1 The world is made up of savers and spenders. But how do you know which one you are? You may be a saver if you can't resist any bargain ` no matter what. 'It's 100 cans for 50 bucks. Who wouldn't?' You may be spender if you upgrade your phone every other month, making an excuse like, 'The screen's 3mm bigger.' Or you may be a saver if you reuse the teabags. And you might be a spender if you hide new purchases, bring them out months later, and if you're asked, 'Is that new?' You say, 'This old thing? Had it for years.' Half of us are spenders. I have some of those tendencies myself. So, I want to see if there are ways we can stop ourselves from spending money that we don't have. (UPBEAT MUSIC) Copyright Able 2017 (CHUCKLES) Yes, I have spent money that I don't have, and I pay` I pay the piper really badly. And I have done that. And that's not because I want to. Sometimes it's because I've had to. I do. I pay money that I don't have, yes. Buying things that I don't need, yeah. (CHUCKLES) Do you ever spend money that you don't have? Hm,... I don't think so. I don't think I've ever done that. Why not? Um, fear. I'm just too scared to do that. Oh yeah. I didn't even get a credit card till I was in my late 40s. Maybe one reason we spend money we don't have is because not all money is created equal in our minds. Here's a question ` is $5 always worth $5? We've set up these two coffee carts. This one selling coffee for $5.50. And this one selling coffee for 50c. We want to see if people are happy to walk 100m to save $5. How are you? I'm good. Yourself? Yeah, good. Um, I want a mocha and a flat white. Cool. So, our coffee's are $5.50,... Yeah. ...um, or you could go down there. They're doing, like, an opening special for 50c. Yeah, that's` OK, I'll go down there. I probably shouldn't tell you this, but, um, the guys down there are doing a special. 50c today. (GASPS) Oh yeah? You're doing yourself out of business, love. I know. The answer seems to be very clear. Who wouldn't walk 100m to save $5? Guys down there ` their coffees are 50c today. Oh! Yeah, ours are $5.50, so... Yeah, I'll go this way. (LAUGHS) No worries. Thanks. Thanks. It was a good morning for these guys. They all saved 5 bucks. So all that makes sense, because who wouldn't wanna save $5 on a cup of coffee? Because 5 bucks is always 5 bucks. Right? But will people still think that 5 bucks is 5 bucks if they're buying something more expensive? Do you like the colour? Yeah. It's deceptively large. Oh, it is. Should we go and get the ball rolling? Sure. The final figure here, Andrea, comes out to be... $17,985. OK. But, I'm gonna be completely honest. Across the road, just yesterday, I saw the exact same car, same alloys and everything, for $17,980. So $5 cheaper. I'll leave it up to you. I'm not sure that $5 makes any difference whatsoever. So, um, we'll just continue with this. (LAUGHS) We'll continue with this? Yeah. You're happy to go ahead? Yeah, of course. OK, that's perfect. Our brain really cares about the percentage we're saving. There was a massive 90% off the cup of coffee, but less than 1% off the car. We also face this issue when we're in debt. What's any $50 if we already owe thousands on our credit card? This is Joanne Calder. She's starting to understand that $5 is $5 no matter where it came from. This is a lot of credit card stuff here. It is. A lot of it looks like the kind of stuff you see and you go, 'Oh, I could use that.' Yes. And then you buy it, and then you don't use it. Yep. I'm thinking the hot-dog maker,... Yeah. (LAUGHS) ...like, you think, 'A hot-dog maker. Oh, I could use a hot-dog maker.' Yeah. But a hot-dog maker is the kind of thing you use once and then... It's not just little things that I... tendency to buy. It's the bigger ones as well. Brand-new barbeque just sitting up there. And who has two coffee machines? There's one there, and there's one there. And there's one upstairs. So, percentage-wise of the stuff that's here, what percentage of it would you have actually used? Probably about 5%. Whoa! 5%. Yeah. And even though it's sitting in boxes in your garage, it's still credit card debt. So, maybe, uh, on to Trade Me with some of this stuff? I might have to, I think. This isn't a terribly polite question. But how much credit card debt do you have? Honestly, I have about 7 grand. $7000 worth of debt, yeah. Does that amount of debt bother you? It does, yeah. How easy has it been to, kind of` to clock up that much debt? It's very easy with credit cards. Just go online shopping, and, yeah` It's a` It's a deadly sin, that. But Joanne isn't alone in her spending. New Zealanders have racked up $6.5 billion worth of credit card debt. If you think about that on a per person basis, that's about $1400 per person. So, in fact over half of us over the age of 15 are in some form of debt. Typically as New Zealanders, we tend to be better borrowers than we are savers. I think, to be honest, it comes down to almost this 'keeping up with the Joneses' effect to some extent. My neighbour's just got a shiny new car. They're just going on expensive holiday, and think, 'Oh well. Can I have that too? I want that too.' And to do that, you might take out a hire purchase agreement. You might blow out your credit card debt. And you end up in this nasty