(WFSB) – During the pandemic, many of us bought things that we don’t need.
“How do I stop spending too much?” Asked Stefanie O’Connell Rodriguez, presenter of Money Confidential on Real Simple Podcast.
Stefanie says that a lot of people ask this question.
“Make it harder to spend money so don’t save this credit card number in your checkout settings so it’s so easy that you can spend it with just one click. Finding your wallet or purse, digging up your credit card and typing in the numbers only leaves you with more time between the urge to save money and the actual purchase, “said O’Connell Rodriguez.
Or leave the card all together and use cash.
“Cash is restrictive. You can’t spend more money than you have available, such as having a credit card to be an opportunity to use only cash, “said O’Connell Rodriguez.
Spend journals help you keep to your budget.
“What happens in those moments when you tend to spend too much or the urge to splurge? Is it a particular circumstance or a situation? Does it feel a certain way when you are happy, angry, tired, hungry? Just knowing when you are over-spending these feelings can help you figure out ways you can create better systems for managing these moments, “continued O’Connell Rodriguez.
And finally, create visual reminders of your goals.
“A background on your phone of the house you want to buy and the down payment you are saving for is a great example, or just print out a picture of the vacation destination you want to visit after a lockdown and wrap it in yours Cash and your credit card so that every time you spend money you are reminded whether this purchase will help you get closer to or further away from that vacation, “added O’Connell Rodriguez.
The Money Confidential Podcast is produced by this news broadcaster’s parent company, Meredith Corporation.
Copyright 2021 WFSB (Meredith Corporation). All rights reserved.
The human brain is a pretty lazy organ. Although it’s capable of remarkable ingenuity, it’s also responsible for nudging us into bad behavioral patterns, such as being impulsive or avoiding difficult but important decisions. These kinds of short-sighted behaviors can hurt our finances.
However, they don’t hurt the video game industry. In 2020, video games generated more than $179 billion in revenue, making the industry more valuable than sports and movies combined. A 2021 report from Limelight Network found that gamers worldwide spend an average of 8 hours and 27 minutes per week playing video games.
So, why don’t people save more? After all, the benefits of compounding interest aren’t exactly a secret: Investing a few hundred bucks every month would make most people millionaires by retirement if they start in their twenties. However, the recent FINRA report found that many Americans have alarmingly low levels of financial literacy, a topic that’s not taught in most public schools.
Even for the financially literate, saving money is psychologically difficult
But what if we could infuse the instant gratification of video games into our long-term financial habits? In other words, what if finance looked less like an Excel spreadsheet and more like your favorite video game?
A growing number of finance applications are making that a reality. By using the same strategies video game designers have been optimizing for decades, gamifying personal finance could be one of the most efficient ways to help people save for the future while reaping instant psychological rewards. But it doesn’t come without risks.
What is gamification?
In simple terms, gamification takes the motivating power of video games and applies it to other areas of life. The global research company Gartner offers a slightly more technical definition of gamification: “the use of game mechanics and experience design to digitally engage and motivate people to achieve their goals.”
The odds are you have encountered gamification already. It’s utilized by many popular apps, websites, and devices. For example, LinkedIn displays progress bars representing how much profile information you have filled out. The Apple Watch has a “Close Your Rings” feature that shows how many steps you need to walk to meet your daily goal.
Brands have used gamification to boost customer engagement for decades. For example, McDonald’s launched its Monopoly game in 1987, which essentially attached lottery tickets to menu items, while M&M’s gained consumer attention with Eye-Spy Pretzel, an online scavenger hunt game that went viral in 2010.
In addition to marketing, gamification is used in social media, fitness, education, crowdfunding, military recruitment, and employee training, just to name a few applications. The Chinese government has even gamified aspects of its Social Credit System, in which citizens perform or refrain from various activities to earn points that represent trustworthiness.
Finance is arguably one of the best-suited fields for gamification. One reason is that financial data can be easily measured and graphed. Perhaps more importantly, financial decisions occur in the background of almost everything we do in modern life, from deciding what we eat for lunch to where we are going to spend our lives.
Gamification doesn’t just make boring stuff fun; it’s also an effective way to change our behavior. Used properly, it can also disrupt our habits.
The nature of habits
It’s tempting to think that we make our way through life by thoughtfully considering the information before us and making sensible choices. That’s not really the case. Research suggests that about 40 percent of our daily activities are performed out of habit, a term the American Journal of Psychology defines as a “more or less fixed way of thinking, willing, or feeling acquired through previous repetition of a mental experience.”
In other words, we spend much of our lives on autopilot. From an evolutionary perspective, it makes sense that we rely on habits: our brains require a lot of energy, especially when we’re faced with tough decisions and complex problems, like financial planning. It’s relatively easy to rely on learned behavioral patterns that provide a quick, reliable solution. However, those patterns don’t always serve our long-term interests.
