Paying for Things IS Painful: What Is the Pain of Paying and How To Use It In Your Advantage
Have you ever felt a slight discomfort when you pay for something? Sometimes the funky feeling is barely there –just a subtle awareness that you are about to part ways with your money. If you’ve ever felt these emotions, here’s some good news: you are not imagining them. That uncomfortable/mildly annoying sensation is what some social psychologists and behavioral economists call the “pain of paying” —aka, a series of negative or conflicting emotions that arise when you’re paying for something. But, what exactly is this “pain of paying” and why does it even exist? And more importantly, can you learn to leverage it for your financial advantage? Let’s get right into it.
My most vivid memory of feeling funny/mildly uncomfortable while paying for something dates back to the day I bought my first car, just after graduating college. I arrived at the used car dealership before noon so I could look around without the rush. The trick worked. An hour later, I was signing all the paperwork and getting ready to wire the payment when the realization finally hit me: I was about to spend two years’ worth of savings in a single purchase.
Intellectually, I knew the weird feelings didn’t make much sense —I wasn’t splurging without a reason; I had willingly put money aside for 2 years to buy that car. Wiring the money was the last step of a well-thought-out plan. Why then did I feel mildly conflicted? This was a purchase I had been looking forward to paying off. Oh, the mystery.
And yet, it turns out that these feelings are everything but mysterious.
What is the Pain of Paying? Where Does it Come From?
We, humans, are loss-averse creatures. Nothing triggers us more than the possibility of losing something that we deem necessary for survival, whether it’s physical and essential items, such as food and shelter, or intangible and abstract things, such as companionship, a strong sense of self, or the appreciation of our loved ones. The mere thought of losing access to all of this is enough to provoke a good shudder.
Unsurprisingly, the comings and goings of our hard-earned cash obey the same kind of loss-aversed logic. As a general rule, people don’t enjoy parting ways with their money; the only reason they put up with it is the payoff that awaits at the other end of the trade process. More often than not, the goods and services you get in exchange for your money fit the reward bill perfectly: in exchange for your dinero, you get something to enjoy at discretion. Fairness is thus restored.
Now, imagine what would happen if, for some reason, the payoff process got disrupted. You give your money away, but you never receive the goods you want in exchange. All you have left is a sense of loss, mixed with a bunch of negative emotions, like shame, anger, and sometimes even guilt (which, not coincidentally, are the same kind of emotions that scam victims usually experience). This aversion to monetary loss is also the reason why sometimes, NGOs and other charitable organizations find themselves in a knot when it comes to collecting donation money: when we don’t get something tangible in return, people generally have a harder time justifying the expense.
Initially, it may not seem like it, but this biological response to potential loss is actually a blessing in disguise. Those uncomfortable feelings you get whenever you have to part ways with something you value are nature’s way of forcing you to rethink the reasons behind the separation. Do you truly need to downsize your house? Is it necessary to avoid yogurt altogether? Do you need to spend that much time away from your cozy apartment? You get the gist.
As it turns out, whenever you analyze the dynamics of your more-than-normal pain response, it becomes easy to see its double-faced nature, with pros and cons. This peculiar duality is particularly obvious when it comes to all things money management. Let’s see why.
The Pain of Paying and Your Daily Finances: The Pros and Cons.
The effects of this cognitive phenomenon may not be the nicest, but they surely are handy in everyday life. Consider the following pros and cons:
ON THE PRO SIDE: If you didn’t experience resistance every time the world pushes you to grab your wallet, you wouldn’t be able to control your expenses. The awareness we develop due to the Pain of Paying is what in turn allows us to have a fairly predictable budget while preventing us from incurring huge “accidental” debts (and again, non coincidentally, this is one of the reasons why relying so much on “pain-free” paying methods, such as taps through e-wallet apps, contactless credit cards, and the infamous “Buy Now, Pay Later” can lead to unchecked overspending. When you eliminate the moment of pain, you also bypass the ensuing moment of self-awareness).
Call me old-schooled, but I find this quite handy.
ON THE CONS SIDE: sometimes you end up developing hyper-vigilance towards spending, which in turn leads to never-ending anxiety around money. The possibility of overspending (or getting into unnecessary debt) is so scary and uncomfortable that sometimes we are unable to fully enjoy whatever we are paying for, whether it is a meal, entertainment, a weekend getaway, or even a dream vacation. Of course, this is no dream life either. At all.
So, what do we do? How can we leverage the power of this cognitive phenomenon to build a better financial future? Here is my two-step framework.
Leveraging the Pain of Paying: Two Handy Steps to Success.
- Inject some handy resistance into your everyday spending. Some payment methods, like credit cards and buy-now-and-pay-later platforms like Klarna, are designed to override the Pain of Paying response, creating the illusion of frictionless payment: you get (and enjoy!) your goods today… without having to worry about paying back (BTW, this is why swiping your cards more than intended Is. So. Easy). The trick to fix this? Inject back some painful resistance into your daily life: set a spending limit on your credit account, swap the CC for a prepaid card, or even consider adopting a cash system for small purchases. The point is to give your brain enough time to complete its typical mental accounting processes.
- Prepay your large, once-every-year(or five) expenses, such as vacations and large purchases. Your kids will need a new laptop for the next school year? Are you planning to buy a used car in November? Will you take time off next year to finally visit that dream destination you’ve been eyeing since 2015? If that’s a yes (or even a warm maybe?), consider putting the money you’ll need aside little by little and, when the time comes, pay off the thing in one full installment. Your brain will thank you later. This trick is particularly useful for vacation planning (in fact, a 1998 study showed that people enjoy their purchases more when they pay them in advance. Maybe this is why all-inclusive resorts are such a big hit!).
The big takeaway? Dealing with money is not easy and human brains may not be perfect, but if you understand how your natural biases work YOU CAN learn to turn them in your favor.