Explain how stress and a feeling of scarcity narrow your money decisions.
Darren checks his bank app on the 24th of the month and sees S$310. His numbers, and those for his friend Hui Min further down, are made up for the example. On Saturday his phone screen cracked, the repair shop wants S$180 to fix it, and his card bill falls due on Friday.
His bank sends a message offering a cash advance "available instantly". He accepts S$500 without opening the fee table, thinking only about how to last until payday. Three weeks later the charges catch his eye, and he has no memory of agreeing to them.
People who make choices like Darren's often get called careless, and that isn't necessarily fair. He made the decision when most of his attention was already taken, and a mind in that state chooses differently.
Sendhil Mullainathan, an economist, and Eldar Shafir, a psychologist, wrote a book on this called Scarcity. In their sense, scarcity means lacking something that matters to you: money, time or food. Their argument is that a shortage grabs your attention. The pressing problem takes all your focus, and anything beyond it drops out of view. They call this tunnelling.
Inside the tunnel, people are often quick and capable at the problem in front of them. It took Darren under a minute to come up with S$500. He did not see the things that weren't due that day: a fee, interest charged from the first day of the advance, and a following month that would begin S$500 shorter.
The authors make a second claim: juggling bills all the time drains mental capacity, so anything else you decide that week gets less thought. Treat that part with some care. Several of the lab experiments behind the book have been hard to replicate, meaning researchers who repeated them did not always get the same result. There is still disagreement about how big the effect on reasoning really is. The tunnel itself is less disputed. If you have ever been short of money, you can probably recall a week when you thought about nothing except the next bill.
Under money stress, the options that look sensible are the ones that solve today's problem and charge you for it later. In Singapore these include:
a cash advance, or drawing down a credit line paying only the minimum on a credit card a BNPL plan for a purchase that would usually wait missing an insurance premium and letting the policy lapse
Each of them makes the current week easier to get through. Each also carries a cost that turns up once the stress is over, and that cost is often bigger than the problem it fixed. The people under the heaviest pressure end up paying these costs most often, and when a month begins S$500 short, the next tunnel becomes more likely.
The course Credit and debt: scores, cards, loans and BNPL sets out what each of these products actually costs. They seem reasonable when you agree to them because the tunnel keeps the fee and the interest out of sight at the moment you say yes.
Strong feelings speed up decisions whichever way they point, and money decisions made quickly tend to be poorer ones. Hui Min, a friend of Darren's, works in operations at a logistics firm and was promoted on Tuesday. On Wednesday evening, still in a good mood, she bought an investment-linked plan at a roadshow in a mall and booked a S$4,200 holiday, both within the same hour. Neither is a disaster. She did skip every question she would usually ask, because her mood made each cost seem affordable and each salesperson seem friendly.
Investors show the same pattern. After a win, excitement makes a bigger next trade feel safe. After a loss, anger pushes people to add more money to recover it. Scammers deliberately approach people at these emotional moments. Lesson 1.2 of Scam-proof your money, Why clever, careful people still get scammed, explains how they time it.
Stress and good news will keep arriving whatever you do. What you can decide is when big money decisions get made. Start with a short list of decisions you will never make on the day they come up. Borrowing of any kind belongs on it, along with signing a policy, buying an investment, and any purchase over a limit you set yourself. If something comes with a deadline, sleep on it. If a decision really cannot wait, write a dollar cost next to each option before you pick one, because writing the numbers down puts the later cost back in front of you. When you notice you're in a tunnel, ask yourself one question: what will this cost me next month?
Darren now follows one rule. He waits until the next morning before borrowing from any source. If he had followed that rule in August, the advance would still have been on offer on Thursday. He would also have had a night to remember that his sister had offered to lend him S$200 until payday, an offer he had forgotten while he was in the tunnel.
Think back over the past year and pick out two moments: one money decision you made under pressure, and one you made while elated. For each, write down what you chose and what a calmer version of you would have done instead.
Write down two times you made a money decision while stressed or excited, and what you would do differently now.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).