I’m interested in the relationship between consumption and motivation to work. I have a theory that there are two demotivating extremes: an austerity mindset, in which the drive to work is not coupled to a drive to consume (or to be donate); and a profligacy mindset, in which the drive to consume is decoupled from a drive to work.
I don’t know what to do about profligacy mindset, except to put constraints on that person’s ability to obtain more credit.
But I see Putanumonit’s recent post advocating self-interested generosity over Responsible Adult (tm) saving as an example of a therapy for people in an austerity mindset.
On a psychological level, I hypothesize that a person with austerity mindset doesn’t have a strong mental model of the kinds of rewarding products and experiences that they can purchase with money. They have a poor ability to predict how those goods and services will make them feel. They’ve invested little money or time in attempting to explore or discover that information. And they don’t understand how monetary generosity, or even spending on status symbols, can indirectly translate into financial rewards at a later time. They are reward-ignorant.
This ignorance causes people with an austerity mindset not only to make bad deliberate decisions, but saps their motivation to sustain hard and focused work over the long term. Other emotions, like guilt, shame, conformity, or fear of losing the base essential of life are all they have to motivate work and investment. None of these has the potential to grow with income. In fact, they lessen with income. The result would be that the person works only hard enough to bring these negative emotions into an equilibrium with the fatigue and risks of work or school, and no harder. They skate by.
It seems to me that a person with an austerity mindset could benefit by spending time exploring the rewards the world has to offer, and getting the best taste of them they can. Furthermore, people who are in an investment stage of their career (such as being in school) would be best served by a “controlled release” of spending debt on small luxuries.
For example, imagine a person who was earning $40,000/year with no degree, but who enrolls in an MS program expecting to earn $70,000/year after graduate school.
Bryan Caplan points out that something like half of graduate students drop out. Even if we ignore salary increases and so on, our grad student has perhaps 30 years of a $30,000 salary boost on the line. Let’s round up to a cool $1 million.
Now, imagine that they choose to spend 1% of that money on luxuries over 2 years of grad school. That’s $10,000, or $5,000/year (we’ll ignore interest for the sake of simplicity). About $400/month.
It seems very plausible to me that granting grad students $400/month to spend on non-necessities would decrease the rate of dropping out. They might spend it on all kinds of things: therapy, art, better food, throwing parties for their friends, nights out on the weekends, concert tickets, a nicer/quieter place to live. If it decreased their likelihood of dropping out from 50% to 45%, it’s an intervention that more than pays for itself in expectation.
We shouldn’t expect that it can drop the rate all the way to 0 for any given student, since lots of factors not controlled by austerity conditions could cause them to drop out. And we might pessimistically assume that a student capable of carrying out this strategy, for these reasons, as described, would have to have enough conscientiousness and other virtues to make them less likely to drop out than the average student.
Even so, the amount by which this intervention would have to reduce the likelihood of dropping out to pay for itself only needs to be very small indeed to make it worthwhile.
We might point out that the grad student could just take on additional work in order to pay for those luxuries, if the luxuries are indeed so motivating. Why can’t they take on an extra job, or do more TAing? My answer is that the fundamental hypotheses I’m working with here is that the grad student is using debt to buy luxuries to reduce the chance that they drop out. If they take on additional work, which increases their stress levels and fatigue, in order to pay for those luxuries, then this could easily more than counterbalance the positive effect of increased consumption.
It is not entirely clear to me why we would rationally want to sharply distinguish between work that directly is attached to a paycheck, and work that prepares you to be capable of earning a bigger paycheck. I understand this as a sort of “guard rail:” the idea that once people get a taste of buying luxuries on credit, they’ll go crazy. But people also enroll in grad school, pay a bunch of money for tuition, and then drop out. That’s also crazy, from the outside point of view. The only question is whether it adds to, or subtracts from, the crazy to use debt money to try and reduce this risk. If the guard rail falls over on top of you and starts smothering you to death, it’s no longer the safety intervention you need.
