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If you think you’re especially horrible at managing money—you’re not. And if you think students are especially horrible at managing money—they’re not. In fact, our entire species is horrible at handling money, according to a large body of research. Even as we’re thinking we’ve got the hang of it, we’re making basic errors.

For that matter, it’s not just our species. When researchers taught monkeys about money, the monkeys made the same irrational mistakes as us. And, like us, they made those mistakes over and over. Several deeply embedded biases mess with our thinking and wallets, according to behavioral researchers.

+ A monkey economy as irrational as ours – WATCH

+ Are you irrational about money?

Are we doomed to financial struggle? No. We can learn to recognize, understand, and anticipate our financial vulnerabilities. These 20 techniques help us establish habits that enrich us over time, rather than impoverish us.

1. Carry cash, not cards

Except for when you truly need a credit or debit card, leave it behind. In studies, using cash is consistently associated with lower spending and more deliberate (and healthier) purchasing choices.

2. Request money gifts in cash

A gift certificate or prepaid debit card may feel more elegant, but cash is worth more in the end.

3. Pay off your credit card every month

Automate that payment. And never use credit cards for nonessential purchases.

4. Review your automatic payments

Check for “bill creep,” like rate increases and extra charges. Be ready to shop around for a better offer.

5. Watch your bank fees

Be aware of bank charges for overdrafts, insufficient funds, and ATM withdrawals. Set up alerts for when you’re approaching a low balance.

6. Reorganize your apps

Sure you need Uber or Lyft to get home? Make any apps related to spending less visible on your phone. The exception is your budgeting app, which should be front and center on your phone screen.

Cash vs. plastic: science-based strategies

Carry cash, not cards

What’s poor about plastic?

  • We’re more likely to buy something if we’re paying with plastic than if we’re paying with cash, says a 2012 study in the Journal of Consumer Research.
  • That’s because handing over cash gives us a painful emotional jolt, while paying with plastic is just too comfortable, according to the Journal of Experimental Psychology (2008).
  • Paying with credit cards is associated with less healthy food choices. A 2011 study of shopping behavior found that shoppers using credit or debit cards picked up more food items that were considered unhealthy. When we encounter cookies, cakes, and pies—and when we’re paying with plastic—“the emotive imagery and associated desire trigger impulsive purchase decisions,” researchers wrote (Journal of Consumer Research).
  • For when you do use plastic, set up transaction notifications on your banking or budgeting app. This may help you maintain a more realistic sense of your spending.

Request money gifts in cash

Why ditch the gift cards?

  • As we’ve seen, cash gives us the gift of uncomfortable self-awareness about our expenditure (see #1). With other forms of money, like gift certificates and credit cards, we’re more inclined to get reckless.
  • “[A] less transparent form of money, such as a gift certificate, is more likely to be treated as play money and thus more likely to be spent than an equivalent amount of cash,” say researchers in the Journal of Experimental Psychology (2008).

Pay off your credit card every month

In full, every month, for real?

  • Credit cards involve passive, behind-the-scenes transactions. They make spending too comfortable and going into debt too easy. Consumers using plastic are more focused on the benefits of the product than on the cost, according to a 2011 study in the Journal of Consumer Research.
  • Passive transactions can work for you if you use them to avoid debt and save money. For example, when you automatically pay off your credit card every month, you’re building your credit score while avoiding racking up interest charges.
  • Speaking of, remember that every time you use your credit card you’re taking out a high-interest loan. “A major problem is that some consumers underestimate the total costs of piecemeal borrowing. Apparently people who would never take out a big loan are willing to take out a number of small loans that are big in the aggregate,” writes Dr. Cass Sunstein, a leading behavioral researcher (in New Republic). “One survey found that small purchases of non-essential goods (including movies and DVDs) are a major contributor to credit card debt. Financial distress, including consumer bankruptcies, is a possible consequence.”

Review your automatic payments

Why is this worth it?
  • Paying bills automatically can help protect us from overdue charges and bad credit. The downside: Automatic payments are another example of passive transactions, and these have risks. When we pay bills automatically, we’re not watching our spending or looking around for better options.
  • For example, in a 2007 study published by the National Bureau of Economic Research, states with electronic toll collection systems raised rates more than states that didn’t. It was relatively easy for electronic-tolling states to hike up their charges, because consumers were less conscious of the cost than they would have been if they were handing over quarters and bills every time they took the highway.

Watch your bank fees

How do small charges get so big?  

