Have you ever walked a mile just to avoid a foreign ATM fee?
It turns out that many of us do – and it’s perplexing the RBA.
Since the banks started displaying the $2 foreign ATM fee when you withdraw money, use of foreign ATMs has reduced markedly.
What has the RBA perplexed is that the fees haven’t actually increased – in fact, they haven’t changed at all.
We just know about them now. And that knowledge is affecting our behaviour.
If it’s not costing any more, why are we now choosing to avoid using foreign ATMs?
- Prompting at point-of-sale (‘would you like to continue with your transaction?’) can influence a customer’s behaviour; and
- People are now aware of the fees whereas previously they were not. Before, foreign ATM fees would appear on bank statements long after a transaction had been completed; now the fees are displayed on the ATM screen prior to a transaction being completed.
Saving on bank fees is great (although there are probably better ways to stick it to the banks than walking 4 blocks in the rain to save $2), but the psychology behind the RBA report can be applied to other areas of spending and can help save even more money.
ATMS AND THE POWER OF SUGGESTION
We all know that prompting at point-of-sale can encourage us to spend more money. “Would you like fries with that?” is a good example.
The findings of the RBA show that prompting at point-of-sale can also encourage us to avoid spending. There are two things at work here: the reminder itself (‘do you really want to continue with the transaction and pay the $2?’) and the break in the flow of the transaction that snaps us out of our buying mode and gives us time to question our purchase decision.
So how do we use this information?
To avoid impulse buys, we need a way of prompting ourselves to question whether we really want to continue with a transaction or spend our money. A reminder that snaps us out of the excitement of the purchase.
Marketers know that we buy with our emotions and use reason to justify our purchases after the fact. We need a way to override that emotional response and use reason to evaluate purchases on the spot.
It’s not easy.
Even the most frugal of shoppers can get carried away with the thrill of the purchase.
The good news is that we can use strong, positive emotions in our favour to override the emotional response of purchasing new things.
Maybe you’re saving for a holiday that you’re really looking forward to. Maybe you’re trying to get out of debt. Stick a picture on your credit card of something that represents your holiday or what freedom from debt means to you. This serves as a strong, personal, and meaningful emotional prompt at point of sale that encourages you to question your purchase.
The science says prompting at point-of-sale is effective for changing behaviour. Reverse the tactics and make them work in your favour.
USE THE PAIN OF PAYING TO STOP IMPULSE BUYING
Behavioural economists talk about the ‘pain of paying’.
This refers to the emotional discomfort we feel when buying something. Some purchases induce more pain than others – fees produce way more pain when handing over money than a treat does.
We can use the pain of paying to our advantage by adding in a little pain (or increasing it) when we spend. And we do this by paying with cash.
The tangibility of cash makes spending it more real whereas using eftpos, credit doesn’t feel like spending at all. No pain purchasing with credit (at least, not until the statement arrives); pain paying with cash.
Therefore, paying with cash becomes another barrier to spending money impulsively or on things that don’t really matter.
COMPLETE INFORMATION – MAKING THE INVISIBLE VISIBLE
Prior to foreign fees being introduced when you make a cash withdrawal, people didn’t actively try to avoid the fees because they weren’t aware of them when it mattered.
The same can be often said of our personal finances. Many of us don’t have complete information when it comes to spending.
Are you spending less than you earn? Can you afford to pay off your debts? How long will it take? How much interest is that purchase going to cost you? Can you spend and then still afford to pay the bills or put petrol in the car? How much are your little splurges adding up? Are the little expenses stopping you from affording the really important stuff?
How do you know?
The only way to know is to have some kind of plan for your money.
You can certainly use a traditional budget to manage your money, or you can take the easier, more proactive and efficiently approach and create a game plan for your money that helps you to make spending decisions in advance.
Either way, it’s important to see how individual purchases fit within the larger picture of your personal finances.
While it might seem like a dry subject, we can use the information gleaned from behavioural economics to save money on more than just ATM fees.
Melissa Goodwin is a writer and the creator of Frugal and Thriving who has a passion for living frugally and encouraging people to thrive on any budget. The blog is nine years old and is almost like her eldest baby. Prior to being a blogger and mum (but not a mummy blogger), she worked as an accountant doing other people’s budgets, books and tax.