Stop! You Can't Afford It

Article excerpt

Byline: Sharon Begley With Jean Chatzky

New science unveils how your brain is hard-wired when it comes to spending-and how you can reboot it.

Like many colleges, Washington University in St. Louis offers children of its faculty free tuition. So Leonard Green, a professor of psychology there, did all he could to persuade his daughter to choose the school. He extolled its academic offerings, praised its social atmosphere, talked up its extracurricular activities--and promised that if Hannah chose Washington he would give her $20,000 each undergraduate year, plus $20,000 at graduation, for a nest egg totaling $100,000.

She went to New York University.

To many, this might seem like a simple case of shortsightedness, a decision based on today's wants (an exciting city, independence) versus tomorrow's needs (money, shelter). Indeed, the choice to spend rather than save reflects a very human--and, some would say, American--quirk: a preference for immediate gratification over future gains. In other words, we get far more joy from buying a new pair of shoes today, or a Caribbean vacation, or an iPhone 4S, than from imagining a comfortable life tomorrow. Throw in an instant-access culture--in which we can get answers on the Internet within seconds, have a coffeepot delivered to our door overnight, and watch movies on demand--and we're not exactly training the next generation to delay gratification.

"Pleasure now is worth more to us than pleasure later," says economist William Dickens of Northeastern University. "We much prefer current consumption to future consumption. It may even be wired into us."

As brain scientists plumb the neurology of an afternoon at the mall, they are discovering measurable differences between the brains of people who save and those who spend with abandon, particularly in areas of the brain that predict consequences, process the sense of reward, spur motivation, and control memory.

In fact, neuroscientists are mapping the brain's saving and spending circuits so precisely that they have been able to rev up the saving and disable the spending in some people (in the lab, alas; not at the cash register). The result: people's preferences switch from spending like a drunken sailor to saving like a child of the Depression. All told, the gray matter responsible for some of our most crucial decisions is finally revealing its secrets. Call it the "moneybrain."

Psychologists and behavioral economists, meanwhile, are identifying the personality types and other traits that distinguish savers from spenders, showing that people who aren't good savers are neither stupid nor irrational--but often simply don't accurately foresee the consequences of not saving. Rewire the brain to find pleasure in future rewards, and you're on the path to a future you really want.

In one experiment, neuroeconomist Paul Glimcher of New York University wanted to see what it would take for people to willingly delay gratification. He gave a dozen volunteers a choice: $20 now or more money, from $20.25 to $110, later. On one end of the spectrum was the person who agreed to take $21 in a month--to essentially wait a month in order to gain just $1. In economics-speak, this kind of person has a "flat discount function," meaning he values tomorrow almost as much as today and is therefore able to delay gratification. At the other end was someone who was willing to wait a month only if he got $68, a premium of $48 from the original offer. This is someone economists call a "steep discounter," meaning the value he puts on the future (and having money then) is dramatically less than the value he places on today; when he wants something, he wants it now. The $21 person was, tellingly, an M.D.-Ph.D. student. "If you're willing to go to grad school for eight years, you're really willing to delay gratification," says Glimcher.

More revealing was the reason for the differences. …