Ever wondered why compulsive shopaholics continue to rack up credit card debt even when they know they should stop? Your body’s biological functions may be at fault.

Written by world class marketing guru Martin Lindstrom, Buyology is an enlightening book on his experiments that study the powers of neuromarketing – to shed some light on how our brains govern our shopping decisions.

Upon browsing the library shelves, I came across this fun book title that caught my attention. Buyology was a nice play of words that indicated a collaboration between biology and consumerism – as I have much interest in how our brains interact with money.

The book is basically a compilation of research papers that exposes how the brain reacts to marketing and advertising along with their influences on purchasing decisions – without much of the technical jargon found in a medical journal.

A few of the highlights from the book:

• Advertising works because of mirror neurons. Apparently, we tend to copy, or imagine copying, other people. These sensors are why a baby smiles when you smile and why you buy the clothes on the model in the ad.
• Dopamine, the reason for buyer’s remorse. This neurotransmitter controls your feeling of pleasure. From the point we start anticipate buying “something”, dopamine is released and reaching its highest levels as you walk out the store with that “something”. Soon after, the dopamine levels drop off and we’re sad again. Guess what we do to get that feeling again?
• Selling on rituals. The giddy little practices that are associated with certain products are ways to market those products in a particular way. How did dunking Oreo cookies in milk become a pastime? Did you know that putting a lime wedge in your bottle of Corona was supposedly a tradition started by bet to get the whole restaurant to do it also?
• Sex is distracting. The common notion that “sex sells” may not be true. The person or object of sexual appeal can actually divert our attention from the advertised product and the brand.

Influence on My Shopping Behavior
Ever since I finished reading Buyology, I’ve been analyzing my thought process whenever I see an advertisement or go to the store to buy something. The findings, as a result of Lindstrom’s expensive research project, helped me understand more of what is probably happening neurologically as I’m waiting on line to buy the latest gadget from the Apple store.

Here’s a memorable quote from the book:

“Our emotional brain wants to max out the credit card, even though our logical brain knows we should save for retirement.”

Overview
I recommend everyone read Buyology because you are all human and you all buy stuff. I feel that it would act as a great deterrent to prevent shopping when we take that split second to ponder how our brains are functioning at that very moment. And, if we spend less, we can save up for important things – like an iPad retirement…

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It’s always enlightening to see how our brains work – especially when the instinctive nature of the mind can be detrimental to the way we handle money. One such thought process is our propensity draw comparisons.

Many people blame credit cards, loans, and mortgages, which is (again) another form of human behavior – the tendency to find fault in others but not ourselves. Credit card companies may provide us with the tools to fall deep into consumer debt but credit cards are tools nevertheless – wielded by us, the consumers, to bring about our own financial demise.

Because we compare the prices of things we buy, we are actually inclined to spend.

This or That?
When we compare two things, we will find one that we prefer over the other. And when we are shopping, we will compare prices (among many other things like appearance and functionality).

I recently bought a DSLR camera. This sweet piece of technology costs a fortune – and it gets worse. For those who are not tech-savvy, they fall in the category of cameras that professionals use, which consist of a camera, lenses, and a bunch of accessories.

So, I was in the market for a new lens. After much research, I found a few that fit the bill for what I was looking for. One would cost in the range of $1,100 and the other would be around $350.

For a poor guy like me, there is nothing more to think about – the cheaper one it is.

If two items look the same, perform the same, there is nothing left but to look at the price tag. Naturally, the one with the lower price is the one we take to the cashier. Never did a third option come to mind – to not buy anything at all.

When “Opportunity” Strikes
More often than not, shoppers see a great deal and they won’t let go of that opportunity to pay less for something of value (or what they assume to be of value). Much like how people don’t like to miss out on getting rich, we must take advantage of a good price.

