Sheconomics: The Psychology of women and

money

Karen Pine University of Hertfordshire

Simonne Gnessen Wise Monkey Financial Coaching

Introductions

• Who we are

• How we got here

• Overview of the session

Sheconomics

• To explore in an accessible and interactive way the psychology of money.

• To demonstrate that our economic behaviour is not always rational.

• To help you understand that emotional management is the key to good financial management.

• To present strategies to help you improve your relationship with money.

Aims

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Women and money: Some facts

• live longer than men • still earn less than men• more likely to take career breaks• lower potential earnings over lifetime• take fewer risks and stay loyal• provide for others before themselves• come off worse in divorce• more emotional relationship with money• more at risk during economic downturn

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Women

How good are you with money?

“My relationship with money is a bit like the one with my cat.

I like it.

It’s a comfort.

But I don’t understand it and I’ve no idea where it goes.”

The Ultimatum Game

Imagine you and your partner have to split ten pounds between you. She’s been given the tenner and told to share it with you - in any way she likes. She can decide how much to keep and how much to give to you. There’s just one condition. If you refuse what you are offered, neither of you get anything.

What would you turn down?

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Psychologist Daniel Kahnemann was the first to show that many human decisions are not logical and rational (Kahnemann & Tversky, 1982).

In research studies at least half the people would turn down anything less than £2.50

Sheconomics

Science 13 June 2003, Vol. 300.

The Neural Basis of Economic Decision-Making in the Ultimatum GameSanfey et al

Neuroeconomics seeks to ground economic decision-making in the biological substrate of the brain. Sanfey et al scanned players’ brains as they responded to fair and unfair proposals. Unfair offers elicited activity in brain areas related to both emotion (anterior insula) and cognition (dorsolateral prefrontal cortex).

Further, significantly heightened activity in anterior insula for rejected unfair offers suggests an important role for emotions in decision-making.

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Imagine you’ve always found it hard to save, but two months ago you finally got round to setting up a savings account with £50 going straight in from your salary every month.

Then today you noticed your favourite perfume brand has launched a new fragrance. It’s extortionately priced at £100 (but you’ve got £100 saved and you know it’ll make you feel fabulous). How likely are you to buy it?

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Scenario A

1.Not at all likely 2. Not very likely 3. Not sure 4. Quite likely 5. Very likely

Scenario BImagine you’ve recently discovered you’ve been paying too much tax and have just received a £100 tax rebate in your pay packet.

Then today you noticed your favourite perfume brand has launched a new fragrance. It’s extortionately priced at £100 (but you’ve received £100 tax rebate and you know it’ll make you feel fabulous). How likely are you to buy it?

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1.Not at all likely 2. Not very likely 3. Not sure 4. Quite likely 5. Very likely

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Mental accounting

The tendency to value some £££s less than others - and therefore to waste them.

First identified by Richard Thaler (Thaler, 1985).

Mental accounting exercise 2

You are going to the theatre and, when you get there, realise you’ve lost your ticket that cost you £50.

You have enough money on you butdo you buy another ticket?

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OK, again imagine you are going to the theatre but haven’t yet bought your £50 ticket.

At the theatre you realise you’ve lost £50 cash. You still have enough money to buy your ticket. Do you?

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Research by Kahnemann & Tverysky found most people would not buy a ticket if they had lost a previously purchased one. But they would buy one if they’d lost £50 cash.

Both scenarios offer the same outcome £100 out of pocket for a £50 spend…but they feel different

Law 1: Take emotional control

Examples of actions you could take:

• Reframe purchases (e.g. no of hours worked)• Delay spending decisions• Create ‘pots’ in savings

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Money messages

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What messages did you get as you were

growing up?

Are you an under-earner?1. Do you avoid asking for a pay rise or putting up your prices?

2. Do you work very hard for little money?

3. Would you think it unfair for you to earn a high income if other people work harder for less money?

4. Do you often give away your time for free, do jobs for people or put in extra time at work, for no extra pay?

5. Do you find it hard to think of ideas to make money?

6. Are you often in debt with no idea how you’ll achieve financial success?

7. Are you proud of the fact that you can manage on less money than most?

8. Does the idea of having lots of money make you feel uncomfortable or fearful?

9. Do you live in financial chaos, with little or no idea what you earn, spend and what debt you have?

10. Do you think that people who seek wealth are greedy?

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1. Take one of your negative beliefs. Think about where it came from, and how it affects what you do.

2. Next replace it with a positive belief. Consider how you’d feel if this positive belief was true.

3. Finally, think of how you could reinforce the positive belief.What would you actually do? Commit to taking some concrete steps towards making this happen.

Law 2: Go beyond beliefs

Me, fail English? That’s unpossible

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What we focus on matters

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Ever noticed…..

…. when you buy a new car

…you suddenly see that model everywhere?

We only focus on a small fraction We only focus on a small fraction of what is going on around us….of what is going on around us….

