MONEY consumer psychology

5 Foolish Money Myths You Can Stop Believing Right Now

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Drink your latte.

Whether you think of yourself as money-savvy or you’re acutely aware of where your personal-finance knowledge is lacking, it’s always good to make sure you aren’t managing your money on assumptions that are faulty to begin with.

Here are a few common money myths to kick to the curb.

Myth No. 1: Credit cards are evil

With the average credit card debt sitting at just over $15,000 per household, it’s easy to think that plastic is the irresponsible way to pay. Not so fast.

It’s not the method of payment that’s the problem; in fact, having credit cards can actually help your credit score. A full 10% of your credit score depends upon having a mix of credit types — installment credit, like a car loan, and revolving credit, like credit cards.

In addition, credit cards offer more security than any other form of payment, allowing you to dispute fraudulent activity without footing the bill.

Myth No. 2: Skipping your morning coffee will make you rich

Cutting back on small expenses might offer some breathing room in your budget over the long term, but money not spent doesn’t necessarily equal money saved. To grow that money, it would need to be put into a place where growth can occur — like an investment account or, at the bare minimum, a savings account.

You may think cutting out a daily expenditure is putting you on a path to financial independence, but that’s only step one.

Myth No. 3: It’s too risky to invest your money

The truth opposing this myth is simple — it’s too risky to not invest your money.

If you’re already diligent about socking away money each month, that’s a great start. But with interest rates sitting so low, money put into a savings account will likely lose more to inflation than it can make up in growth. That’s where investing comes in.

Through the power of compounding, a single $500 investment made at the age of 20 earning a conservative 5% return would be $4,492.50 at the age of 65. Imagine that scenario with ongoing contributions and larger returns. It would put any savings account to shame.

Myth No. 4: All debt should be paid before saving

Unfortunately, emergencies and unexpected expenses occur at all stages of life — even when you’re working to pay off student loans or crawl out from underneath credit card debt.

A study recently released by Bankrate found that 60% of Americans wouldn’t have the funds available to cover even small hiccups — like a $500 medical bill or car repair. Think about how many of those expenses you’ve run into in the last six to 12 months; probably at least one.

If you want to avoid incurring more debt as a result of life’s curveballs, work to save while paying off debt. This will give you a better chance of smooth sailing to the finish line.

Myth No. 5: You should borrow the most money offered to you

Wondering how much house you can afford? Don’t let the loan amount offered by the bank be your guiding light.

Those in the business of making loans are incentivized to offer the biggest loan possible that you’ll be approved for. So while they may be checking out your debt-to-income ratio, this simple equation doesn’t always offer an accurate snapshot of what you can actually manage to pay each month.

The same goes for credit card limits — having a $20,000 limit doesn’t mean your finances can easily handle paying back $20,000 worth of purchases.

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MONEY consumer psychology

How Your Money Beliefs Are Hurting You

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We make things up about money and believe them.

What you believe about money drives your financial behavior. Finding out your beliefs is a key step to solving various problems, such as money conflicts in relationships.

Money doesn’t actually exist in reality. It isn’t gold or bank account balance or the pieces of paper in our wallet — it’s this conceptual thing, a promise, an agreement, delivered in measurable units, which we later exchange for something we want.

To grapple with this concept, we make things up about money and believe them. These beliefs act like a kind of programming language, which I call Money Operating Systems.

Your Money OS is a very basic belief about money that influences all your financial behavior. This system you install, unwittingly, controls how much you save and spend, whether you invest, how you invest, how you negotiate for a salary and how you feel about all of that.

Your past experiences with money, starting with your early memories of it, created your Money OS. It also came from your parents or the environment you were raised in.

Recognizing your belief helps you tackle your money woes, or those with your partner. Here are five of the Money Operating Systems I see most frequently:

  1. “There will always be enough money.” People with this belief can be high earners, but sometimes they’re average earners who just live a simple lifestyle. If you have this belief about money, you need to be careful. Make sure you understand how much money you need for your financial future. Over-optimism causes under-saving.
  2. “If I am good, the universe will give me what I need.” A positive world outlook doesn’t lead to productive financial behavior. Saving and investing rarely happen, because these folks believe that their financial health is a function of virtuousness.
  3. “Money makes me valuable.” They are often the people who drive the big flashy cars, and they work to have other people perceive them as successful. Money intertwines with their self-worth. Their ego grows with their bank account. But if they are unsuccessful, their confidence suffers.
  4. “There will never be enough money.” This one is pretty self-explanatory, and very common. People with this money belief will be either over-spenders or under-earners, and they keep creating the circumstances to prove this outlook true. They may justify holding on to poorly paid positions or overspending their high income.
  5. “Money is bad, the root of all evil.” These people believe that business and capitalism are responsible for social ills. They often righteously live without a lot of material possessions. Their negative opinion of money usually leads to destructive financial behavior.