All that said, as far as I know, we don’t have an official DSM-V diagnosis of “austerity mindset” available to us. And if we take this seriously and think it might be a real thing, then it’s important to get the diagnosis right. The justifications we’d use to encourage a person with “austerity mindset” to spend more on luxuries (even if that money came out of student loan debt while they were in school) are the same sorts of justifications that might cause a person with profligacy mindset to dig themselves deeper into a hole. This is a case where it would be really important to give the right advice to the right person.
Let’s also not assume that we can snap our fingers and conjur a bunch of RCTs out of thin air to weigh in on this. Let’s say we have to figure it out ourselves. Then I have two questions, for starters.
How do you tell if the features of the austerity mindset hypothesis are true for you? For example, how do you tell if increased consumption is actually motivating, or decreases stress and fatigue? How do you tell that increased exploration and exposure to the rewards of increased consumption actually cause a long-term positive impact on your psychology?
How do you tell the difference between having austerity mindset and having a self-justifying profligacy mindset?
There might be a risk that an austerity mindset is a psychological brake on an underlying tendency toward profligacy. Imagine the teetotaler who recognizes that, if they ever got into booze, they’d become a raging alcoholic. We don’t want to create an enhanced risk that somebody’s fragile system for self-restraint might break down. Or on a social level, it might be that spending more tends to cause other people to expect you to spend even more—a sort of ‘induced demand’ phenomena that would make it hard to stick to a budget.
One facet would be to set a monthly budget that must be spent, and that excludes categories you normally spend money on already. For example, if you already buy takeout several times a month, then you can’t charge that to your luxury budget. You have to make sure that you’re actually spending more on luxuries, and not just relabeling the spending you were already doing. If you are able to set and stick to this budget, and especially if you find it difficult to spend the entire budget, then this might be a point of evidence that you have austerity mindset.
Another facet would be to try out this luxury budget for a few months, and see if you can account for how the spending has impacted your life. This is hazy, but it seems unlikely to me that there is any superior system to accounting for this than introspective intuition. You might incorporate periodic fasts, to see if that makes a difference. This might even introduce an element of novelty that enhances the motivational effect.
I’m not sure on whether to expect that the beginning of running a luxury budget would be an era in which the benefits are low (because the person hasn’t yet figured out the best ways to make themselves happy with money), or high (because of the temporary novelty of extra consumption).
I notice that it makes me feel pretty nervous to write about this. It’s feels weird, like encouraging irresponsible behavior, and like it might actually motivate me (or somebody else) to act on it. It’s an actionable, concrete plan, with a clear theory for how it pays off, and one that many people can put into place right away if they so choose. I don’t want to be responsible if somebody does and it goes badly, but it feels weak to just make a disclaimer like “this is not financial advice.” There’s also a level on which I am just looking for somebody else to either validate or reject this—again, so that I don’t have to take persona responsibility for the truth/falsity and/or utility/disutility of the idea.
But on a fundamental level, I really am trying to come at this from a place of prudence, financial and emotional. I suspect that a substantial proportion of the population isn’t making good use of debt to handle the stresses of pursuing a more lucrative job. They get stuck in an austerity trap, or an austerity equilibrium, and their life stagnates. There’s a virtuous cycle of work and reward, of throwing money at problems to make life smoother and more efficient, that seems important to ignite in people. And because it’s not as measurable as all those “unnecessary” luxuries, it is at risk of getting ignored by financial advisors. It’s outside of the spotlight.
Fortunately, this also seems like a strategy that can scale down very easily if it seems risky. You could test the waters with a very small luxury budget—say of $20 or $50 per month. Or, to make it more intuitive and fun, “spend a little bit of money every month on a product, experience, or gift that you ordinarily wouldn’t buy—and treat that spending as if it was from a gift card ‘for luxuries only’.”
One particular category to spend luxury money on is “things you were constrained about as a child but aren’t actually that expensive”. What color clay do I want? ALL OF THEM. ESPECIALLY THE SHINY ONES. TODAY I WILL USE THE EXACT COLORS OF CLAY I WANT AND MAKE NO COMPROMISES.