  • Millennials are the age group most likely to overdraw their bank accounts, according to the Consumer Financial Protection Bureau (2014). That’s largely owing to repeat offenders.
  • Often, overdrafts are the result of small transactions. Going overdrawn makes these transactions far more expensive. “About 11 percent of millennials overdraft more than 10 times a year, and these overdrafts were typically for small purchases under $24 and were paid back within three days. With the median overdraft fee equaling $34, borrowing $24 for three days is like taking out a loan with a 17,000% annual percentage rate,” says Time.com.
  • If you’re paying $2.95 to withdraw cash, two withdrawals a week are costing you more than $300 a year. It’s time to get yourself to a free ATM. If you pay for everyday expenses using a debit card (which is risky, as we’ve seen), take advantage of cash back—no charges there.

Reorganize your apps

Why out-of-sight is out-of-mind  

  • Ordering a car ride online is a non-cash transaction. And we know what happens with non-cash transactions. They make it way too easy to spend money.
  • Our behavior is powerfully influenced by our environment. Without the in-your-face temptation of the car service icon, it’s easier to save that service for emergencies only.

+ How to hide apps on an iPhone – LEARN

How to hide apps on an Android – LEARN

7. Leave store items in place while you shop

While you’re deciding whether or not to buy something, don’t carry it around the store with you.

8. Get rid of stuff you don’t use

Let go of the $150 bike in the garage; sell it to the friend who’s offering $70. Cancel your neglected gym membership.

9. Free? Ask: “Would I pay for this right now?”

Free trial? Free shipping? Free gift? Be very careful. If the offer is for a product or service you would not pay for right now, decline it.

Why to fear loss less and “free” more

Leave store items in place while you shop

Why not to get too close too soon 

  • “Retailers know that once you have held an item in your hand, you’re psychologically tied to it and you don’t want to give the item up. The longer you have it in your possession, the stronger that connection, and the more you are unwilling to part with your new stuff,” writes Emily Guy Birken at the personal finance blog MoneyNing. “It’s much easier to leave the cute purse or new gadget behind if you’ve never thought of it as ‘mine!’”
  • The key psychological concept here is loss aversion. We really, really don’t like losing something, behavioral research shows. That can distort our thinking and decision making.

Get rid of stuff you don’t use

Why is holding onto stuff expensive?

  • We have trouble giving stuff up—even if, rationally, it’s not worth keeping. Again, this is about loss aversion. We work considerably harder to avoid, say, a $50 loss than we do to make a $50 gain, research shows.
  • That’s because we factor in our possible regret: “Maybe I’ll suddenly want to hit the gym after all.” But the money we paid up front is already gone, and it makes sense to limit the financial damage.
  • Loss aversion is part of what makes gambling addictive. For most of us, it’s relatively easy to resist a gamble that offers the small chance of a financial win. But once we’ve paid to play the game and lost our upfront cash, it’s hard to walk away—we’re driven to try to win our money back.

+ How loss aversion leads to horror headlines – LEARN

Free trial? Free shipping? Ask: “Why would I pay for this right now?”

Why “free” isn’t freeing

  • We ❤ “free,” but we can’t handle it. Much research shows that “free” can wildly distort our thinking and choices. This makes “free” a great opportunity for retailers.
  • “For some reason, the word ‘free’ seems to scramble our brains,” writes Jeff Rose, CFA and author, on his website Good Financial Cents. “We forget what other costs there might be to that item or service because we are so focused on the fact that we’re not paying money. What’s really interesting is that we are willing to pay more in order to get something free.”
  • Free product trials capitalize on loss aversion. The cable company knows you’ll be more willing to pay to keep your HBO going than you are to just buy it outright.
  • Free samples—even those nano-servings of prepped food in grocery stores—invoke our sense of reciprocity. They change consumers’ purchasing behavior and boost product sales, according to a 2011 study in the British Food Journal.

+ Watch Dan Ariely explain what “free” does to our thinking – LEARN

10. Make a budget

If you aren’t actively budgeting, start now. Simplify the process with a free or low-cost app.

11. Ask: “What else could I do with this money?”

“A friend of mine did this when she was a poor college student and she thought of everything in Ramens (her go-to cheap meal, which only cost $0.25 each) rather than dollars. If she wanted a new CD, $14 might seem reasonable, but 56 Ramens (nearly two months of dinners!) was far more than she could afford to spend,” writes Emily Guy Birken at MoneyNing.

12. Contract? Be skeptical of upfront costs

When you’re shopping around for a loan, phone plan, or anything else that will involve ongoing payments, be aware of how powerfully the upfront costs may influence your decision, and what that means.

13. Know your phone use

How frequently do you exceed the number of minutes on your phone plan, and by how much? Most of us can’t answer those questions accurately.

14. Get a money coach or club

Accountability is key to regulating or changing our behavior. When you’re planning to manage your budget, pay down a loan, or reduce your spending, it’s helpful to engage an ally you respect.

Habits that offset human funkiness

Make a budget, make a budget, make a budget

What’s up with that?