These are only some of the beliefs that determine what is possible in your financial life. It took me some time to be analytical about my own money. I recognized my own system and how it kept me locked in cycles of overspending and feelings of worthlessness, and I’ve since transformed my experiences with money.

So where do you begin to see yourself here? What about your honey?

Hilary Hendershott, MBA, CFP, is founder and Chief Executive of Silicon Valley-based Hilary Hendershott Financial.

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MONEY consumer psychology

When Money Can Bring You Happiness

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Here are 3 reasons to spend yours wisely.

You’ve heard the refrain countless times: Money can’t buy happiness.

Or love. Or class, for that matter.

But a wave of new research suggests that cash can indeed increase your pleasure—if you manage it the right way.

In fact, the influence of money on well-being is such a hot topic that experts around the country have devoted their studies to it.

Want a peek at what some of them have discovered?

We asked three researchers who spend their days delving into the ties between money and satisfaction to divulge their most intriguing revelations—and explain how you can leverage their insights to get happier.

Professor Michael Norton Says … Spend on Others to Be Happy

A professor of business administration at Harvard Business School, Norton has an interest in the intersection between finance and personal satisfaction that stems from his diverse academic experience.

After earning a Ph.D. in psychology, Norton received a fellowship to study business at the MIT Media Lab and the Sloan School of Management.

“Considering how much time people spend thinking about how to increase money and happiness, [I wanted] to figure out the relationship between the two,” the co-author of “Happy Money” explains. “[I wanted to know], when it comes to how we spend, are we getting it right?”

His Key Findings Initially, Norton, 40, uncovered that people spend most of their money on themselves.

“But my fellow researchers and I thought maybe this wasn’t the best way—that an outsized focus on the self might be part of the reason why having more money doesn’t necessarily make us happier,” Norton says.

To test his hypothesis, Norton designed a study in 2008 in which participants rated their happiness before being handed an envelope containing cash. Half were instructed to spend the money on a personal expense or gift for themselves; the rest were told to donate it or buy a gift for someone else.

The results? Those who gave the money away reported higher levels of satisfaction, whereas those who spent on themselves weren’t any happier.

Curious to understand the implications, Norton conducted a few more experiments.

In one, Belgian salespeople received 15 euros to spend either on themselves or on a co-worker. In another, recreational dodgeball players were asked to use $20 for their own purposes or for a teammate’s.

Time and again, people who gave money away reported increased happiness compared with the control group.

Not only that, but their performance improved. For every $10 a salesperson spent on herself, the employer reaped $3 in sales—but every $10 employees spent on co-workers translated to $52 in sales.

Likewise, charitable dodgeball teams scored more goals. Every $10 spent selfishly led to a 2% decrease in wins, but $10 spent on teammates increased them by 11%.

How to Boost Your Own Bliss While any degree of generosity will up your joy, some kinds of giving are more powerful than others. “The closer you are to the recipient, the happier you’ll be,” Norton says.

So buying flowers for your mom has a greater effect than, say, contributing to a stranger’s Kickstarter campaign.

And while the amount you spend doesn’t influence your happiness, Norton says, theimpact of your contribution does.

For example, when it comes to charitable giving, you’ll get the most bliss for your buck if you donate to organizations that create a personal link between the giver and the recipient, such as Kiva or Adopt A Child.

But regardless of who you give to, try to make it a habit. “The happiness surge you feel from a one-time gift eventually wears off, but people who chronically give are happier overall,” Norton says.

Professor Cassie Mogilner Says … Shell Out for Experiences to Be Happy

In 2004, when Mogilner was working her tail off as a marketing Ph.D. candidate at Stanford, she perpetually found herself strapped for cash and time.

“In business school, there’s so much attention focused on the bottom line,” says Mogilner, an associate professor of marketing at the University of Pennsylvania’s Wharton School. “But I realized that, for me, time felt like a much more precious resource than money.”

Intrigued, she began to channel her research efforts toward investigating the association between time, money and happiness.

Her Key Findings Over the past 10 years, Mogilner, 35, has found that time is a significant happiness predictor because, more so than your possessions, how you spend your spare hours reveals your interests and unique “you-ness.”

Just look at social media: People share photos of weddings, vacations and delicious dinners—but you don’t see many posts about trips to the mall.

To that point, Mogilner has also investigated how long we enjoy the mental boost that comes from temporal experiences versus material goods. “We get used to a new pair of shoes very quickly—it’s a phenomenon known as hedonic adaptation,” she says.

So while you might be psyched about your new boots at first, before long, they’re relegated to the back of the closet. Instead of being a source of joy, they now serve a purely functional purpose.

“In contrast, we adapt more slowly to experiences,” Mogilner says. “The way we spend time becomes a part of our memories—our personal narrative.”

People also tend to feel less regret after shelling out for a good time, adds Mogilner.

