You know the feeling. You have a great idea about what to do with your money. It makes so much sense that you figure your partner will have to agree, so you share it with them and await their inevitable delight. You stand ready to receive appreciation for how you just made your lives a little better. Instead, they look at you like you have two heads and both of them are crazy.
This is what it can be like in a relationship with a saver and a spender. Whether your great idea is to take that bucket-list trip or to sock away money in a Roth IRA, it is tough when your life mate sees things so differently than you do. It can give you the sense that they don’t understand you or don’t care about what you want in life. It could stir up judgmental thoughts like “he is so irresponsible” or “she is so rigid”. And it naturally leads to arguments that can diminish your satisfaction in the relationship.
When we look at the way we choose our partners, research shows that we often choose people with attitudes, backgrounds, and behaviors that are like our own. More specifically, we seek out people who share the qualities we like about ourselves. We tend to avoid partners who share the parts of ourselves that we don’t like; that seems to be when opposites attract. This is particularly relevant to why savers and spenders often end up together since roughly 40% of people are unhappy with their own behavior around spending. It sends them subconsciously looking for the yin to their yang.
In financial research, spenders who are unhappy with their behavior are called spendthrifts and unhappy savers are called tightwads (admittedly not the most sensitive terminology). Studies show that around 15% of people belong to the spendthrift category and 25% belong to the tightwad group. The 60% in middle may still lean toward spending or saving but are relatively satisfied with their behavior.
It is not yet entirely clear how or why this behavior develops, but recent findings observed spendthrift and tightwad behavior in children as young as five. What we do know is that our predispositions toward spending have little to do with how much money we have. In other words, we do not become tightwads simply by being strapped for cash or spendthrifts simply because we have more money than we need.
The primary determinant for belonging to one of these groups is how sensitive we are to ‘pain for paying’. Tightwads feel a greater sense of pain when they consider spending so they often don’t, even on things they may want. Conversely, spendthrifts experience too little pain when spending, leading them to overspend even by their own measure.
The pain of paying, or lack thereof, has been identified in neuroeconomic examinations of people’s brains using fMRI, functional MRIs that study brain activity as it occurs. Candidates in one study were shown a DVD box set, then its price, and were asked if they would buy it. Participants whose fMRI showed increased activity in the insula, a part of the brain that is active during times of distress, were less likely to make the purchase.
Whether you yourself are a spendthrift or a tightwad, or you are in a relationship with one, it is beneficial to learn how to harness the idea of pain around spending. By increasing or decreasing the mental barriers, you can moderate over or underspending. Here are a few techniques that have been shown to be effective.
Reframing. Experiments have shown the reframing a fee as a “small fee” was enough to make a tightwad about as comfortable as a spendthrift with paying it. Reframing an expense as an investment also increased tightwads’ willingness to spend.
Find virtue. Tightwads tend to spend about the same as spendthrifts on things that are considered virtuous, such as healthy foods, while they were less willing to spend on things considered vices. If a tightwad is resistant to taking a vacation, you might point out the virtuous aspects of the trip, like time with family or the benefits of rest.
Choose your payment method wisely. The pain of payment is reduced by purchasing things with credit or with small denominations of cash. Similarly, one-click purchases and buy-it-now payments are also less painful. Using these forms of payment, rather than paying cash, especially in high denomination bills, can make the purchase less painful for tightwads. The opposite can make it more painful for spendthrifts, though they tend to be less influenced by payment method overall.
Manage expense neglect. It is common when thinking about the future to overestimate income and underestimate expenses. This can lead to unreasonable expectations about how much spending money we will have down the road, or how debt might restrict future spending. Spendthrifts are particularly vulnerable to forgetting to consider future debt and expenses, so it can be helpful to illustrate a more realistic impact of how today’s decisions will impact future flexibility.
Highlight the opportunity costs. Most of us, but especially spendthrifts, don’t consider opportunity costs at the time of purchase. When reminded of the opportunity cost, spendthrifts tend to behave more like tightwads. In a study where spendthrifts we were given a choice between a $700 and $1,000 stereo, they were much more likely to buy the $700 stereo when being reminded that they would have $300 in cash left over by purchasing the less expensive option.
By definition, tightwads and spendthrifts have some level of dissatisfaction with their spending behavior which is potentially the very reason they sought out a partner who is their opposite. While it certainly isn’t easy to be at odds with your partner about spending, understanding their perspective and helping them see things a little differently can go a long way toward finding a compromise that keeps both the saver and spender in the family happy.
Source: Tightwads and spendthrifts: An interdisciplinary review by Scott Rick, Financial Planning Review Volume 3, Issue 2