Some caveats:
I imagine you have to be judicious about this, appeasing your inner child probably hits diminishing returns. But I did experience a particular feeling about “I used to have to prioritize to satisfy others’ constraints and now I can just do the thing.”
It’s probably better if you actually want the thing and will enjoy it for its own sake, rather than as merely a fuck you to childhood deprivation. I have actually been using the clay and having an abundance of colors really is increasing my joy.
I like the idea of a monthly “luxury budget”, because then you only need to convince the person once; then they can keep experimenting with different things, keeping the luxury budget size the same. (Assuming that if something proves super useful, it moves to the normal budget.) This could be further improved by adding a constraint that each month the luxury budget needs to be spent on a different type of expense (food, music, travel, books, toys...). Make the person read The Luck Factor to motivate experimenting.
I suspect that a substantial proportion of the population isn’t making good use of debt to handle the stresses of pursuing a more lucrative job.
It may be simultaneously true that many people underestimate how better their life could be if they took some debt and bought things that improve their life and productivity… and that many other people underestimate how better their life could be if they had more financial slack and greater resilience against occassional clusters of bad luck.
A problem with spending the right amount of money is to determine how much exactly the right amount is. For example, living paycheck to paycheck is dangerous—if you get fired from your job and your car breaks at the same time, you could be in a big trouble; while someone who has 3 months worth of salary saved would just shrug, find a new job, and use a cab in the meanwhile. On the other hand, another person living paycheck to paycheck, who didn’t get fired and whose car didn’t break at the inconvenient moment, might insist that it is perfectly ok.
So when people tell you what worked for them best, they may be survivor bias involved. Statistically, the very best outcomes will not happen to people who used the best financial strategy (with the best expected outcome), but who took risk and got lucky. Such as those who took a lot of debt, started a company, and succeeded.
Speaking as someone on the austerity side, if you want to convince me to buy something specific, tell me exactly how much it costs (and preferably add a link to an online shop as evidence). Sometimes I make the mistake of assuming that something is too expensive… so I don’t even bother checking the actual cost, because I have already decided that I am not going to buy it… so in the absence of data I continue believing that it is too expensive.
Sometimes I even checked the cost, but it was like 10 years ago, and maybe it got significantly cheaper since then. Or maybe my financial situation has improved during the 10 years, but I don’t remember the specific cost of the thing, only my cached conclusion that it was “too expensive”, which was perhaps true back then, but not now.
Another way to convince me to use some product is to lend it to me, so I get the feeling how actually good it is.
I’m interested in the relationship between consumption and motivation to work. I have a theory that there are two demotivating extremes: an austerity mindset, in which the drive to work is not coupled to a drive to consume (or to be donate); and a profligacy mindset, in which the drive to consume is decoupled from a drive to work.
I don’t know what to do about profligacy mindset, except to put constraints on that person’s ability to obtain more credit.
But I see Putanumonit’s recent post advocating self-interested generosity over Responsible Adult (tm) saving as an example of a therapy for people in an austerity mindset.
On a psychological level, I hypothesize that a person with austerity mindset doesn’t have a strong mental model of the kinds of rewarding products and experiences that they can purchase with money. They have a poor ability to predict how those goods and services will make them feel. They’ve invested little money or time in attempting to explore or discover that information. And they don’t understand how monetary generosity, or even spending on status symbols, can indirectly translate into financial rewards at a later time. They are reward-ignorant.
This ignorance causes people with an austerity mindset not only to make bad deliberate decisions, but saps their motivation to sustain hard and focused work over the long term. Other emotions, like guilt, shame, conformity, or fear of losing the base essential of life are all they have to motivate work and investment. None of these has the potential to grow with income. In fact, they lessen with income. The result would be that the person works only hard enough to bring these negative emotions into an equilibrium with the fatigue and risks of work or school, and no harder. They skate by.
It seems to me that a person with an austerity mindset could benefit by spending time exploring the rewards the world has to offer, and getting the best taste of them they can. Furthermore, people who are in an investment stage of their career (such as being in school) would be best served by a “controlled release” of spending debt on small luxuries.
