The Biggest Spending Mistakes We Didn't (even) Know We Were Making

Updated: Oct 11, 2020

Consumer Psychology is a bitch, guys.

When going through some old articles, the Money Maverick team singled out the popularity of an article that was neither about in-depth insurance nor investments.

READ HERE: Her 6K Salary is BETTER than your 10k - Here's Why

I actually wrote the article almost 2 years ago, and the response to the content really surprised me at the time, because I didn't think that it was a good topic.

But this Covid period has helped me to realize - especially when dealing with current and new clients - that Financial Literacy fades quickly.

Especially because we rarely get the opportunity to put it into practice.

For example, most of us do quite a bit of due diligence on Mortgage Loan selection. How many of us remember specific details of all that effort?

Statistically, most of us may not only have not even have refinanced it, but has likely let the knowledge pass on into the after life.

Good Behavior, on the other hand, tends to stick if we get enough cues.

I wanted to share some more approaches to relativity - since we covered income in that previous article, I wanted to cover 'expenditure' because I know many people who are tightening their belts during Covid-19 and trying to spend/budget intelligently. Here are some issues you really need to look out for, because they sneak up on you like the little ________s that they are.

1) A Percentage of your Time

A while back, Starbucks was willing to do 1 for 1 Coffees - and instead of getting Coffee from downstairs, I found a partner and took the 5 minute walk from my office to Plaza Singapura JUST to pick it up. Objectively this made a lot of sense to me, because 1 for 1 (woo). ...A $6 purchase could become $3, basically.

But I remember shopping around for a Nintendo Switch promotion [the whole thing for about $350] from various gaming stores back when I was looking for it. Someone was nice enough to cue me into another gaming store a short walk away in Orchard that was selling my package $10 cheaper, but I didn't do it.

It was too troublesome.

I realized that I often do this as well.

The opportunity to double the value of my relative money at the time ($6) was such a valuable proposition that I could trade time for it.

...But when faced with a small % increase [slightly under 3%] for the same use of time, I didn't do it despite the fact that the absolute value of $10 saved was MUCH greater than that of $3.

Its really only when you put it like this when you feel stupid about yourself.

We often get fooled by our relative approach to the magnitude of an increase in value - because we increase our relative value by such a high percentage, we neglect the fact that

a) The absolute value gain is low

b) Our time was potentially worth more than that to begin with!

2) Size Matters [but smaller is better!]

In 2017, I asked a girl for feedback on my pitching on my first month on the job. She told me that she was too distracted by the sight of my wallet on the table.

At the time, I was still fresh-student mode. I had a bunch of restaurant cards, drivers license, my army card, some arcade cards (I love arcades), no credit cards and a debit card that I was reluctant to use because Paywave wasn't as effective yet and Nets was troublesome -

...So I carried a bunch of cash and vouchers and receipts and it was a fat disaster.

Oh, and it also wasn't an 'adult's' wallet, or whatever that is.

Today's wallet is a slight improvement, though it could be sleeker. Baby steps.

[Wow. I almost forgot the point of that story because it made me so sad.]

Anyway, the point is that today, most people have much sleeker wallets than me by handling most of their purchases using Credit Card.

You see, the better-known credit card statistic is that people don't pay their credit card bills on time. This is better reflected in a country like the US, whose credit-card debt recently surpassed the 1 Trillion Dollar mark [2019].

But in Asia, we expect among ourselves a certain culture of discipline and self control [okay specifically, our Tiger Moms drilled it into us]. Compared to the US, 88% pay off their debts on time, 9% pay it off at least partly and only 3% fail to pay it entirely.

And as a result of how awesome we are, personal Finance sites are crazy about it, but I'd rather avoid most of it entirely if possible...

...Because while we are patting ourselves on the back, less popular studies show that your spending on the same products increases between 80 - 100% per transaction. WHAT.

Some reasons for this increased spending are:

Convenience: Because your wallet is not as bulky as mine where I hold onto literally every coin and card.

Group purchases: Because we can't resist miles or cashback if we trust our friends to pay us back later. Or other such examples.

Coupling: In reference to why most successful online shopping modes are 'pay first and receive later.' The subsequent experience much later is long after the pain of paying upfront is experienced, and we always end off with a positive experience overall that makes us want to repeat the process. While some people could consider it despicable consumer psychology, it really does make the whole experience better. Have you had a holiday where you had to budget everything there and then instead of before hand? Not fun.

Leceh Effect: Because we don't think about it as much as we should. Specifics are written here.

3) Side by Side [or offered by another name]

The 'Side by Side' effect is how the value of something gets ARTIFICIALLY INFLATED in our eyes.

As a spending mistake, we tend to associate something that is in proximity of something, or with a belonging to something, as valuable. This happens quite often, especially when you look at the power of branding.

One form is Endorsements: when a celebrity endorses a brand, the value of something automatically goes up, regardless of whether the thing is actually valuable or not.

Your product is still as good as it was, prior to the endorsement; the endorsement did not magically make it any better. Yet the value shoots up due to emotion and not much else.