  • “The biggest challenge to budgeting is the idea that because students have limited resources, they don’t need to take steps to take control of their finances. They do,” says Bryan Ashton, BSBA, assistant director of the Student Life Student Wellness Center at The Ohio State University.
  • This principle starts now and applies throughout your life. “Pay attention to the little things,” says Dr. David Just, a professor of behavioral economics at Cornell University. “Reevaluate the decisions you’re making day to day with your money” (quoted on CreditCards.com).
  • In surveys by Student Health 101, students recommend Mint.com, AllBudget2, bank and credit union apps, LearnVest.com, CreditKarma.com, and YNAB [You Need a Budget].

Ask: “What else could I do with this money?”

Why is this comparison important?

  • Being exposed to sticker prices has a powerful effect on what we are willing to spend. Psychologists call this the anchoring bias. Say you’re planning to spend $35 on a pair of jeans. In the store, you see jeans priced up to $150. You end up buying a pair for $50. You’ve spent significantly more than you intended, but your new jeans seem like a bargain compared to the $150 brand.
  • In other words, we think about money in relative terms, not absolute terms. That’s why we go to some effort to cut $15 from our grocery bill but don’t hesitate to pick a $225 vacation rental over the $210 option.
  • To some extent, you can offset this bias. “In order to combat the effect of anchoring, it’s important to put your own anchor to the amount of money you would otherwise spend,” writes Birken. The Ramen trick (on the page) is an example of self-anchoring.
  • Another anchor to consider: “Between your graduation and your retirement, if you save $10 a day and invest it in the stock market, when you retire you will likely have $1 million from those savings alone,” says Larry Pike, CFA, a financial planner in Needham, Massachusetts.

Contract? Be skeptical of upfront costs

Why are contracts difficult to get right?

  • Again, this is about the anchoring bias. Those numbers, such as the initial payment and the minimum monthly payment amount, “anchor” our purchase decision. But these numbers can be misleadingly low. Over time, a loan or phone plan may cost you more than you anticipated—maybe more than a similar product with a higher start-up price. That’s bad for you and good for the seller.
  • Another bias that comes into play: optimism. “If people are unrealistically optimistic, they will accept contract terms including high overuse fees and late fees—dismissing the risk that those fees will come back to haunt them,” writes Dr. Cass Sunstein, co-author of Nudge: Improving Decisions About Health, Wealth, and Happiness (Yale University Press, 2008) (in New Republic).
  • These biases are compounded by the complexity of loan agreements and service contracts, which obscure the real costs. This is why the Affordable Care Act (“Obamacare”) requires health insurance companies to clarify pricing information. It’s also why the Consumer Financial Protection Bureau is pushing for simple language, so consumers can “know before they owe.”

Know your phone use

What’s up with that?

  • “Your cell phone plan has a set of features, and you should know what they are. But the cost of your plan does not depend only on those features. It depends also on how you use the phone, and it is important to know that, too,” writes
    Dr. Sunstein (in New Republic).
  • Two out of three US cell phone users have the wrong plan for their needs—a mistake that collectively costs us more than $13 billion a year, according to the Journal of Empirical Legal Studies (2012). A pricing manager at a top phone service provider says: “People absolutely think they know how much they will use and it’s pretty surprising how wrong they are” (quoted in a 2009 study).
  • Need a new phone or phone service? Look carefully at whether the steep phone discount is worth it over the long term. Getting locked into a contract may cost you more in the end.

Find a money coach or club

Why does social support work?

  • Accountability is key to behavior change. Demo your progress to your coach or ally, and know that they will know if you slip. “This way you have a built-in motivator who will make you think twice before you go off the plan,” says Dr. Hersh Shefrin, professor of finance at Santa Clara University’s Leavey School of Business, California (LearnVest).

15. Reward yourself for weekly check-ins

Schedule a regular half-hour each week to review your recent spending. First, get it on the calendar. Second, figure out how you’ll reward yourself each time.

16. Automate your savings or repayments

If you have regular income going into your checking account, and you’re saving money or making loan repayments, set up automatic deposits into your savings or loan account.

17. Deposit large sums into savings

Better still: When you receive a large payment, like the portion of a student loan intended for living expenses (a “refund check”), deposit it directly into your savings account. If you come into money unexpectedly, get it into your savings account and wait several months before deciding what to do with it.

18. Check your routine spending

Does it still make sense for you to subscribe to SitcomFix and get lunch at the Burrito Burrow? Your favorite show got canceled and the wraps aren’t such a good deal now. See what changes are due.

19. Pay down your highest interest loan

Do you have more than one loan? First pay off the loan that has the highest interest rate, rather than planning to reduce your total number of loans. Look at the interest each loan has accumulated so far. Consider consolidating your loans (combining them into one).

20. Chill before (and while) you buy

Before you go shopping, relax. And pretend you’ll be making the purchasing decision a week from today. 