Some examples of must-spend shopping opportunities:

• Weekly supermarket specials
• Calvin Klein sample sales
• Black Friday

Even for myself, I’ve done my share of research (as I’ve always done before making a big purchase) and it is actually worse for a person trying not to spend. With more devotion into any aspect of life, we become drawn to it. Knowledge may be a bad thing. Once I found out what I wanted, I was compulsively scouting for a good price on the lens I wanted. As soon as I found a “great” price, I didn’t let that opportunity go to waste and spent my money.

Cannot Be Avoided
Since it is human nature, it isn’t surprising that most of us fall so deep into consumer debt. Even a self-proclaim frugalite such as myself will succumb to necessary-but-really-not-necessary purchases from time to time. I’d assume that the savviest savers with long-term goals are much more capable to resist this type of innate behavior but we must enjoy some of our money now. Right?

We judge. We compare. Live with it (but try to hold yourself back once in a while).

(Photo credit: TheBusyBrain)

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We love the word “free”. To us, “free” implies something that doesn’t come at a cost. Free stuff is great. Who doesn’t like free stuff?

We are a society that thrives on capitalism: there is always something to gain in exchange for something else – which should probably hint that “free” comes with a catch because it wouldn’t exist otherwise. Someone giving stuff away could gain as little as the proud feeling of doing something good. Any less of gain would render that “stuff” as garbage.

Most of us feel great when we get something for free and don’t think twice about why that is so. We don’t stop to wonder how it can be free – since many people would prefer to charge someone for something instead of just handing it out.

I’ve recently run into plenty of situations (that most people can relate to) regarding free stuff that revealed to me the truth behind “free”:

- Good old hand-me-downs
There is this always some fashion look that teenagers will often chase at a certain stage in their young lives. I, too, became a part of this generation that bought an item that (even after 4-5 years) is still popular among teens – in this case, it was a discontinued edition of a popular backpack.

My younger cousin who has entered high school is going through this exact same stage and the backpack is still in style – in fact, he’s been haggling me about giving it to him. Now that I find no significant need for it, I let him have it.

He gets a backpack that makes him “cool”. What did I get?

Nothing tangible, of course. I did get the feeling of doing a good deed (somewhat) and for putting a smile and two seconds of joy on my cousin’s face. Making others happy makes us happy too right? Another perk is uncluttering. It has just been taking up space in my room since I graduated. Giving it away would be one less thing in my room.

- Buy one get one free
Mmm… For some reason, “free” just triggers the inner shopaholic in everyone. Maybe that is why the field of neuromarketing exists – the study of sensorimotor, cognitive, and affective response to marketing stimuli (according to Wikipedia). Despite practically saying the same thing, “buy one get one free” is more likely to induce a shopping spree than “two for the price of one”.

A clothing retailer (as have many stores) was having a sale to prepare inventory space for clothing for the coming spring. The ad stated that jeans were buy-one-get-one-free. Sure. I needed some new jeans so I’ll just pick up two pairs.

I walked out of the store with two pairs of jeans, two shirts, and a hoody. What just happened there?

The two primary goals of their use of “free” was beautifully accomplished as it was able to get me to walk into their store and spend money while my shopping trip helped get rid of out-of-season inventory. Like all other sales and discounts, the intent is to get you to shop, which would lead to spending – and “free” does this with flying colors.

- A free book
Ever gotten something free and you just couldn’t help but gloat and spread the word? And soon, everyone knows about it – such is the power of word-of-mouth. Some companies have realized the skepticism of shoppers and uses “free” to lure in one shopper, who brings in more shoppers, who bring in even more shoppers.

Like many other bloggers out there, I get free stuff so that I can act as a trusted (at least for what it’s worth) middleman with an unbiased (again, I try) voice. So occasionally, I’d get a book, service, or product for free in exchange for an honest review here on Realm of Prosperity.