Saving money is a good example. Imagine you have $500 with which to do whatever you want. You could invest it. Or you could go on a shopping spree. Unfortunately, the brain doesn’t process these two options the same way; in fact, it actually processes the investing option as something like a pain stimulus.
Why gamification works
Saving is painful. But can’t people simply choose to be more financially responsible? In short: Yes, but it takes a lot of effort. After all, when it comes to changing behavior, willpower is only part of the equation.
Some psychologists think willpower is a finite resource, or that it’s like an emotion whose motivational power ebbs and flows based on what’s happening around us. For example, you might establish a monthly budget and stick to it for a couple weeks. But then you get stressed. The next time you’re out shopping, you might find it harder to resist making an impulsive purchase in your stressed-out state.
“A growing body of research shows that resisting repeated temptations takes a mental toll,” the American Psychological Association writes. “Some experts liken willpower to a muscle that can get fatigued from overuse.” In the terminology of psychology, this is called ego depletion.
Gamification offers a way to outsource your willpower. That’s because games offer psychological rewards that can motivate us to perform certain actions that might otherwise have seemed too boring, taxing, or emotionally draining. What’s more, gamifying parts of your life is less of a change of mind and more of a change of environment.
A 2017 study published in Computers in Human Behavior noted that “enriching the environment with game design elements, as gamification does by definition, directly modifies that environment, thereby potentially affecting motivational and psychological user experiences.”
The study argued that games are most motivational when they address three key psychological needs: competence, autonomy, and social relatedness. It’s easy to imagine how games can tap into these categories. For competence, games can feature badges and performance graphs. For autonomy, games can offer customizable avatars. And for social relatedness, games can feature compelling storylines and multiplayer gameplay.
Gamification and the brain
Games can motivate us by satisfying our psychological needs and giving us a sense of reward. From a neurological perspective, this occurs through the release of “feel-good” neurotransmitters, namely dopamine and oxytocin.
“Two core things have to happen in the brain to influence your decision-making,” Paul Zak, a neuroscientist and professor of economic sciences at Claremont Graduate University, told Big Think. “The first is you have to attend to that information. That’s driven by the brain’s production of dopamine. The second thing, you’ve got to get my lazy brain to care about the outcomes. And that caring is driven by emotional resonance. And that’s associated with the brain’s production of oxytocin.”
Cheerful Father And Son Competing In Video Games At HomeProstock-studio via Adobe Stock
When released simultaneously, these neurotransmitters can put us into a state that Zak calls “neurologic immersion.” In this state, our everyday habits have less control over our behavior, and we’re better able to take deliberate action. It’s an idea Zak and his colleagues developed over two decades of using brain-imaging technology to study the nature of extraordinary experiences.
As he wrote in an article published by the World Experience Organization, neurologic immersion can occur when experiences, including video games, are unexpected, emotionally charged, narrowing one’s focus to the experience itself, easy to remember, and provoking actions.
“The components of the extraordinary come as a package, not in isolation from each other,” Zak wrote. “It’s the ‘action’ part that is key to finding immersion. Extraordinary experiences cause people to take an action, whether it’s donating to charity, buying a product, posting on social media, or returning to enjoy an experience again.”
Games can invoke these types of immersive experiences.. But how exactly are financial organizations using gamification to help people “level up” their financial futures?
Gamifying personal finance
Banks and financial companies have been using gamification for years. What started with simple concepts, like PNC Bank’s “Punch the Pig” savings feature, has evolved into a diverse field of games that are helping people stick to budgets, save money, and pay off debt.
What’s surprising about the gamification of personal finance is that some of the most successful apps are redirecting destructive financial behaviors, like buying lottery tickets, toward positive outcomes. One example is an app called Long Game, which uses an approach called “lottery savings.”
“People actually really love the lottery,” Lindsay Holden, co-founder and CEO of Long Game, told Big Think. “The lottery today is a $70-billion-dollar industry in the U.S., and the people that are buying lotto tickets are the people that least should be buying lotto tickets. And so how can we redirect that spend into something that’s helping them in their lives?”
Long Game’s answer is to encourage users to make automatic or one-time investments into a prize-linked savings account. As users make investments, they earn coins that can be used to play games, some of which offer cash prizes. But unlike the real lottery, the prize money comes from banks that are partnered with Long Game, meaning users can’t lose their principal investment.
Blast is a savings app aimed at traditional gamers. The platform lets users connect a savings account to their video game accounts. Users then set performance goals in the video games, such as killing a certain number of enemies. Accomplishing these goals triggers a pre-selected investment into the savings accounts. In addition to earning interest, users can also win prize money by accomplishing certain missions or placing high on public leaderboards.