For example, imagine a person who was earning $40,000/year with no degree, but who enrolls in an MS program expecting to earn $70,000/year after graduate school.
Bryan Caplan points out that something like half of graduate students drop out. Even if we ignore salary increases and so on, our grad student has perhaps 30 years of a $30,000 salary boost on the line. Let’s round up to a cool $1 million.
Now, imagine that they choose to spend 1% of that money on luxuries over 2 years of grad school. That’s $10,000, or $5,000/year (we’ll ignore interest for the sake of simplicity). About $400/month.
It seems very plausible to me that granting grad students $400/month to spend on non-necessities would decrease the rate of dropping out. They might spend it on all kinds of things: therapy, art, better food, throwing parties for their friends, nights out on the weekends, concert tickets, a nicer/quieter place to live. If it decreased their likelihood of dropping out from 50% to 45%, it’s an intervention that more than pays for itself in expectation.
We shouldn’t expect that it can drop the rate all the way to 0 for any given student, since lots of factors not controlled by austerity conditions could cause them to drop out. And we might pessimistically assume that a student capable of carrying out this strategy, for these reasons, as described, would have to have enough conscientiousness and other virtues to make them less likely to drop out than the average student.
Even so, the amount by which this intervention would have to reduce the likelihood of dropping out to pay for itself only needs to be very small indeed to make it worthwhile.
We might point out that the grad student could just take on additional work in order to pay for those luxuries, if the luxuries are indeed so motivating. Why can’t they take on an extra job, or do more TAing? My answer is that the fundamental hypotheses I’m working with here is that the grad student is using debt to buy luxuries to reduce the chance that they drop out. If they take on additional work, which increases their stress levels and fatigue, in order to pay for those luxuries, then this could easily more than counterbalance the positive effect of increased consumption.
It is not entirely clear to me why we would rationally want to sharply distinguish between work that directly is attached to a paycheck, and work that prepares you to be capable of earning a bigger paycheck. I understand this as a sort of “guard rail:” the idea that once people get a taste of buying luxuries on credit, they’ll go crazy. But people also enroll in grad school, pay a bunch of money for tuition, and then drop out. That’s also crazy, from the outside point of view. The only question is whether it adds to, or subtracts from, the crazy to use debt money to try and reduce this risk. If the guard rail falls over on top of you and starts smothering you to death, it’s no longer the safety intervention you need.
All that said, as far as I know, we don’t have an official DSM-V diagnosis of “austerity mindset” available to us. And if we take this seriously and think it might be a real thing, then it’s important to get the diagnosis right. The justifications we’d use to encourage a person with “austerity mindset” to spend more on luxuries (even if that money came out of student loan debt while they were in school) are the same sorts of justifications that might cause a person with profligacy mindset to dig themselves deeper into a hole. This is a case where it would be really important to give the right advice to the right person.
Let’s also not assume that we can snap our fingers and conjur a bunch of RCTs out of thin air to weigh in on this. Let’s say we have to figure it out ourselves. Then I have two questions, for starters.
How do you tell if the features of the austerity mindset hypothesis are true for you? For example, how do you tell if increased consumption is actually motivating, or decreases stress and fatigue? How do you tell that increased exploration and exposure to the rewards of increased consumption actually cause a long-term positive impact on your psychology?
How do you tell the difference between having austerity mindset and having a self-justifying profligacy mindset?
There might be a risk that an austerity mindset is a psychological brake on an underlying tendency toward profligacy. Imagine the teetotaler who recognizes that, if they ever got into booze, they’d become a raging alcoholic. We don’t want to create an enhanced risk that somebody’s fragile system for self-restraint might break down. Or on a social level, it might be that spending more tends to cause other people to expect you to spend even more—a sort of ‘induced demand’ phenomena that would make it hard to stick to a budget.
One facet would be to set a monthly budget that must be spent, and that excludes categories you normally spend money on already. For example, if you already buy takeout several times a month, then you can’t charge that to your luxury budget. You have to make sure that you’re actually spending more on luxuries, and not just relabeling the spending you were already doing. If you are able to set and stick to this budget, and especially if you find it difficult to spend the entire budget, then this might be a point of evidence that you have austerity mindset.