“After you spend $100 on a dress, you can see the other dresses you didn’t buy right there in the store,” she explains. “But if you spend $100 at a restaurant, you’re less likely to second-guess your decision because you can’t see the alternative meals you passed up.”

How to Boost Your Own Bliss Mogilner’s latest research focuses on the concept of buying more positive time—such as renting an apartment closer to work as opposed to buying a luxury car in which to commute.

“Our lives are the sum of our experiences, so we should be supremely deliberate in spending our time in the best and happiest ways possible,” she says.

Her preliminary findings? People are more satisfied when they outsource a chore anyone can do, like cleaning the house or picking up dry-cleaning.

And when it comes to deciding how to use the time you’ve just freed up, Mogilner says you can maximize your happiness by keeping a few points in mind.

“Activities with a social aspect have the strongest effect,” she says, pointing to things like a family picnic, a concert with friends or a date night with your spouse. “Social activities increase happiness because they cultivate relationships with others—and having strong, stable connections with others is the most important ingredient for well-being.”

Another satisfaction inducer, she says, is experiencing out-of-the-ordinary events—such as taking a vacation somewhere new and exciting—which will have a greater impact on happiness than everyday pleasures.

Speaking of vacations, you can get even more happiness bang for your buck if you book your trip well in advance.

Research published in the journal Applied Research in Quality of Life found that just anticipating a getaway is as enjoyable as the trip itself. So start planning your winter break—now!

Professor Jeffrey Dew Says … Get on the Same Financial Page With Your Partner to Be Happy

Fifteen years ago, Dew and his wife were colleagues in the mental health field, but partway into his career, Dew had a change of heart and decided to enroll at Penn State for a dual Ph.D. in human development and family studies.

His transition back to student life had major consequences: He and his wife lost their benefits and half their income.

“I wondered how the change in our financial situation might impact us as a couple,” says the 38-year-old Dew, who’s now an associate professor in the department of family, consumer and human development at Utah State University. “I looked at the scientific literature, and found that not many researchers had asked this question.”

So he decided to explore it himself—ultimately uncovering a major connection between money and marital happiness.

His Key Findings In 2012, Dew and his colleagues analyzed data after following married couples over the course of five years. In an initial survey, the spouses were asked how often they fought about various topics, including money, chores, intimacy and time spent together.

Dew was particularly curious to see if any of those arguments correlated to divorce rates, and found a striking trend: For men, money fights were the only conflict that predicted a split. For women, money and intimacy were equally loaded—but financial disputes were a much stronger divorce determinant.

In fact, couples who argued about money several times per week were 37% more likely to divorce than those who only had financial spats once a month.

Why are finances such a fraught subject? Dew has a few guesses.

“Money fights are frequently a stand-in for bigger relationship issues,” he explains. “On the surface, an argument might appear to be about overspending, but underneath, it’s a struggle over trust or power.”

Plus, if you’re under financial duress, there’s likely an added layer of stress to a relationship—and that can take a serious toll.

So Dew and his team did a follow-up study in 2013 with 450 married and cohabiting couples, with the goal of determining how happy couples combat financial pressures.

“We looked at the frequency of their financial management behaviors, such as creating a joint budget and putting money aside for retirement,” he says. “[And what we found is that] the more often couples engaged in sound financial practices together, the more likely they were to be happy.”

How to Boost Your Own Bliss The secret to happiness, according to Dew, is to get on the same financial page with your partner by opening the lines of communication as soon as possible.

That’s not to say you have to agree on everything. “Most issues can be worked through, although it will take compromise from both sides,” Dew says.

Dew’s suggestion: Commit to regular money dates—be it monthly or quarterly.

“And try sandwiching these financial discussions between two enjoyable activities, so that they’re less stressful,” Dew says. Consider opening a bottle of wine while you go over the numbers, and then head to dinner or a movie afterward.

One thing to focus on during your money date nights? A financial goal that’s meaningful to both of you, such as saving for a dream trip to Hawaii two years from now or paying off your house by 2020.

“It’s so easy for money to drive people apart,” Dew says. “But by having a shared objective, you can instead use it to bring you closer together.”

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MONEY consumer psychology

Probability Trumps Predictions When Making Forecasts

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Most of us don't think in probabilities -- but we should.

Statistician Nate Silver correctly predicted the outcome of every state in the 2012 presidential election. It instantly shot him to fame in a field most people associate with the most boring class they ever took. He’s been on The Daily Show twice. He has more than a million Twitter followers.

But the most important part of Silver’s analysis is that he’s not really making predictions. Not in the way most people think of predictions, at least.

You will never hear Silver say, “He is going to win the election.” You might hear him say, “He has a 60% chance of winning,” or “The odds are in her favor.” Pundits make predictions. Nate Silver calculates probabilities.