To us bloggers, having our blogs recognized as a viable avenue for trustworthy opinions is flattering. But, it isn’t necessarily the best deal since a thorough review of any product or service could potentially be worth more money than the value of the free product or service. If Apple gave a few free iPads to the staff of TechCrunch, their review serves as exposure, marketing, and advertising which could drive a huge number of sales. A “free” $500 just bought a dedicated review that one would have charged thousands to write.

Take a Second
So the next time something free comes along, I’d take a second to ponder the benefits to the other party that comes from such a kind gesture. Although I wouldn’t totally disregard that there is a very rare chance that such a generous act could come from a sincere individual – but I tend to be a skeptic.

I think it is safe to say that any commercial entity that’s offering “free” stuff is using it as a marketing tactic. For other situations, it may not be so clear-cut to decipher. That’s right ladies: think twice before accepting that free drink at the bar (guys are going to lash out on me for that one).

(Photo credit: frankh)

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What is it with “Benjamins” that make them so lovely to keep and so hard to let go? Is it natural instinct to be more reckless with a $100 bill than five $20 bills? Although those with six-figure incomes may have been conditioned not to think so, it still happens to them to some extent.

Quite similar to the concept behind the Infomercial Copycat method of debt reduction, we are more comfortable with parting ways with smaller amounts of money than larger amounts.

The Mind and Money
From an emotional shopper’s perspective, handing over $20 bills to five different stores means that I get to experience that thrill of shopping five times. Also, I feel more je ne sais quoi when handing 5 bills versus just a single bill.

Or, if I went to an arcade with just a $5 bill, I probably wouldn’t play a single game. With five singles on the other hand, I would pick up that plastic gun and start shooting away at some zombies – and then end up refilling the credits until I depleted my five dollars.

Our conservative minds tell us that we prefer to detach ourselves from substance or pursue a desirable experience one step at a time – not in one fell swoop. And because

Big Bills Can Be a Hassle
There are times when small stores refuse to accept bills that are larger than a certain amount. Reasons for that may range from possible counterfeits to simply because they don’t have the change for you.

Some people don’t like change or to do the math involved. “Argh! So many bills! Am I getting the correct amount of change?”

Instead of dealing with these troublesome situations, we choose to avoid them by carrying the bills that we know will get more action.

Helps Control Spending
Carrying large bills may deter us from spending but it is also important to note that what we consider large or small is mostly based on comparison. Having just ten $100 bills will mean that I will have to depart with at least one “Benjamin”. I need to have smaller denominations to actually realize that those $100 bills are LARGE.

I won’t toss a quarter into a fountain but I’d have a blast bombing the fountain with 25 pennies. So if I carried quarters instead of pennies and $5 bills instead of singles, I would have the power to resist the temptation of throwing money into a fountain or blowing of zombie heads.

(Photo credit: Tetsumo)

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With all the great new toys and clothing that everyone received this holiday season, there may be a rising sense of insecurity as we accumulate more stuff – especially the expensive stuff.

Wouldn’t you be a little more cautious when pulling out that new iPhone or flashing those glimmering diamond earrings? The more valuable the stuff we own, the more afraid we are that they are going to get hurt or go missing.

Expensive Stuff Is Pampered
Let’s say I owned a Honda Civic ($16,000) and a Mercedes SL550 ($98,000). I’d park the SL550 in the garage and the Civic on the driveway. More tears would be shed over a scratch on the SL550 than a broken headlight on the Civic. Since I’d like to reduce the probability of the SL550 getting hurt, the Honda would get more miles. In the back of my mind, I know it will cost more to fix the expensive car so I choose to drive it less.

Warranties, extended protection plans, and insurance were invented to prey on us consumers because it is our natural instinct to care more about stuff that is of high value to us – it could be monetary value or sentimental value. Therefore, we are likely to spend additional money to protect expensive things.

Expensive Stuff Gets Attention
People are biased against the less expensive stuff they own. It is entirely understandable that someone would flip out over a stain on a $300 jacket instead of a stain on a $20 T-shirt.