downward debt spiral that you need to pay off at some point. (SKYPE RINGING TONE) Hi. Hi. (CHUCKLES) I'm just ringing to, um, let you know I got some more baby stuff for you. Oh, awesome! Thank you. Yeah. So more nappies and things like that for baby. I help my family, you know, if they need anything. Just go out ` I'll buy it for ya. Hopefully 200 nappies will see you through the first month. Oh. I think it will. (CHUCKLES) What is it about credit cards, that for you, makes it easier to spend money? Cos it's there. You think, 'Ooh, I like that, and I'm gonna go and buy it.' So that's what I do. If you had to pay with cash, would that make a difference? It would. Yep. So why do you hold on to your credit cards? Why do you keep them? Y` You get the scissors close to them and think, 'Yeah, but I might need that for something.' If you pay off your credit card debt and you have cleared credit, you don't see that as debt that's gone. You see that as new money that's there to be spent. Yeah. Yeah, that's` that's why I need to take the scissors to the card, and then I can't think that. Right now, bulk of my income goes to paying weekly, fortnightly payments on these cards. They rule my life. So what's the best way to manage your credit card? Well, if you're not paying it off every month, then it might be worthwhile looking at other alternatives. So whether you could find some lower interest form of debt, for example, and transfer the balance to that. But you've also got to make sure you don't increase the balance from there. In fact, about 60% of New Zealanders don't pay off their credit card in full every month. And that's when we start to get, sort of, into the debt spiral, which can be pretty negative and hard to get out off. Lots of us are spending beyond our means. But is it possible to stop someone from spending money they don't have? We need to stop those doughnuts from going through. And an experiment about how our brain doesn't always have our best interests at heart. (UPBEAT MUSIC) 1 What happens inside our head is often irrational and sometimes just plain weird. To help be better with money, we need to understand where those thoughts come from. Well, don't underestimate the power of suggestion. (CLANG!) Have you ever hit your finger chopping kindling? I have. But this device takes all the pain and suffering out of it. This is the safest, easiest way to chop kindling in the world. So, how much would you pay for it? Invented by a New Zealand teenager, the Kindling Cracker normally sells for $145. But we're gonna get people to offer less and more by playing a little trick on their brain. This is our device. So, this is the amazing Kindling Cracker. Cos you know how when you chop wood, there's always that danger of hitting your finger? You just sit it on the little ring. Basically, you just whack it. (CLANG!) (CLANG!) Cool, that's it. That's awesome. Here's the trick ` I'm going to suggest to our participants that the Kindling Cracker is worth $95. This first price is called an anchor. The anchor means that Anne can't help thinking about that number when I ask her about the value of the invention. They've done, kind of, their initial research. Kind of, $95? I've laid the trap. Let's see if her answer is close to $95. What would you price it? Probably... To be fair, I would` I would pay $150 for it. Mm, kay. Mm. Thank you. Not a bad start. Let's see if I can anchor someone closer to $95. Their research has been somewhere around 95. So, how would you value something like that? Well, until I saw it work, I would have said not much. I would pay $110 for it, something like that. Right. There we go. Anchored. Let's try one more at $95. (BANG!) (WOMAN EXCLAIMS) Uh, so, if you had to put a number on it? What would you put? Um,... $65. This anchoring happens to us all the time in real life. So, let's see what happens if we try and anchor at $200 instead. They've done some, kind of, market research around $200. Uh, but really, what it's about is making this really good quality product. So, how much would you value that? I would say... Would $250 be too much? No, no. That seems pretty reasonable. I mean... I've changed the whole way Rishi perceived this invention. Our brain can't help but be influenced by what its just heard. Done. What we're asking people is, kind of, how much they think something like this would be worth. Sort of, um, $200? I could go $150. You go $150? Yep. I don't think I could go $200, though. This happens in sales too. They give you an original price of $500, which anchors you at the higher price, and then when you only have to pay $95, your brain tells you it's a bargain. And one last anchor. So they've, kind of, being doing their own market research, kind of, somewhere around $200. But if you were to value that...? $180-$200. In that` In that range. So what's going on here? I'm simply exploiting the brain's tendency to anchor itself to the first number it hears. Which means you need to pay careful attention to the information you use to value a product when you first encounter it, because that anchor's what you're willing to pay from then on. You can see our Stone Age brains can get tricked into spending more money on things than what they're actually worth. Meet Courtney, who wants some help with her