes with people, and he explains behavioral economics that way. He’ll go through thousands of stories, sift them down, wrote a book about the coolest. you could check out is Power of Habit.

Third recommendation… Here we go. Ready?

Caitlin: Wow! This is a really long list.

Ben: Drunk Tank Pink by Adam Alter. Do you know that guy?

Caitlin: I do know that guy. I mean, not personally.

Ben: He’s like one of the most enjoyable writers about behavioral psychology and economics. He’s one of those cool young professors who can speak academic, but also explain his topics with a certain style. So, you know, what “drunk tank pink” is?

Caitlin: Does it have to do with that game at the carnival where you throw a ball at paddle and somebody gets plunged into water?

Ben: And like the homecoming king or something?

Caitlin: No, I don’t know. What is it?

Ben: It’s like the color they painted the drunk tank in some prison somewhere, some jail, where they threw the drunks. They found out that like this pink actually soothed them. So again, how certain things from the environment affect us, affect our decision-making that we’re not aware of.

Caitlin: I wonder how similar that shade is to Pepto-Bismol, it soothes my stomach.

Ben: Very close. Yeah, you’d be surprised. Anyway, I have lots of other ones but I think that we can just end there. So if you want to know about behavioral economics or behavioral psychology, read Daniel Kahneman, read Charles Duhigg, read Adam Alter, and definitely read Dan Ariely.

Caitlin: Awesome. That’s a great list. I like all of those books.

Ben: Cool.

Caitlin: This episode of Simplify was produced by me, Caitlin Schiller, Ben Schuman-Stoler, Nat Darozhkina, and Ben Jackson, Terence Mickey –– who’s new

Ben: Hey, new guy!

Caitlin: And Ody Constantinou. Ben, what has he been up to lately?

Ben: Where it is? Ody’s just got his florist license. He’s working on some kind of bouquet technique inspired by the Bauhaus architecture, specifically the concept of form follows function. So I mean, I’m definitely pumped to see what shows up on my desk regarding roses, red roses, you know.

Caitlin: The language of flowers. Wow, cool. Anyway.

Ben: You can find us on Apple Podcast, Spotify, all the podcatchers you know and love. And, you know, as always, if you like this episode or if you just really like listening to Caitlin, share this episode with people because we appreciate it, it really helps.

Caitlin: We do. And we would love to hear what you think of the season so far. Are you liking the guests? How about the slightly altered format? Let us know what you think––we care, and we use your feedback to make changes. So email us at [email protected] or on Twitter: I’m @caitlinschiller, Ben’s @bsto.

Ben: Cool, and last thing real quick simplifies made by the same people who make blankets, which if you don’t know, um is where Caitlin and I work and it’s a learning app that takes insights from the world’s best-selling non-fiction books and condenses them into focus a little capsules of knowledge available in audio or text you can listen to or read in just 15 minutes.

Caitlin: Yes. So and if you want to try it out, we made another voucher code for this episode. You can get 14 days free, if you go to and type in the voucher code: broccoli.

Ben: How do you spell broccoli?

Caitlin: How do you spell broccoli?
(Rants about broccoli’s spelling)

Ben: Well, then cool. See you guys next week!

Caitlin: Great. Bye!

Ben: Checking out.

Caitlin: Checking out.

Read the show notes for this episode here!

Facebook Twitter Tumblr Instagram LinkedIn Flickr Email Print