All probabilities of less than 100% admit a chance of more than one outcome. Silver put a 60% chance of Obama winning Florida in the 2012 election, which, of course, implied a 40% chance that he wouldn’t win. Silver’s pre-election probability map gave Obama the edge. But, had Mitt Romney won the state, it wouldn’t necessarily have meant Silver was wrong. In his book The Signal and the Noise, Silver wrote:

Political partisans may misinterpret the role of uncertainty in a forecast; they will think of it as hedging your bets and building in an excuse for yourself in case you get the prediction wrong. That is not really the idea. If you forecast that a particular incumbent congressman will win his race 90 percent of the time, you’re also forecasting that he should lose it 10 percent of the time. The signature of a good forecast is that each of these probabilities turns out to be about right over the long run … We can perhaps never know the truth with 100 percent certainty, but making correct predictions is the way to tell if we’re getting closer.

What set Silver apart is that he thinks of the world in probabilities, while the punditry crowd of coin-flipping charlatans thinks in black-and-white certainties. His mind is open to a range of potential outcomes before, during, and — most important — after he’s made his forecast. Things might go this way, or they might go that way. He adjusts the odds of certain outcomes when new information arrives. It’s the most effective way to think about the future.

Why don’t more people think like Nate Silver?

Twenty years ago, Berkshire Hathaway vice chairman Charlie Munger gave a talk called The Psychology of Human Misjudgment. He listed 25 biases that lead to bad decisions. One is the “Doubt-Avoidance Tendency,” which he described:

The brain of man is programmed with a tendency to quickly remove doubt by reaching some decision.

It is easy to see how evolution would make animals, over the eons, drift toward such quick elimination of doubt. After all, the one thing that is surely counterproductive for a prey animal that is threatened by a predator is to take a long time in deciding what to do.

In other words, most of us don’t think in probabilities. It’s natural to quickly seek one answer and commit to it.

If you watch financial TV, or read investing news, you will almost never hear someone say there’s a 55% chance of a recession this year. They say there is going to be a recession this year. Rarely does an analyst say there’s a 60% chance of a bear market this year. They say there is going to be a bear market this year. There’s no room for error. There are no probabilities. People want exact answers, and pundits are happy to oblige.

Consumers of financial news are part of the problem. Not knowing what the future holds is scary. But you don’t gain much confidence hearing someone say there’s a 60% chance of one outcome and a 40% chance of another. We are more likely to listen to a forecaster who uses unwavering confidence to insist they know the future. It’s like warm milk for our fears.

But thinking in certainties is usually a reflection of how you want the world to work, rather than how it actually works. Silver writes:

Acknowledging the real-world uncertainty in [pundits’] forecasts would require them to acknowledge to the imperfections in their theories about how the world was supposed to behave — the last thing that an ideologue wants to do.

If you have a view of the world that says raising taxes will slow the economy, no amount of information will change your mind. You won’t tolerate a claim of an 80% chance a tax cut could slow the economy, because it leaves open the possibility that your entire world view about tax cuts could be wrong.

One of the top reasons investors make mistakes is that the world works in probabilities, but people want to think in certainties. It’s why bear markets surprise people, banks use too much leverage, budget forecasts are always wrong, and most pundits make themselves look like idiots.

As soon as you start thinking probabilities, all kinds of things change. You’ll prepare for risks you disregarded before. You’ll listen to people you disagreed with before. You won’t be surprised when a recession or a bear market that no one predicted occurs. All of this makes you better at handling and navigating the future — which is the point of forecasting in the first place.

Here’s Silver again:

The more eagerly we commit to scrutinizing and testing our theories, the more readily we accept that our knowledge of the world is uncertain, the more willingly we acknowledge that perfect prediction is impossible, the less we will live in fear of our failures, and the more liberty we will have to let our minds flow freely. By knowing more about what we don’t know, we may get a few more predictions right.

Morgan Housel owns shares of Berkshire Hathaway.

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1 Totally Common Shopping Habit That’s Wrecking Your Budget

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Why you cave instead of save

Like to take your time browsing in the store? Watch out: Time is money, as they say, and the longer you’ve spent shopping in a store, the more it could be costing you money. A new study finds that you’re more likely to spend money on unplanned splurges as your shopping trip progresses, even if you’re really just intending to buy the stuff you came for in the first place.

“The unplanned selection may cue other forgotten needs,” writes lead author and University of Notre Dame associate marketing professor Timothy Gilbride in a new Journal of Marketing study. Basically, buying one thing you weren’t planning on getting makes you remember all of the other things you might have needed but didn’t put on your list, so that first impulse item you pick up opens the floodgates.

In experiments with 400 supermarket shoppers equipped with handheld scanners to record what they put into their carts — and in what order — Gilbride and his fellow authors found that the likelihood you’ll splurge on an unintended purchase is almost 10% higher at the end of a shopping trip.

“There is support for the cumulative effect of shopping cues and/or [self-control] resource depletion toward the end of the shopping trip,” he says.

