You will be able to explain how stress and a feeling of scarcity narrow money decisions.
It's the 24th of the month and Darren has S$310 left in his account. His phone screen cracked on Saturday, the repair shop wants S$180, and his card bill is due on Friday. A message from his bank offers a cash advance "available instantly". He takes S$500 without reading the fee table, because the only question in his head is how to get through to payday. Three weeks later he notices the charges and can't remember deciding to accept them.
Darren isn't careless. He was making a decision with most of his attention already used up, and that changes what people choose.
The economist Sendhil Mullainathan and the psychologist Eldar Shafir wrote a book about this called Scarcity. Their argument is that when you are short of something that matters, whether money, time or food, the shortage captures your attention. The problem in front of you gets your full focus, and everything outside it fades. They call this tunnelling.
Inside the tunnel you can be very good at the urgent problem. Darren found S$500 in under a minute. What falls outside the tunnel is everything that isn't due today: the fee on the advance, the interest that starts running from the day he takes it, the fact that next month will start S$500 shorter. Mullainathan and Shafir also argue that this constant juggling uses up mental capacity, so other decisions in the same week get less care than they deserve.
You should know that some of the lab experiments behind the book have been hard to repeat, and researchers still disagree about how large the effect on reasoning is. The tunnel itself is easier to accept. Most people who have been short of money can recall a week when the next bill was all they could think about.
Money stress pushes people towards options that solve today and cost more later. In Singapore that might mean a cash advance or a credit line drawdown, paying only the minimum on a card, a BNPL plan for something that would normally wait, or skipping an insurance premium and letting the policy lapse. Each one makes this week easier. Each one carries a cost that shows up after the stress has passed, and that cost is often larger than the problem it solved.
The cruel part is that the people under most pressure tend to pick up these costs most often. A month that starts S$500 short makes the next tunnel more likely. Credit and debt: scores, cards, loans and BNPL covers what these products cost. This lesson is about why they look reasonable at the moment you agree to them.
Stress is only half of it. Strong emotions in either direction speed up decisions, and money decisions made fast tend to be worse.
Hui Min, a friend of Darren's who works in operations at a logistics firm, had a very different week. She got a promotion on Tuesday. On Wednesday evening, still pleased, she signed up for an investment-linked plan at a mall roadshow and booked a S$4,200 holiday in the same hour. Neither was a disaster. But she skipped every question she would normally have asked, because a good mood makes everything look affordable and every pitch look friendly.
Excitement after a win works the same way in investing. A trade that went well makes the next, larger trade feel safe. Anger does something similar after a loss, when people put more money in to win it back. Scam-proof your money, lesson 1.2, Why clever, careful people still get scammed, shows how criminals time their approach for exactly these moments.
You can't remove stress or good news from your life. You can choose when the big decisions get made.
A few habits help. Keep a short list of decisions you never make on the day they come up: borrowing of any kind, signing a policy, buying an investment, or any purchase above an amount you set. Sleep on anything that arrives with a deadline. If a decision can't wait, write down the cost of each option in dollars before you choose, because the act of writing forces the long-term cost back into view. And when you notice you're in a tunnel, ask one question: what will this cost me next month?
Darren now has a rule that he doesn't borrow from any source without waiting until the next morning. If he'd had it in August, the cash advance would still have been available on Thursday. He would also have had a night to remember that his sister had offered to lend him S$200 until payday.
Think back over the past year. You are looking for two moments, one when you decided something about money under pressure, and one when you decided something while elated, and for what a calmer version of you would have done instead.
Write two situations in which you made a money decision under stress or excitement and what you would do differently.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).