A fool and his money are soon parted.
Coined by Thomas Tusser in 1573, this saying has never been more relevant.
From phone calls from fake IRS agents to emails from Nigerian princes, old Thomas would be stunned by the dizzying array of ways todays con artists try to separate people from their money.
If youre reading this, youve probably been warned about the obvious scams…
Hopefully you also dodge the less obvious ones, like financial products with high fees that serve only the brokers account and not yours.
While those issues get more attention from the mainstream press, we should be more concerned about all the legal and legitimate ways were voluntarily parting with our hard-earned dollars.
Let me explain…
The Pain of Paying
In Dollars and Sense: How We Misthink Money and How to Spend Smarter, Dan Ariely, a James B. Duke Professor of Psychology and Behavioral Economics at Duke University, and co-author Jeff Kreisler, editor of PeopleScience, explore the pain of paying.
The pain of paying is what we feel when we think about giving up our money. The pain doesnt come from the spending itself but from our thoughts about spending.
The more we think about it, the more painful it is.
The pain of paying concept is based on studies using neuroimaging and MRIs, which show that paying stimulates the same brain regions as physical pain.
Pain avoidance makes perfect sense in a world where saber-toothed tigers are lurking, a minor scratch can lead to deadly infections and fire is the hot new technology.
But as with many things, our evolutionary development has not caught up with modern technology. Fintech provides new ways to spend our money, seemingly on a daily basis.
So Many Ways to Pay, So Little Money
Just this week, Uber (NYSE: UBER) launched Uber Money, a new division featuring a digital wallet. Riders and drivers can use the feature to store funds, track transactions and make electronic payments.
The initial focus is to help Ubers drivers get paid and have access to funds in real time. Instant gratification is another feature of Uber Money, which limits the financial pain of using the platform.
Talking to CNBC, Uber Money chief Peter Hazlehurst focused on the needs of Uber drivers and consumers in the cash-heavy economies of Brazil and India.
He also expressed the desire to help all of those people have access to financial services.
Indeed, the ride-hailing giant is also offering upgraded debit and credit cards. It could ultimately offer no-fee banking accounts to its customers too, Hazlehurst said.
Ubers financial services efforts echo those of other tech giants: Apple (Nasdaq: AAPL) recently launched a credit card backed by Goldman Sachs (NYSE: GS).
Facebook (Nasdaq: FB) is also attempting to launch a cryptocurrency.
(Although Facebooks Libra looks dead on arrival after several corporate partners dropped out this month, Mark Zuckerbergs ambitions in financial services remain very much alive.)
But Wait, Theres More…
Also this week, Bakkt, a Commodity Futures Trading Commission-regulated custodian of digital currencies, announced plans to launch a consumer app and merchant portal in 2020.
The company listed Starbucks (Nasdaq: SBUX) as its initial partner.
Thats right… youll be able to buy a mocha frappuccino with bitcoin using Bakkts app!
But regardless of whether youre paying in cash or in bitcoin, youre still paying Starbucks prices…
Of course, these offerings by Uber and Bakkt are in addition to the myriad existing ways you can already pay for goods and services.
According to the 2018 U.S. Consumer Payment Study by Total System Services (TSYS), debit cards are the most popular form of payment in America. Theyre followed by credit cards and cash.
Debit cards have been No. 1 for several years. Theyre the top choice across all age groups.
Thats good because debit cards are cashlike for budgeting purposes, even if (from a neurological perspective) theyre slightly less painful to use than paper money.
Not surprisingly, TSYS study also found rapid growth in mobile payments and peer-to-peer payment apps, especially among 18- to 24-year-olds.
Todays consumers look for products, tools and solutions offering convenience, simplicity and speed, the study concluded.
Thats concerning because every step away from paying with cash diminishes the pain of paying.
Removing friction is good from a macroeconomic perspective. After all, more transactions drive more economic activity.
But this can be dangerous for a micro economy, such as an individual or family…
No Pain, No Gain
In his opening remarks to Congress on October 23, Facebooks Zuckerberg declared, Sending money should be as easy and secure as sending a text message.
Wrong. Convenience and simplicity are great for sending emojis, but not when it comes to money.
What Zuckerberg, Ubers Hazlehurst and everyone else involved in new forms of payment arent saying is clear…
The easier you make it for people to spend their money, the more money theyre going to spend.
Avoiding pain is a powerful motivator, Ariely writes. But it is also a sly enemy: It causes us to take our eyes off value.
Point being, youre probably already thinking about what youre buying – and whether you really need it or can get a better price somewhere else.
Even more important is to consider how youre making the purchase. And while it goes counter to our evolutionary development, the more pain you feel, the better.
So next time you find yourself in Starbucks or a local independent coffee shop, forget the silliness about whether treating yourself to small indulgences is bad.
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