overspending. Courtney, how would you describe your relationship with money? It's not very good. I definitely spend more than I should on things that I shouldn't. And I know I shouldn't. But I do anyway. Courtney likes spending. Hi! How are you? Hi. And she likes to spend money she doesn't have. What did you find? I'm gonna go with these two. I'll put them both on layby. Yeah, that's fine. You can layby. What sort of stuff do you spend money on? Like, clothes and a lot of food. Just... I've spent heaps of money on food. At the supermarket, I get lots of treats. (CHUCKLES) And I give myself an allowance. I say, 'This is how much I can spend this week.' And every week, I blow it. I'm allowed to buy a coffee to go to my 8am class. And I do that, and then I go out for lunch anyway. I don't know what's wrong with me. How would you like it to be? I wish that I could have more self-control. Courtney really wants to get to the United States, but she can't stop her spending. There's one dress in her wardrobe she knows she shouldn't have bought. It's still got the tag on it, and it sits there torturing her. So looking at it now, thinking, 'That's money away from my America trip.' Let's sell the dress. I don't know, because I think I still want` you know, like, I think I still want it. Right, here's what I want you to do. I want you to imagine yourself wearing this dress here in New Zealand in 10 years time. Just sitting there, kind of going (GROANS). Or you sell it and eight months from now, you're sitting in the US. This dress is the death of your dreams. Yeah, it is. Um, it kind of represents my fears. But I think that's enough to make me want to sell it. Can our Nudge Unit help Courtney? Can we stop her from spending money she doesn't have? So, how's your shopping gone? Oh no. (UPBEAT MUSIC) 1 Our Nudge Unit is going to try and stop Courtney's impulsive spending so she can save enough to get to America. I've spent heaps of money on food. At the supermarket, I get lots of treats. (CHUCKLES) The Nudge Unit is my hand-picked undercover team that can sort out anyone's money worries. Go, go, go! We're ready to do anything, at any time, to solve the smallest and biggest of problems. By giving people a little nudge in the right direction. (WATER SPLASHES) (LAUGHS, SIGHS) All right, team. So, Courtney, basically, she overspends. Impulse buys. One of the places she does this is here at the supermarket. Our mission is to stop her from doing that. I've got a bit of a plan. I'm gonna talk you through it on the earpieces, um, and hopefully we can stop her. We've enlisted Courtney's friend Michelle to help us out. She's brought Courtney to the supermarket, where the Nudge Unit are standing by to stop all that impulse buying. So what are you gonna get? Some chocolate. Yeah? Just chocolate? No! I'll get chips as well. Right. They are entering the supermarket and getting a trolley. The first impulse buy looks to be some of Courtney's favourite corn chips. OK, and Nudge One, stand by with the broken glass on the shelf story. Chippies. And go. Oh. Sorry, we've just had some glass break on this shelf, so we can't actually let you guys touch any of this. (LAUGHS) Yeah, it's a bit... dangerous. (TENSE MUSIC) Tell her it's a health risk. No, sorry. It's a bit of a health risk at the moment unfortunately. (CHUCKLES) Next, she's pretty keen on getting some biscuits. Coming into your aisle now, so just muck about with the stuff on the shelves. Get some nice, like, lollies or something. Do you want to get some of these? Oh, these biscuits are all past their expiry date. Sorry, guys. Despite our vigilance, Courtney managed to get a raspberry slice into her trolley. But we have a cunning backup plan. Nudge Three, the raspberry slice is in the trolley. Go in and get it. Over. Whoa! (SPEAKS IN MANDARIN) (CONTINUES SPEAKING IN MANDARIN) The slice has been eliminated, but on the way to the checkout, Courtney managed to get some doughnuts. Her impulse buying has shifted up a gear. But even the checkout operator is part of our Nudge Unit. We need to stop those doughnuts from going through. If Courtney was this persistent with saving, she'd be in America already. (TENSE MUSIC) The Nudge Unit fought valiantly, but we couldn't stop Courtney from spending money she doesn't really have. It's time to reveal what we were up to. Hello, how are you? Good. Hey, how's your shopping gone? Oh no. Not very good. (LAUGHTER) So we've deployed our Nudge Unit to try and help you from buying that impulse stuff... Oh my God! ...you know that you shouldn't buy. How did it go? Like, did you end up buying much stuff? Did it work? (LAUGHS) I made them let me get it. (LAUGHTER) Courtney, how effective was it when we had our Nudge Unit in there trying to stop you from impulse buying? Well it didn't stop me, did it? (BOTH CHUCKLE) Pretty strong impulses. Yeah. But it definitely stopped me from buying as much as I usually would. Now, I don't know` One of the things we talked about is, um, kind of, impulse buying of clothes. And you'd been looking at, uh, selling a dress. Did you put that on Trade Me? I did, actually. You did? It's on Trade Me. Nice. Mm-hm. When you do stuff like that, does that feel like you're taking practical steps towards your goal? It definitely feels more real. Like, it's