“Gamers tell us they feel better with the time they spend gaming when they know they are micro-saving or micro-earning in the background,” Blast co-founder and CEO Walter Cruttenden said in a statement.
Fortune City takes a different approach to gamified finance. The app encourages users to track their spending habits, which are represented by visually appealing graphs. As users log expenses, they’re able to build buildings in their own virtual city. The expense categories match the types of buildings users can construct; for example, buying food lets users construct a restaurant. It’s like “SimCity” meets certified public accountant.
The risks of gamification
Gamifying your finances might help you save money, but it doesn’t come without risks. After all, receiving extrinsic rewards when we perform a behavior can affect our intrinsic motivation to repeat that behavior both positively and negatively. It’s a phenomenon called the overjustification effect.
In addition, gamified finance apps can also be addictive and encourage risky financial behavior. Robinhood, for example, uses visually appealing performance metrics and lottery-like game elements to incentivize the trading of stocks and cryptocurrencies. But while investing in these assets might be a good financial decision for some people, Robinhood arguably encourages its users to be “players” in the difficult world of trading, not necessarily rational investors.
What’s more, gamification doesn’t seem to work for everyone.
“From social psychology and behavioural economics, we know that the most likely [result of] gamification [is that you] will motivate some people, will demotivate other people, and for a third group there’ll be no effect at all,” noted a 2017 study on gamification and mobile banking published in Internet Research.
But given that 14.1 million Americans are unbanked, and millions more struggle with financial literacy, it’s reasonable to think that gamified finance apps could help many people work toward financial independence.
“One of the most interesting things we’ve found is that people want help when it comes to making difficult decisions,” Zak told Big Think. “In my view, any app that helps you be a more effective saver is probably a good app. But I think we have to do a lot more work to really understand the underlying neuroscience of gamification. And so we need to continue to design games that teach you more about how to ‘level up in life,’ not just level up in the game.”
There’s no denying that creating good habits can take some work. It is no different to be more disciplined with your finances. Yet smart money habits can pay off over time and help you grow your bank account and create a more stable financial life. Keep these five tips in mind to improve your financial acumen.
1.Practice the principle of mindfulness. It’s as easy as paying attention to your spending habits and curbing impulsive purchases. When you are deliberate with your money, you will make rational decisions based on what you can afford and what you need. Strategies to help you be more alert include making a monthly budget, making lists before you go to the grocery store, and holding back large purchases until you can really afford them.
2.Keep an eye on your financial transactions. Be vigilant in any financial transaction, no matter how small. Although cashiers use computerized registers, they can still make mistakes when entering items or making changes. Whether you are in the grocery store or the department store, watch items being called to make sure you are being charged a reasonable fee. Check your receipts. Count your change. In the case of bank mistakes, what you don’t know can affect your bottom line. Check your online bank statements daily to monitor fees and be on the lookout for fraud that is growing.
3.Show respect for the currency. When you abuse money, you decrease its value and give yourself permission to abuse it. Don’t puff up your bills or let change pile up in the bottom of your purse. Instead, keep it safe and keep track of your data.
4thPlay your cards right. In the past, a major credit card was essential for online purchases and travel reservations such as plane tickets, hotel rooms and rental cars. In today’s economy, it is possible to manage many, if not all, of these transactions with a debit card. Credit cards can offer benefits through their rewards programs, and disciplined use can help build creditworthiness. However, many cards come with an annual fee and high interest rates when you have funds with you. To limit spending on credit cards, keep your credit card at home with only your debit card in your wallet.
5.Look inward and remove barriers to financial freedom. If you have had difficulty making smart financial decisions in the past, you may be subconsciously sabotaging yourself. Attitudes towards money largely result from a complex mix of upbringing, culture and self-control. To overcome this, focus on the things that you are constantly overspending on. Are you going to eat out? Shopping clothes? To go on vacation? Familiarize yourself with your “weakness” and try to change your spending habits in a certain area.
While any of these five tips can help you build your financial muscles, one of the best things you can do about your financial life is to meet with a financial professional on a regular basis. An experienced financial advisor can provide financial coaching and help you identify specific strategies for saving and investing for your future. Find a qualified professional you can trust to discuss all aspects of your financial life. Meet annually or as often as you like to discuss your financial goals and adjust your spending and saving habits to keep on track.
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James “Cody” Sims, CRPC, AAMS, AWMA is a financial advisor and franchisee with Ameriprise Financial Services, LLC of Chattanooga, TN. He specializes in fee-based financial planning and asset management strategies and has been in the business for 25 years. To contact him, send an email to firstname.lastname@example.org or call (423) 648-2900
Ameriprise Financial Services, LLC. Member, FINRA and SIPC.