The psychology of moneyThe psychology of money
All In The Mind
As the festive season—and budgets—approach, we discuss how to wise-up to money. Lynne Malcolm and Claudia Hammond talk dollars and sense.
29:14•27 Nov 2016
The Psychology of Money: Why Cash Messes With Your Mind
Episode Overview
- Money functions as a powerful psychological tool, and people strongly dislike seeing it destroyed because it feels like losing opportunities.
- Paying with cards and contactless methods makes spending feel less real, leading to higher outlays and more unhealthy purchases compared with cash.
- People are often irrational about discounts and pricing, swayed by relative prices and the compromise effect instead of the actual value of the saving.
- Loss aversion means most of us fear losses more than we enjoy gains, which can push us towards poorer financial decisions.
- Spending on experiences tends to bring more lasting happiness than buying material items, thanks to anticipation and memories.
“Her hope is that by the time you finish her book you'll feel that you control money, money doesn't control you.”
In this eye-opening chat on All In The Mind, money takes centre stage – not as numbers on a screen, but as something that shapes emotions, choices and even how secure you feel about life itself.
Lynne Malcolm talks with Claudia Hammond, presenter of the BBC’s All In The Mind and author of *Mind Over Money: The psychology of money and how to use it better*, about why cash can feel like a drug, a tool and a source of anxiety all at once.
You’ll hear the bizarre story of KLF burning a million pounds in a Scottish hut and why that act of turning money into ash upset people far more than the usual rock-star excess. Claudia explains research showing that watching money being destroyed activates the tool-using part of the brain, underpinning her line that "money is a tool for being able to do different things" – and why we hate seeing opportunity literally go up in smoke.
The conversation digs into how our brains respond differently to cash, cards and contactless payments, with studies showing we spend more and eat less healthily when the money doesn’t feel "real". There’s plenty on behavioural economics too: from the compromise effect that nudges you towards the mid-priced laptop, to loss aversion seen in both humans and capuchin monkeys who would rather gain a grape than lose one.
Claudia also talks about children’s early ideas of money, personality differences in saving and spending, and why incentive schemes – like paying students for exam results or fining parents for late pick-ups – can backfire if they’re not thought through. Perhaps most useful for everyday life is her suggestion to spend more on experiences than on stuff, and to imagine you don’t own something when setting a price to sell it.
If money often feels like it’s running the show, this conversation might leave you asking: how could you start making money work for you, instead of the other way around?
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