The more expensive the stuff in my possession, the more concerned I am about its safety. Thieves, crooks, and pickpockets see expensive stuff and want to take it. I admit that I am overly cautious about my iPhone in my coat pocket as I ride on the NYC subway – and I am certain that I’m not the only one exhibiting such behavior.

When I walk off the train, I don’t check my $20 scarf, my $40 watch, or my $100 textbook – I attend to my $300 iPhone.

And Then… Forgotten
Just picture a closet full of designer handbags, shoes, and dresses that still have their tags on them. Many ladies are guilty of this, including the main character of “Confessions of a Shopaholic”. On the other hand, guys succumb to technology and gadgets. The expensive set of power tools intended for DIY projects, the surround sound system for the movie theater experience, and the latest workout equipment are the typical stuff the men leave around to collect dust.

It is an all too familiar event when someone doesn’t want to use an expensive item and ends up not using it ever. Time depreciates the value of most “stuff” to a point when we no longer hold these things close to our hearts enough to care anymore.

Consider Efficiency and Practicality
Again, this topic circles back to the instant you decide whether or not to purchase things. Do you really need it? Will you use it enough to make it worth your money? Knowing that you’ll get the most “bang” for your “buck” would eliminate your worries of feeling insecure.

Expensive stuff need not be avoided. Like everyone else, I will continue to buy the luxuries I can afford and that sense of insecurity would come knocking. While acknowledging the emotional burden that comes with expensive things, it is most important to be prepared to deal with it.

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You’ve thought about it. I’ve thought about it. And, everyone else has thought about it.

About what? – “what I would do if I won the lottery”…

While I’d probably become the most ecstatic person in the world that I am finally rich, there would also be plenty of concerns that do not regard how I would spend the money. With great power comes great responsibility. With a lot of money comes a lot of headaches.

Becoming a millionaire overnight may be worth some media attention and hitting the jackpot or even just second place is a way to end up in the local news. When people know you have money, it is a bitter sweet feeling when people befriend you but with the primary interest of your money.

As a result, I’d be fairly worried over how winning the lottery could be detrimental to my life:

• So-Called Family and Friends
  Money attracts anyone who thinks they can perhaps have some of it. There would probably be a continuous stream of phone calls and Facebook wall posts congratulating me in hopes that I’d be generous enough to share the wealth. Here is an article of a winner of a recent UK lottery and how an ex-boyfriend was able to get piece of the prize.
• Safety of My Family
  Movies depict those situations all the time but that doesn’t mean it’s fictional. We must not avoid the fact that we live in a treacherous society and bad things do happen. Kidnappings occur all over the world to hold loved ones as hostages to trade for ransom.

  For example, Leandro Barbosa, an NBA guard for the Phoenix Suns, expressed concerns last year over a threat to kidnap his mother who was residing in Brazil.

  If I was in the media because I won the lottery, people can find out a lot about me and think of bad things to target my winnings.

• More Money To Spend
  One of three lottery winners have gone broke after 5 years. The more money I have, the more money I can lose. As spending power increases, the tendency to spend can sometimes overcome previously instilled habits of saving and smart spending. Plenty of lottery winners have seen money pour out of their bank accounts and claimed that everything disappeared with little resistance. Here are 8 lottery winners who shared their story of rags to riches and back to rags again.

So many people had wished they never won the lottery because it destroyed their lives. That winning ticket could be a personal Pandora’s box and after reading the horror stories of ruined lives, I would be overly cautious (another symptom of lottery winning – paranoia).

It is amazing what a difference it makes when one earns their wealth and when one wins their wealth. People will tend to cherish the money that they worked hard for through blood, sweat, and tears rather than the money that fell onto their lap. That is why developing stable financial habits early on could possibly prevent self-destruction when luck is on your side.

(Photo credit: Robert S. Donovan)

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We all flash that smile when we know that we purchased an item at a bargain price. Saving money never made a customer unhappy. But, just because we caught a deal from coupons, discounts, or sales does not necessarily that we are practicing the sound financial principle of saving.