Short-term instincts, long-term lives: How to make it work

Reward yourself for weekly check-ins

Why immediate rewards matter

  • “The most important step is to understand where your money really is going. If you can’t get a handle on your spending, it will be difficult to take control and make changes,” says Larry Pike, CFA, principal of Client Priority Financial Advisors in Needham, Massachusetts.
  • Intellectually, you know that good budgeting habits will work for you in the long run, but research shows that immediate rewards are more motivating. Use that. Follow your budget review with a Netflix movie or a DIY mani-pedi, or work a self-bribe into that budget as you go.
  • Also: Block out the time on your calendar. This is also key to getting things done. Studies prove it.

Automate your savings or repayments

What’s the deal with putting our money out of reach?

  • Humans evolved for day-by-day survival. Even as we live until 75 or 80, our instincts remain stuck in the short term.
  • Be realistic. Optimism is a delightful personality trait, but it makes us less likely to put funds aside to deal with future setbacks—even though we’re all bound to experience setbacks sometimes. Optimism is a strong human bias and it leaves us financially vulnerable, say behavioral economists.
  • Save money by eliminating the temptation to overspend, writes Dr Dan Ariely, a leading behavioral economist based at Duke University (on his blog). When you get into the workplace, start your retirement planning: “401(k) plans take the money right out of our salaries, forcing us to manage with the leftovers.” Similarly, “The key to growing your money turns out to be putting it in a decent fund and forgetting about it. A Fidelity Investments study showed that the best long-term savers are people who forgot that they had a savings account. (Dead people with saving accounts have even better stamina.)”

Deposit large sums into savings

How can I catch that windfall before it rolls away? 

  • Do you receive an irregular lump sum to cover your living expenses? Each month, automatically transfer the appropriate amount from your savings account into your checking account. This way, an irregular sum functions like a regular paycheck, so you won’t spend money that you’ll need for future expenses. This counters the short-term “spend now” instinct.
  • How we handle money depends on where it came from. We spend inheritances, bonuses, and gifts differently from earned income or our regular, mundane allowance. Those financial windfalls don’t feel like real money, so we splurge or take risks—and then we regret it. This behavioral effect is related to the effort heuristic: We value items according to how much labor we think went into them.

Check your routine spending habits

Why does our past behavior get us into trouble?

  • Financial decisions are complicated, so we look for shortcuts. (Psychologists call these shortcuts heuristics.) A common shortcut is to replicate whatever we did in the past.
  • This saves time and mental energy, but it “can turn a few mediocre decisions into a long-term habit,” writes researcher Dr. Dan Ariely (on his blog). “The second downfall is that when market conditions change, we are unlikely to revise our strategy.” That burrito may have been the best lunch deal a year ago, but what if it isn’t now?

Pay down your highest-interest loan first

What’s complicated about how to pay back money?

  • People with multiple loans tend to underestimate the total cost of their loans and make misguided decisions about repaying them, research shows.
  • Typically, we are driven to pick one of our loans and pay it off (it feels good to go from three loans to two). This bias is known as debt account aversion. It would be more rational to look at the total amount we owe across all our loans and pay off the highest-interest loan first.
  • We can somewhat offset this bias by looking retrospectively at how much interest has built up on each loan over time, since that helps us focus on the real costs, according to a 2011 study in the Journal of Marketing Research.
  • In the same study, consolidating debts helped consumers manage their money more effectively.

Chill before (and while) you buy

How can we make shopping less exciting? 

  • When we’re agitated or excited—in a “hot state”—we are especially prone to making regrettable money decisions, behavioral scientists report. “Money, like sex, brings out some thought—but also much heavy breathing and little stored knowledge,” says James Grant, editor of Grant’s Interest Rate Observer (quoted in the New York Times).
  • To offset the excitement of a potential purchase, “pretend that it is not about what to do now but what you would like to do a week from now,” writes Dr. Dan Ariely, author of Predictably Irrational (Harper Perennial, 2010). “For example, think of the choice between chocolate cake and fruit for dessert as a decision that you are making for exactly one week from today. When the choice is framed this way, you might be more able to override the influence of your current emotional state and pick the option with long-term benefits.” This helps offset our short-term thinking, another powerful bias that hurts our money habits.
  • Here’s how nuts we can get with money when strong emotions are triggered: In a classic study, participants were willing to pay more for travel insurance that covered only terrorism than for a plan that covered all risks (including terrorism) (Journal of Risk and Uncertainty, 1993).
Martin Martinez

Martin Martinez Second-year undergraduate majoring in business administration at San Bernardino Valley College, California; SH101 Student Advisory Board 2015–16.

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Lucy Berrington is the editor of Student Health 101. Her work has been published in numerous publications in the US and UK. She has an MS in health communication from Tufts University School of Medicine, Massachusetts, and a BA from the University of Oxford, UK.