One thing that might help save your wallet is having a tighter budget. The researchers found that penny-pinchers were less susceptible to the siren song of impulse purchases. For subjects with budgets of less than $64, that first unplanned purchase helped deter them from putting an unplanned purchase into their cart next, although — be warned — Gilbride and his team find that buffer fades by the end of the shopping trip. And for freer-spending consumers — those with budgets between $64 and $109 — the action of purchasing new goodies feeds on itself, and one impulse buy is likely to be followed by more of the same.

“An unplanned selection increases the probability that the next selection will also be unplanned, and this effect grows stronger over the course of the trip,” Gilbride says.

Interestingly, shoppers who budgeted more than $109 per trip didn’t really seem to be affected, either; Gilbride theorizes this is just because they don’t really have to think and plan as much in advance when it comes to their shopping budgets, so there’s less of a distinction between what’s on their list and what they just throw in the cart when it catches their eye.

To avoid sticker shock when the cashier rings you up, try avoiding promotions for items you hadn’t planned to buy, like free samples, that are located in the back or in the more far-flung corners of the store you’re likely to visit later in the trip. Having an idea of your maximum budget in mind when you enter the store can also help. “Making and monitoring a mental budget (or using a shopping app) for unplanned purchases during a shopping trip provides the shopper flexibility… while avoiding an unexpectedly large overall expense,” Gilbride says.

MONEY consumer psychology

These 3 Questions Can Predict If You’re Irrational About Money

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Rationality is often trumped by emotion.

From time to time we bring you posts from our partners that may not be new but contain advice that bears repeating. Look for these classics on the weekends.

Some things are seemingly impossible to explain. I mean, how do spiders know how to spin such beautiful webs? What ever inspired the construction of Stonehenge? And why is Taylor Swift so darn popular?

One particularly perplexing question that scientists have been diligently working to reveal is the reason why people make weird decisions about money.

As Michael Shermer explains in the Los Angeles Times, there have been countless experiments in behavioral economics that demonstrate when it comes to money, reason and rationality are often trumped by our emotions and feelings.

Shermer highlights three behavioral experiments that are used by scientists to measure people’s rationality with respect to money that I found to be really interesting — and so I want to share them with you.

Here are the scenarios. What decisions would you make for each of them?

1. Assuming that prices of goods and services stay the same, would you rather earn:

A. $50,000 a year while other people make $25,000
B. $100,000 a year while other people get $250,000

Did you pick option A? Although that is completely irrational, research shows that the majority of people would rather make twice as much as others — even if that meant earning half as much as they could otherwise have.

Okay, let’s see how you would handle the next scenario:

2. Nancy and Karen are standing in line at different movie theaters. Who would you rather be?

Nancy: She gets to the ticket window and is told that as the 100,000th customer of the theater she has just won $100.
Karen: She gets to the window and wins a consolation prize of $150 after the man in front of her won $1,000 for being the one-millionth customer of the theater.

Would you rather be in Karen’s shoes? That’s what a person thinking rationally would choose but, once again, the rational thinkers were in the minority. Yep. The majority would rather forgo $50 in order to alleviate the feeling of regret that comes with not winning $1000!

Here’s one last scenario based on something called “The Ultimatum Game:”

3. I was given $100 by a friend of mine to split between me and you. Here’s the catch: Whatever division of the money I propose, if you accept it, we’ll both get to keep our share. If, however, you reject my proposal, neither of us will get any money. I’m proposing a 90/10 split; of course, I’d get $90 and you’d get $10. Do you accept or reject my proposal?

Think about it for a second. If you’re rational you’re going to accept my offer, pocket the $10, and feel good that you just got something for nothing. But research shows that offers of less than $30 are usually rejected. Behavioral scientists say this is because an emotion evolved in man known as “reciprocal altruism” demands fairness on the part of our potential exchange partners.

Amazingly enough, this moral sense of fairness is not only hard-wired into the brains of most humans, but primates as well.

So … How did you do? Are you rational or irrational when it comes to money?

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MONEY consumer psychology

This Sneaky Packaging Trick That Jacks Up Prices Won’t Go Away

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Stealth price hike is all too common.

Many products have, over the years, developed a reputation for misleading package sizes—think of those big bags of chips that are mostly filled with air. But that practice has typically been limited to purchases like snacks and laundry detergent.

Now, as more companies face rising costs and increased competitive pressure, consumers are encountering a wider range of products being sold in the same-sized packaging (and for similar prices)—but with much more empty space inside.

That space, termed “nonfunctional slack fill” (AKA the oldest trick in the book), is the cause for several pending lawsuits against consumer products companies, reports the Wall Street Journal.

In one suit, a rival is claiming that McCormick has been deceptive in reducing volume in its black pepper tins without changing the size of the tin itself. Its new tin that weighs 3 ounces, for example, is the same exact size as the old tin that held 4 ounces of pepper. Consumers would only notice they were getting less pepper if they looked very closely at the fine print, where the 4 was changed to a 3.