Deal and Bargain Finding Websites
I’ve discovered that I’ve been frequently visiting sites such as FatWallet.com, BensBargains.net, and Slickdeals.net in search of any deals I may find for things I need. Now, I no longer consider them deal and bargain finding websites because they are shopping websites in actuality. It is a place with products and services presented to potential customers but at great prices. With a constant stream of updated deals, it is easy to get lost in a shopping spree.

“Can’t Miss This Deal” Mentality
Consumers tend to buy stuff they don’t need. It is also common that most of the unnecessary things we buy were purchased at, what we perceive as, a discount price. We were lured into buying many things we didn’t need through coupons and sales. It feels great to have bought something for a cheap price but it is no different than throwing money away if it is useless to you.

Enables Compulsive Spending
Some people tend to allocate the savings on a particular purchase towards another purchase. So, if I saved $20 on this item, I could use it for whatever I’m going to buy next. After continuously applying a previous saving to a future purchase over and over again, I would have a racked up a good amount on my credit card without realizing how fast and easy it was to do so.

Some well-known tips are to:

• Ask yourself: “Do I really need it?”
• Get what you need at a good price and get out.
• Close the browser, computer, or just walk away from it.

Much like my proposed Infomercial Copycat method of debt reduction, coupons, discounts, and sales provide the feeling that you are losing money in tiny amounts so that you don’t see the BIGGER PICTURE – which is: you just spent a lot of money on crap.

(Photo credit: The Consumerist)

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I was watching an episode of Leverage the other day regarding a Ponzi scheme and there was scene where a line was quite thought-provoking. Nate (Timothy Hutton) tells his team that people invest in these scams because of the so-called “guaranteed” higher-than-average returns. He says that people do not fear that they will lose their money, but that they fear they will miss out on the opportunity to strike it rich.

What he said is indeed very true. When people buy that lottery ticket, purchase that stock, invest in a fund, participate in MLM or order those “Secrets to Millions” informational kits from TV, their primary focus is placed on the potential profits that those things can bring.

We’ve all heard of how there is a higher possibility of being killed by a number of things while making that 5 minute trip to buy that lotto ticket. We’ve all seen those ads about how buying this or that stock is a guaranteed to increase in share price and find that it takes a dive the moment you buy it. And, we’ve seen the many programs out there that portray people raking in $20,000 in 1 week from following “their simple steps” and end up with different results when you buy it for yourself.

Think A Little

Taking a few seconds to stop and wonder might help save yourself some grief when your hard earned money disappears. While walking by a store and I see the jackpot of $200 million, putting $5 for chance to have it doesn’t seem like such a nonsensical thing to do until I find that I’ve put in about $100 per month for that chance to get rich. Then again, not buying a ticket means I have no chance at hitting the lotto. Just make sure that it doesn’t get out of hand.

When dealing with the stock market, nothing is guaranteed. A promised annual ROI of 20% from an investment fund is bogus. Let past performances with research and analysis prove to you that there is something worth investing in.

The validity of methods of making thousands per week can easily shot down by asking myself one question:

If these discs can show me how to make up to $100,000 a week without doing anything, why are you selling me this idea when you can make millions yourself (and if you were a smart businessman, you should keep this to yourself)? And for only $19.99?

If I knew the secret to being rich in one year’s time, I certainly wouldn’t reveal it to anyone (though I don’t mind sharing the wealth).

Who isn’t looking for the fastest route to millions?

These dreams of a luxurious care-free lifestyle overshadow the conscious mind telling them that it is too good to be true. A glimpse of hope is all that is needed to become trapped in a continuous cycle that keeps them paying for the possibility that they make a lot of money.

Photo credit: Lisa Brewster

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This method of debt reduction is not some extravagant new idea nor is it miracle work. It employs the same tactics that businesses use to make you more likely to spend money.