Another type of example would be typically be art in an art museum. We can only assume the art is valuable because we have no clue. If it is in a museum, and it is on exhibition, then it must be valuable.

You may laugh at that kind of inane example, but we pay for overpriced Starbucks all the time.

4) Bargains and Sales Effect

This example is taken from the book Dollars and Sense, which may or may not have had some influence with my good friends at Dollars And Sense.

This one should be pretty common to most of you who are reading this, but the bargain and sales effect is a pretty prominent psychological feature of people who are buying - we like to see that there are discounts available and there for a limited time.

These kinds of advertisements make us feel intelligent, like we're taking advantage of a price drop, when no one else around or people who did not see it will not be able to indulge in the same discounts.

And so we feel intelligent and opportunistic, and we feel lucky for being there.

But the shoe that I was selling was already worth $100. What I do is mark it up to $1000, and say that for a limited time only you can get it for 90% off!

[But wait, there's more!]

You may think that that concept seems really ridiculous. How many people would be foolish enough to fall for this kind of thing? Well, here's an ad-libbed version of the events found in the book Dollars and Sense:

Yet in 2012, Ron Johnson, the new CEO of JC Penny, decided to scrap the deceptive practice of marking products up and then marking them back down.
In the decades prior to his arrival as a CEO, JC Penny always did things like that - they had coupons, deals, in-store discounts, they made regular prices out to be bargain deals. They had a lot of creative ways to do this.
Johnson decided to make the stores prices fair and square, he decided to cut out all these campaigns and decided to be very open and transparent about their prices.
But loyal customers hated it - people were literally so angry that they were no longer being deceived that they decided to boycott JC Penny. There was a huge uproar about it online, of course, and eventually what happened was that the company lost 985 million dollars compared to the previous year of sales, and they fired poor Johnson, who was literally only trying to do the right thing.
They then raised the prices again and they started slashing them down for everyone after the discounts - the prices remained the same, they just looked like they were offering great deals once again.

The lesson here was that his structure offered more products at honest prices, but was rejected in favor of sales gimmicks and psychological gimmicks, which consumers WILLING CHOSE, which is what we're talking about today.

People voted with their money and they wanted deals, bargains and sales, even if it was just a perception, as opposed to the hard reality of what those prices actually were.

And so that's the psychology of pricing.

5) The Bad Offer

The 'bad offer' is basically in relation to how human beings perceive a controlled, but relative pricing - and will make a relative decision immediately after the relative consideration.

That may be a big sentence of very large words, but it really is just exactly what I just described. Let me explain this in simple English/example.

Let’s look at an option to choose 3 prices on an airline.

So the airline base package will be $120. The upgrade to a nicer seat will be maybe $140, and the upgrade plus a nicer seat and food will be maybe $200.

Is Food worth $60? Hmm.

If you break it down according to the controlled but relative pricing, the upgrade of the seat is $20, and the food is $60. Most people will not pay $60 for food.

But now they feel that the seat is worth paying for because its so cheap, relative to what it could be worth or the other purchasing options.

So this fools people into believing that the seat is worth more than it actually is, depending on the situation. And because we had something to compare, we basically forgot about the absolute values.

Did we need a better seat? We didn't really even think about that, we just kind of felt that $20 extra for a better seat is a pretty good deal, regardless of whether we needed it.

So we make that kind of purchase emotionally and we justify it later with logic, because we're not actually sure why we made that decision in the spur of the moment.

But most advertising is mostly geared towards something like this, or a variant like this. Inevitably, we add on stuff which we had absolutely no plans to add on before because of how we see relative pricing.

Closing Thoughts

Despite good fundamentals left in the dust of emotional selloffs, it can be difficult for people to spend now, let alone invest in the face of ongoing Covid. I do advocate the continuous adaptation of your skills, but most of us had a truck ton of problems doing that prior to Covid already, so if you can't take the time to raise your active income, do be careful with your money. Once you free up cash flow, you'll be able to use that money and intelligence to make more money with an Investment Specialist.

Good luck.

Money Maverick

As one of the Top Financial Bloggers in Singapore (Feedspot,, I would be happy to answer any emails and questions you may have, as I have been doing for my readers over the past few years - especially about Insurance and Investing, as it is my forte of personal and professional knowledge.

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Money Maverick is a Licensed Financial Consultant with MAS, who specializes in Investments and Critical Illness Insurance.

The views on his blog are strictly of his own opinion and have no affiliation to any of the companies he works with.

Here are some of my resources on:

1) Investing: Why you should invest aggressively NOW (and how you still can have peace of mind)

2) Insurance: The Newest, Rising Critical Illnesses in Singapore (2019)

3) Retirement and Leverage: Leveraging a Private Annuity, Pros and Cons (ft. Jamus Lim)

4) Spending and Saving: The Biggest Spending Mistakes You DIDNT Even Know you were Making (and how to avoid them)

5) Job Assessment: A Case Study on How a $6k/mth GIrl makes MUCH more money than a $10k/mth Guy

6) Financial Optimisation: How I Avoid the Largest 'Fees' of All

Investments are also available using CPF (Ordinary Account), SRS (Supplementary Retirement Scheme) and Cash.


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