Similar ongoing lawsuits focus on packaging for Unilever PLC’s Axe deodorant and ConAgra’s Slim Jims. A suit against Procter & Gamble’s Old Spice was recently dismissed.

So what is a consumer to do?

Your best friend at the grocery or drug store is the unit price label along the shelf. Even if a package or container looks the same size, the price-per-ounce or unit will reveal the best bang for your buck — as well as a covert price hike.

Read Next: 10 Subliminal Retail Tricks You’re Probably Falling For


5 Weird Ways Credit Card Debt Can Hurt You

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It's not all about the money -- it's how the unpaid bills mess with the rest of your life.

Personal finance experts remain divided on whether using credit cards is a good idea, but the verdict on credit card debt is clear: It’s bad, and eliminating it should be a top priority. The talking heads usually use financial facts and figures to back up their advice, arguing that credit card debt is expensive and damaging to our FICO scores.

All this is true, but credit card debt is also harmful in nonfinancial ways. For instance:

1. It’s depressing.

Most people agree that credit card debt is a drag, but it turns out it may actually be contributing to a clinical mood disorder for some. A 2015 study published in the Journal of Family and Economic Issues establishes a link between unsecured, short-term debt (like credit card debt) and symptoms of depression. This association was especially strong for the following subgroups:

  • People between the ages of 51 and 64
  • People with no postsecondary education
  • People who were not “stably married” during the time of the study

Even if you don’t fall into one of these categories, paying off credit card debt could improve your emotional state. If financial factors don’t motivate you to bring down your balance, let the prospect of a little extra cheerfulness be your driving force.

2. It could raise your blood pressure.

People with high blood pressure are often advised to keep their worries to a minimum, but if you’re grappling with debt, this can be hard to do. A 2013 study from Northwestern University proves this out; in a survey of existing longitudinal data, researchers found that young adults with high debt-to-asset ratios reported greater levels of stress than their peers with lower debts.

These adults ages 24 to 32 also had higher blood pressure levels, suggesting there may be an inverse relationship between debt and this important measure of heart health. You get only one ticker, so do it a favor and get that credit card debt paid down.

3. It’s linked to weight problems.

Back in 2008, it was much easier for college kids to get credit cards than it is today. Consequently, a study was able to be conducted that year on how credit card debt affects the health of young adults, the results of which were published in the American Journal of Health Promotion. More than 23% of the students surveyed had credit card debt levels above $1,000, and researchers found that this was associated with a variety of negative health implications, including obesity.

It’s hard to say from this data alone that credit card debt causes obesity, or that eliminating your debt will help you in your weight loss efforts. But it’s probably safe to say that paying off your debt won’t hurt your waistline either, so why not give it a shot?

4. It could disrupt your relationship.

It probably seems intuitive that debt could cause a rift in your romantic relationship, but the consequences of frequent financial fights might surprise you. A 2009 study showed that spouses who fought about money once a week were almost one-third more likely to get divorced than couples who fought about money less frequently, The New York Times reports.

This data doesn’t call out credit card debt specifically, but most people who have merged finances with a significant other can recall at least one instance when a credit card bill caused a disagreement. To play it safe, cut your balance as much as you can and keep your partner in the loop before making a purchase that could push you into debt.

5. It may be standing between you and your dreams.

The average household has $7,327 in credit card debt as of June, according to a NerdWallet study. In some parts of the U.S., that’s enough for a down payment on a modest home. It could also be seed money for a business, or a semester’s tuition at a state university.

The point is, credit card debt is more than just a financial burden — it might also be a roadblock to achieving one of your dreams. By paying it off, you’re freeing up a lot of cash that could be put to better use.

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MONEY consumer psychology

10 Lies Rich People Never Believe

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Forget abut YOLO.

We are all guilty of telling ourselves little white lies on a daily basis. Anything from “One more slice of cake won’t make a difference,” to “There’s time to watch one more episode before bed.” However, some of the lies we tell ourselves about money, especially if we’re short on it, can be very harmful.

They are the lies that keep us in debt, and stop us from living the life we really want to live. Here are 10 of the biggest lies that struggling people tell themselves week after week — and that successful people never tell themselves.

1. “I Really Need It!”

We need to separate the want from the need. Do any of us really need the latest smartphone? Do we need to dine out every Friday night? Do we need a $40,000 wedding? (No one does.) Do we need new clothes? And if we do need new clothes, do they need to be brand new, or can they come from a thrift store?

We will convince ourselves, through a series of pep talks and excuses, that we really need to have something. But often, we just want it. People who are good with money will know the difference between what they need, and what they want, and if they cannot afford it, they won’t get it.

2. “Credit is FREE Money!”