The essence of how it works is that it builds the psychological momentum and confidence that many consumers lack when they are reluctant to repay their loans. This method of debt repayment mimics the process that a customer undergoes to buy a product often seen in an infomercial.

The common strategies are:

• Breaking into multiple payments. You always hear, “Get this for only 4 easy payments of $19.99″. They don’t want you to see what you are actually paying. The whole point is tricking you into not knowing how much you’ll end up spending. The total payment of $80 plus taxes and shipping will not show up anywhere in your bills.
• Create the illusion of a smaller amount through the use of many “9”s. Seeing a smaller first digit just makes the number look smaller. The difference between $20.01 and $19.99 may only be two pennies, but people feel much more comfortable with paying $19.99, psychologically.
• Create the illusion of a smaller amount through the use of fewer digits. This is very much like the tactic above. It works on the premise that fewer numbers means less money. Once again, it makes a customer feel that paying $999 a less overwhelming than $1,000.

The Infomercial Copycat

1. Take the balance of your current credit card statement and divide it by the maximum number of online payments per billing cycle that is allowed by your credit card company.
2. Round up to the nearest $10 if your statement balance is less than $400. Round up to the nearest $100 if your statement balance is $400 or more.
3. If your mini-payment is $100 or less, subtract $0.01 from that amount. If your mini-payment is more than $100, subtract $1 from that amount.
4. Divide the calendar month by the number of maximum payments per billing cycle. This gives you the days on which you will make the mini-payments.
5. Set up reminders and make the payments as scheduled.

Here is an example of how the Infomercial Copycat should look like:

Why It Works

Besides being a financial burden, debt also has a major psychological impact. The Infomercial Copycat changes nothing about your financial situation but it will do wonders for your morale. You will feel like debt has less of a strangle on you. When you do something and it doesn’t feel too bad after you do it, you are less afraid of it the next time. This is the drive and momentum that this method is trying to instill.

If you look once again at the image at the top of this article, it is more comforting to see your debt as four parts of $49.99 each than a whole $200. If you agree with the previous statement, then you should definitely give the Infomercial Copycat method of debt reduction a try. I know it will work because I use it!

I suggest everyone to use this method except for those who are truly unable to make the mini-payments as scheduled. Because it requires that you stick to the schedule and not miss a mini-payment after the first one. It is, without a doubt, a more tedious method of debt repayment but you will feel the relief when that bill is paid.

Also, the Infomercial Copycat method works in tandem with other popular debt reduction techniques such as the Debt Snowball and the Debt Avalanche.

So, no matter who you are, as long as you have credit card debt, you can give it a try. Let me know whether or not it has worked for you.

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Uh, it means lower APY of course! Today, the U.S. Federal Reserve slashed 50 basis points to a rate of 1.50%.

The stream of bank failures
This rate cut in a state of increasing financial turmoil may be a life preserver for the economy but the effects it has on savings accounts and their user may be negative.

Fears and worries
Here and there, everyone keeps expressing their concerns over the stability of banks. They do not care if their money is FDIC insured. They just don’t want to deal with the changing of names and accounts when a bank disappears. These fears and worries prevent the people from putting their money into the bank. Financial institutions have been known to provide a great level of trust and security among its account members. But, the economy has substantial changed the views of the people.

Lower rates means lower earnings from interest
All the high-yield savings accounts are susceptible to the impending reduced interest rates from their respective banks. Last year, we saw rates up to 6% and even more on CDs. Now, it seems that 3% may become the maximum.

But… DON’T FRET! KEEP SAVING!
While the reasons to refrain from putting money in banks are understandable, step outside the box and take a look. The economy is taking a slide and your money in savings contribute to the solution for these failing times. No financial institution is safe. So stop asking, “where should I put my money?” Put it somewhere with minimal risk and volatility. It may be in savings accounts, CDs, or low risk funds. Anything is better than nothing.

Don’t hide your money, let it grow.

Photo credit: TruShu

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