If you have ever stood considering the price tag of an expensive item—albeit not in the presence of Milton Friedman or Ben Franklin—you’ll intuitively recognize that these findings are correct. Decisions about spending and saving evoke a complex mess of positive associations, negative emotions, and moral quandaries. Often, our sense of self is deeply connected to our attitudes toward money. Lauren Weber has collected many such stories in her new book, In Cheap We Trust: The Story of a Misunderstood American Virtue. She describes a food activist from New York who spotted a necklace during a trip to Italy. She loved the necklace, but it cost $1,000. She didn’t calmly weigh the pleasure of spending versus saving; rather, she described the ordeal as “an existential crisis.” Did she want the necklace? She did. Could she afford the necklace? She could. Did she buy the necklace? She did not—because she ultimately concluded, “Who spends a thousand dollars on a necklace? Not me.”
But if tightwads naturally feel a pain of paying, where does this pain come from? And why do some people feel it and others don’t? Scott Rick explains it this way: “My unverified instinct is that it’s largely something you’re stuck with,” he says in Weber’s book. “It’s genes, parenting, schooling, a combination of influences.” Loewenstein likens our spending tendencies to a behavioral trait like shyness—i.e., something you develop very early and that is subsequently very hard to change. “Studies have shown there are huge differences in shyness in young children,” he told me. “And while you can take a young child who starts out very shy and, given the right environment, move him toward the middle, it’s very unlikely and unusual for a shy child to transform into a real extrovert. I think this is similar.” So just as one sibling might be bashful while another is outgoing, one can become a tightwad while another spends freely. Of course, circumstances can influence your spending decisions—but not as much as you might think. A tightwad who wins the lottery may splurge a little more often, and a spendthrift who gets laid off will tighten his budget by necessity, but neither one is likely to convert into the other. Thus you have another example that Weber collected: a Manhattanite tightwad who walked three hours to work and back every day to avoid paying subway fare—then left $23 million to charity when he died.
Another recent experiment helps explain these irrational decisions. In a study published in 2007, Loewenstein teamed with Drazen Prelec of MIT and psychologists at Stanford to determine exactly which part of our brain makes decisions about spending. To do so, they took MRI brain scans of subjects who were given $40, then presented with a series of items they could purchase with the understanding that they’d keep any cash they didn’t spend. First a subject was shown a photograph (of, say, wireless headphones), then the price. When the team studied the scans, they discovered the subjects were making their spending decisions in an intuitive, even animalistic, manner. When a subject saw an item he wanted, it activated his nucleus accumbens, which is the area of the brain associated with anticipating or experiencing pleasure, such as eating a piece of cake. But when he saw a price he didn’t like, it activated the insula, the portion of the brain that reacts to unpleasant shocks, like a bad smell. So for tightwads, encountering an expensive item was literally unpleasant—like sniffing a carton of spoiled milk.
Of course, the Spendthrift-Tightwad scale might hold true for individuals, but as a nation, we’re irresponsible, rapacious consumers, right? Didn’t Americans just spend the last twenty years blithely racking up charges and running up debt?
Well, yes and no. It’s true that, when you spend more than you can afford—either as an individual or as a country—you will get yourself in trouble. That’s not morality; that’s math. But if Loewenstein’s findings are correct, we’ve been approaching the question of consumption in the wrong way. Because we regard thrift as a virtue, not a trait, our national discussion often echoes the tone of early alcohol-temperance meetings. Spender, repent! Debtors, you can be reformed!
Loewenstein sees it differently. One of the most surprising findings in his tightwads-and-spendthrifts study was that, on average, tightwads outnumbered spendthrifts 3 to 2. This was a small sample, of course, but it suggests that, rather than a nation of spoiled hedonists, we’re naturally inclined to be cheap—we just don’t always act that way. He also found that minor enticements—for example, adding the word small to the proposed $5 delivery fee—made tightwads 20 percent more likely to relent. In other words, if we feel a pain of paying, that pain can also be anesthetized. Loewenstein suggests that many of the now-identified culprits of the bust—easy credit, unsustainable home prices, a falsely robust economy—worked together to ease our collective pain. This is actually good news, because it means that the downturn—with its restrained spending, rising savings, and the disappearance of economic anesthetics like easy credit—isn’t forcing us to resist our natural tendencies. It’s returning us to them.