No, it’s not. Credit is actually more expensive money, if you really want to analyze it. Almost all credit comes with an annual APR, so when you borrow money, be it on a credit card, a loan, or any other form of credit, you are entering into a contract to pay back the money you borrow plus interest. Some people think that by getting out a bunch of credit cards, they are helping themselves to a ton of free money. But those bills will have to be paid at some point, and the interest will be accumulating until it’s paid off. This also leads into another huge lie…

3. “I Can Only Afford to Pay the Minimum.”

Actually, none of us can really afford to pay only the minimum on credit cards and loans. The interest quickly racks up on any debt you incur, and by paying the minimum you are spending it almost entirely on paying off that monthly interest charge. That means very little, if any, of the money we pay back on a loan gets applied to the principal. For instance, if we have $5000 on a credit card with an 11.9% interest rate, and pay $100 a month on that card, it will take 70 months to pay it off. We will have paid almost $2000 in interest. By doubling that payment to $200 a month, it takes just 29 months, and we pay only $775 in interest.

4. “I’m Never Going to Have Any Money Anyway.”

Says who? There are many examples of people who came from nothing and made fortunes; Oprah Winfrey is perhaps the most famous example of that. If we continue to tell ourselves that we won’t be successful, or we are destined to be financially challenged, then it becomes a self-fulfilling prophecy. By thinking positive, we can at least start to get out of that rut and make opportunities for ourselves.

5. “I Have to Buy It; It’s on Sale.”

There are several ways to look at sales. They can be opportunities to save money, or even make money. By all means, we should shop the sales when we are looking for a specific item. However, buying something when it’s on sale just because it is on sale is a terrible way to waste money.

If we buy something, for instance a blender, for $60 because it is reduced by $20, we think we’ve saved money. But if we didn’t really need a new blender (remember the need vs. want argument) we haven’t saved $20 at all…we’ve spent $60. It can get even worse when we buy lots of sale items simply because we like the feeling we get of saving money. We cannot fall into that trap. Unless we really need something, or can see a way to buy and sell at a profit, we should all avoid those sales like the plague.

6. “Everyone Has a Car Payment.”

Ask around at work. Ask your friends, and family. You will find out that some people have small car payments, other have huge car payments, and some have no payments at all. The ones who don’t have a payment are smart. They either paid off their car in one lump sum, or made monthly payments until it was paid in full, and then kept the car. We all get tempted by the latest models, and as few of us can afford to drop $25,000 to $30,000 on a shiny new car, we opt for a monthly bill. But that monthly bill comes at a cost greater than money. It’s taking away from money we could be putting into a savings account, or spending on experiences like vacations or education.

7. “I’ve Earned It.”

“I worked really hard this week, I’ve earned this $5 cup of coffee.” “I worked an extra shift, I definitely earned this new outfit.” We are all guilty of this kind of thinking. We work hard, we feel like we earned the rewards that come from those endeavors. However, what are those little treats really costing us?

A $5 cup of coffee every day is around $150 a month. That’s $1800 every year. What could that money buy us, especially when we can make a decent cup of coffee at home for just pennies? What we have really earned is the chance to have a better life, and we’re cheating ourselves out of it by spending money on frivolous things just because they give us a few extra minutes of pleasure.

8. “It’s Only Money.”

That’s a little like saying “It’s only oxygen.” We need money to live (unless we have found a way to survive without it, which is rare to say the least). That kind of blasé attitude to money is what keeps poor people poor; rich people never think that way about money. It shows a complete lack of respect for the currency that we need to live on, and if we spend like there’s no tomorrow, guess what…tomorrow is going to suck. Money may not bring us happiness, but a lack of it can certainly make us very unhappy, and even unhealthy.

9. “I’m Not Gonna Live Forever.”

Add “You only live once (YOLO)” to that, and “Spend it while you’re young enough to enjoy it.” The problem with that kind of thinking is that the money runs out, the debt piles up, and we are committing ourselves to a future of worry, stress, and life without any kind of comfort. Humans are living longer lives. We may not live forever (yet) but we need to live like there’s a long future ahead of us, and save accordingly.

10. “Something Will Turn Up.”

Relying on luck to change our fortunes is foolhardy. Yes, something may very well turn up out of the blue. We may buy a lottery ticket and win millions. The chances of it happening are microscopic, but it could happen. We may also get a massive promotion at work, out of the blue. However, most of the time we create our own luck. We need to make sure that we’re working towards a way to grasp opportunities when they present themselves, or the things that “turn up” could include unexpected medical bills, unemployment, or bankruptcy.

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MONEY consumer psychology

Fix These 4 Psychological Traps That Keep You From Saving

brain-shaped maze
Pasieka—Getty Images

Carpe diem doesn't work when it comes to savings.

Nobody likes a love interest that plays “mind games.”

It’s a waste of time, energy, and money. But you may be guilty of something almost as bad: playing mind games with yourself when it comes to saving. There are certain behaviors, inherent to many of us, that increase our chances of spending all of our paycheck. Avoid these top four psychological traps holding you back from saving:

1. Lizard Brain

Sometimes you can just blame it on your genes.