not just something that I've been talking about wanting to do. I'm actually trying to get there now. You've broken through that first difficult little bit of friction. Obviously, you can't have a Nudge Unit following you around all the time. But maybe, uh, if you imagine that we are just following you around, watching the stuff you impulse buy. Yeah. I think that would probably work. So if Courtney and the rest of us are going to get where we want to be in life when it comes to money, we need to start taking control of the way we think. Luckily, there's a simple but effective trick we can use anywhere at any time ` even here in an ice cream parlour. When we buy something like a $4 ice cream, we don't stop and think, 'Well that's $4 I could've spent on a coffee or the power bill.' But that's the opportunity cost ` what I can't now get because of the ice cream. Instead, I'm completely committed to the idea of the ice cream, and all I'm thinking is that if I get orange marmalade, I can't get raspberry and white chocolate. But if we did take a moment to think about all of those things we were missing out on before we bought something, would that make a difference to how much we spent? It's a nice idea, but does it work? In this experiment, we'll find out the effect of opportunity cost. All of us are spenders, savers or somewhere in between, and we wanna find out if thinking about the things you're missing out on when you're deciding to buy something affects spenders and savers differently. I'm getting a group of volunteers to take a scientifically validated questionnaire, which helps you to see where you sit on the saver-spender scale. The first group I'm going to offer a very simple choice. This phone for $899 with 32GB and a slightly smaller screen, or this phone for $1099 with 64GB and a slightly larger screen. They'll be no mention of opportunity cost to this group. I'll just let them make up their own mind. Jean's a spender, which means she should go for the expensive phone without even thinking. This one. Hands down. $1099. Easy. Didn't even need to think about it. Didn't even need to think about it. Nope. Bill is a self-confessed tightwad, so you'd expect that for him the cheaper phone should be more appealing. Well, Nigel, being rather a tightwad, I would prefer that one there for the amount of use I would do. So you would` You would classify yourself as a tightwad? Like, you're not one to throw away money on stuff like that. You would think, 'Well, that does the same...' ...job. I suppose it's a` it's an age thing, and style doesn't worry me too much. Adrian's right in the middle between being a spender and a saver, and makes his decision. I'd probably go for the smaller one. Richard's also in the middle, but he goes for the expensive phone. I think I'd go for the big one. So nothing too radical there. Spenders buy expensive phones; savers buy cheaper phones. But now it gets interesting when I bring in our second group ` all of them spenders. What happens when I talk about opportunity cost? What they could do with the $200 if they bought the cheaper phone. This one's cool, cos it's bigger. Renee's a spender, so of course, she's drawn to the expensive phone. So let's imagine that you can` Let's... But what happens if I talk to her about the opportunity cost? If you think about the fact` So, if you get that one, you can save 200 bucks. What could` What would you do with that $200? Well, I actually need some stuff for the garden, and plants aren't cheap, so maybe... I could get the cheaper phone and $200 on that. But then I'm, like, maybe I can get the plants another time. (CHUCKLES) Cos if I don't get the good phone, what if I regret it? That I didn't get the extra gigabytes and time. So, what's gonna make you feel happier, do you think? The extra 32GB of this phone sitting inside it somewhere ` who knows where. Or you've got that phone over there, um, in your pocket, and you're looking at this lovely stuff that you've put in your garden. I know. Like, do I need that much gigabytes? (LAUGHS) I think` I would` Maybe I should do` be sensible and go for the cheaper one and get those plants finally in the garden. And hope I don't regret it. (BOTH LAUGH) Nice. OK. Thinking about the opportunity cost worked for Renee. What about Toni, who's halfway between being a spender and a saver? I like the` Double the memory. What would be something nice you could do with $200? Instantly, I think put it in savings. Right. So you could put the $200 in savings. So it's phone only or phone and $200 left over to spend on either savings or something nice. When you think about it like that, for you personally, does that change your thinking? Absolutely. Yeah, take the cheaper one. Mm-hm. This is the best kind of magic. It works with very little effort. If you're a spender, simply think about the stuff that you could also buy instead, and you could end up saving heaps. Why do we spend money we don't have? Well, half of us do, and half of us don't. It's about our money personalities. But if you are a spender, there are simple things you can do to fight back, like thinking about what you won't be able to buy later with that $5 you're about to spend now. And always remembering that $5 is $5 regardless of whether you're buying a coffee or a car.