Our beliefs determinewhat we focus on

Women and spending

NEWS: Shopaholic crushed to death by a pile of goods

A shopaholic has been found dead after a pile of the goodies she hoarded apparently collapsed on her. Joan Cunnane's body was found in a back bedroom underneath a mountain of suitcases which had been stacked to the ceiling. Neighbours raised the alarm but her house was so crammed that police issued a missing persons appeal and sent in sniffer dogs.

Sheconomics

Are you more likely to go on a spending spree and spend more than you should when:

a) You want to cheer yourself upb) You want to treat othersc) You feel you’re looking good

79%

75%

61%

Responses from women in our survey

QUESTION Sheconomics

a) Worried about moneyb) Bought something on impulsec) Spent at least £25 more than you

needed tod) Gone shopping for something and

come home with something completely different

e) Felt shame or guilt after a shopping trip

f) Bought something you’re unlikely to ever use or wear?

70%

60%

55%

46%

35%

22%

Responses from women in our survey

HAVE YOU RECENTLY Sheconomics

(for a review of emotion regulation see Gross, 1998, Review of General Psychology, 2, 3.)

Spending is a way of regulating, or managing, emotions.

RETAIL THERAPY?

Law 3: Spend with power

Actions• Take cash only• Careful who you shop with• Delay purchasing• Reframe the cost • Break the habit• Plan occasional spends

See www.sheconomics.com for more tips

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The evil credit card

Buying something is a trade-off between the pleasure and pain areas of the brain.Credit cards delay the ‘pain’ of spending and so we spend more when using them.

Knutson et al, (2007) Neuron, 53.

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Law 4: Have goals

• If you fail to plan you plan to………….

• Create compelling life goals

• Fit financial goals into the plan

• Financial freedom - universal goal

• Take consistent action

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Building your net worth

Income

Expenses

Assets Liabilities

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What action are you taking to increase your net worth?

It’s not about what you earn, it’s about what you keep.

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Law 5: Look debt in the face

Good debt can make you wealthy

Bad debt makes you poor

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Compound interest

If you put a penny into a jar on the first of January and then doubled the amount you put in every day for a month (2p on the second, 4p on the third, 8p on the fourth, etc) how much do you think you'd have at the end of the month?

a) 62p b) £12.80 c) £10,737,418.00.

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The true cost of debt

Monthly cost Time to repay Total costMINIMUM REPAYMENT

2% per month53 yrs 9 mths £17,972

MINIMUM REPAYMENT PLUS £10

19 yrs 7 mths £11,807

MINIMUM REPAYMENT PLUS £50

6 yrs 7 mths £7,573

MINIMUM REPAYMENT PLUS £100

3 yrs 8 mths £6,434

MINIMUM REPAYMENT PLUS £200

1 yr 11 mths £5,737

£4,956 credit card debt @ 17.9% APR

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What you focus on matters…

Opportunitiesarenowhere

Did you see

Opportunities are nowhere

orOpportunities are now here

?

‘

When the winds of change blow, some build shelters… others build windmills. What will you do?

Law 6: Share financial intimacies

• No secrecy • No deception • Talk openly and honestly about money

(avoid financial adultery….)

Sheconomics

See www.sheconomics.com for a quiz on whether you and your partner are financially in tune

What’s your purse-onality?

What’s your purse-onality?Notes stored flat and neatly?

Everything in right section?

+1

+1

Small amount of change? +1

No more than 2 credit/debit cards? +1

Emergency contact details? +1

PIN numbers with cards? -3

Foreign money from last trip? -2

Wadges of receipts? -1

How did YOU score? Max. = 5

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The story of June and Angie

Angie (right) didn’t get round to starting a savings plan until she was 35. But then she kept it up for the next 30 years, until she was 65.

QUESTION

If each saved £100 per month over this time - June for 9 years, leaving the savings untouched for a further 35 years, and Angie for 30 years - who do

you think would be better off at age 65?

June and Angie have been friends since they were 12.

June (left) put away a bit of money every month from when she was 21. At 30 she stopped to have her first child and never started saving again.

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Law 7: Know tomorrow comes

• Take action for a secure future

• Don’t delay those all-important decisions.

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£150 per month saved

5% 10% 15%

£10,243 £11,712 £13,452

£61,912 £114,855 £227,393

£125,359 £341,899 £1,051,473

5 yrs

20 yrs

30 yrs

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The rewards of regular investing

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Source: Benefiting from Volatility: Pound Cost Averaging, www.torquilclark.com

Pension ball

Throw the ball and call out a word that comes to mind when you think of the word pension.

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The power of reframing

Think of your pension as a gift to your future self……

Or how about a pension cake?

Sue’s pension cake

Sue18%

Employer30%

Tax relief12%

Compund interest

40%

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Recipe for a great big pension cake

• Step 1: Pre-heat the oven

• Step 2: Get all the ingredients together

• Step 3: Top up the missing ingredients

• Step 4: Keep an eye on the cake while it’s baking

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Someone's sitting in the shade today because someone planted a tree a long time ago.

Warren Buffet

Thank you

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www.sheconomics.com