Back in the cavemen era, humans had a really hard time surviving. There was always a violent predator around the corner ready to take a bite out of them. This constant state of imminent danger put one part of our brains in overdrive — the amygdala. Sometimes known as the “lizard brain” (because that’s all a lizard has for brain function), the amygdala is in charge of very basic functions, such as as fight, flight, nutrition, and sex.

The lizard brain made our ancestors act very emotionally and live as if every day was the very last of their lives. Eat every last piece of food now, and leave everything behind at the first sign of danger, it said. The constant threat of danger kept cavemen on their toes and made them act impulsively.

Many centuries have passed and humans have evolved for the better, but the amygdala is still part of our brain, and many of us want to enjoy our money now. Fight the urge to splurge or analyze your financial situation constantly by reminding yourself that unlike your ancestors, you will probably have a long future to plan for.

How to Fix It

Keeping on top of financial needs every single minute of your day will let your lizard brain take control you and make you react emotionally. Set specific dates for review (e.g. every quarter, semester, or year) of your finances and take corrective action after careful analysis. Then, move on.

2. Extrapolation

We are creatures of habit. We all have a favorite movie that we could just watch over and over, or a brand of coffee that we can’t imagine living without.

The challenge with having favorites is that we tend to assume that the same conditions that once made them them our favorites still apply. This is called extrapolating. When you extrapolate your spending patterns without thinking, you ignore how much money you could be saving.

Take, for example, a daily $5 cup of coffee. Let’s assume that you picked up that habit on your first job. You were young, didn’t have a coffee maker, and you would enjoy it everyday on the bus to work. Now that you’re 10 years older, own a home with your spouse, and drive to work, should you still be buying that $5 cup every day? Well, if you were to stop spending $5 a day and put those funds in an investment with an 8% annual return, you would have a cool $28,553.01 by the end of 10 years.

How to Fix It

Don’t just do things for the sake of doing them. Take a look at your daily and weekly rituals and find cheaper alternatives. Then, commit to put those savings in your retirement or savings account. Already doing that? Start or strengthen your emergency fund. (See also: Here’s How Rich You’d Be If You Stopped Drinking)

3. Confirmation Bias

“There is no worse blind man than the one who doesn’t want to see,” goes a popular saying.

When you’re unwilling to seek out information that challenges your beliefs, you’re a victim of confirmation bias. This psychological phenomenon makes you pay attention only to the studies, news, and facts that reinforce your preconceived notions.

By falling victim of your own reality distortion field, you can waste a lot of money by making suboptimal choices. Let’s assume that you really like Mac laptops and you’re looking to buy a new computer. Here’s how confirmation bias would work against you:

  • The only research that you do is to read sites focused only on Mac computers. You ignore sites that cover a wide variety of laptop models, such as Consumer Reports.
  • You only visit an Apple retail store because you subconsciously favor information that confirms what you already believe.
  • You go out of your way to attack any data or evidence that proves that you could get an exact product that performs just as good (or better) at a cheaper price from another brand.
  • When asked about the main reason behind buying Apple, you can only answer “I like it” or repeat an ad or catchphrase from an Apple clerk.

How to Fix It

Don’t make purchase decisions based on a hunch or first result from a Google search. Be open to checking unbiased information from multiple sources, and be ready to dismiss an idea if the data proves you wrong.

4. Carpe Diem

A day doesn’t go by that I don’t see somebody quoting “carpe diem” on my Instagram or Facebook feeds.

While the most common interpretation of carpe diem is “seize the day,” the official definition from the Merriam-Webster dictionary is the “enjoyment of the pleasures of the moment without concern for the future.” Or in fewer words, immediate gratification. Given the choice of enjoying $300 right now or receiving $5,000 in six years, most of us would take the $300.

However, our parents were right in teaching us self-restraint. Data from over four decades of experiments has shown that a child’s ability to delay gratification is critical for a successful life. Best known as the The Marshmallow Test, the experiment from psychologist Walter Mischel explains how self-control makes you better prepared to tackle any challenge, including financial ones. (See also: 10 Investing Lessons You Must Teach Your Kids)

One of the most successful investors of all time, Warren Buffett, is a major advocate of learning self-restraint. “Someone’s sitting in the shade today because someone planted a tree a long time ago,” he wrote in a past letter to his company shareholders.

How to Fix It

Studies have shown that the most efficient way to learn or teach delaying gratification to achieve later, greater rewards is to provide reliable experiences. For example, if you promise yourself that you won’t use your credit cards for three years to pay down debt and that at the end of those three years you will take a small trip to Las Vegas to celebrate, then take the Vegas trip if you’re successful.

Not keeping your own word will make you say “I didn’t get anything in the end anyways” the next time you’re trying to reach a financial milestone, and make you abandon your goals. Deliver on your promise to yourself or others.

What other psychological traps are slowing down or eating away at your savings?

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