Another facet would be to try out this luxury budget for a few months, and see if you can account for how the spending has impacted your life. This is hazy, but it seems unlikely to me that there is any superior system to accounting for this than introspective intuition. You might incorporate periodic fasts, to see if that makes a difference. This might even introduce an element of novelty that enhances the motivational effect.
I’m not sure on whether to expect that the beginning of running a luxury budget would be an era in which the benefits are low (because the person hasn’t yet figured out the best ways to make themselves happy with money), or high (because of the temporary novelty of extra consumption).
I notice that it makes me feel pretty nervous to write about this. It’s feels weird, like encouraging irresponsible behavior, and like it might actually motivate me (or somebody else) to act on it. It’s an actionable, concrete plan, with a clear theory for how it pays off, and one that many people can put into place right away if they so choose. I don’t want to be responsible if somebody does and it goes badly, but it feels weak to just make a disclaimer like “this is not financial advice.” There’s also a level on which I am just looking for somebody else to either validate or reject this—again, so that I don’t have to take persona responsibility for the truth/falsity and/or utility/disutility of the idea.
But on a fundamental level, I really am trying to come at this from a place of prudence, financial and emotional. I suspect that a substantial proportion of the population isn’t making good use of debt to handle the stresses of pursuing a more lucrative job. They get stuck in an austerity trap, or an austerity equilibrium, and their life stagnates. There’s a virtuous cycle of work and reward, of throwing money at problems to make life smoother and more efficient, that seems important to ignite in people. And because it’s not as measurable as all those “unnecessary” luxuries, it is at risk of getting ignored by financial advisors. It’s outside of the spotlight.
Fortunately, this also seems like a strategy that can scale down very easily if it seems risky. You could test the waters with a very small luxury budget—say of $20 or $50 per month. Or, to make it more intuitive and fun, “spend a little bit of money every month on a product, experience, or gift that you ordinarily wouldn’t buy—and treat that spending as if it was from a gift card ‘for luxuries only’.”
One particular category to spend luxury money on is “things you were constrained about as a child but aren’t actually that expensive”. What color clay do I want? ALL OF THEM. ESPECIALLY THE SHINY ONES. TODAY I WILL USE THE EXACT COLORS OF CLAY I WANT AND MAKE NO COMPROMISES.
Some caveats:
I imagine you have to be judicious about this, appeasing your inner child probably hits diminishing returns. But I did experience a particular feeling about “I used to have to prioritize to satisfy others’ constraints and now I can just do the thing.”
It’s probably better if you actually want the thing and will enjoy it for its own sake, rather than as merely a fuck you to childhood deprivation. I have actually been using the clay and having an abundance of colors really is increasing my joy.
I like the idea of a monthly “luxury budget”, because then you only need to convince the person once; then they can keep experimenting with different things, keeping the luxury budget size the same. (Assuming that if something proves super useful, it moves to the normal budget.) This could be further improved by adding a constraint that each month the luxury budget needs to be spent on a different type of expense (food, music, travel, books, toys...). Make the person read The Luck Factor to motivate experimenting.
It may be simultaneously true that many people underestimate how better their life could be if they took some debt and bought things that improve their life and productivity… and that many other people underestimate how better their life could be if they had more financial slack and greater resilience against occassional clusters of bad luck.
A problem with spending the right amount of money is to determine how much exactly the right amount is. For example, living paycheck to paycheck is dangerous—if you get fired from your job and your car breaks at the same time, you could be in a big trouble; while someone who has 3 months worth of salary saved would just shrug, find a new job, and use a cab in the meanwhile. On the other hand, another person living paycheck to paycheck, who didn’t get fired and whose car didn’t break at the inconvenient moment, might insist that it is perfectly ok.
So when people tell you what worked for them best, they may be survivor bias involved. Statistically, the very best outcomes will not happen to people who used the best financial strategy (with the best expected outcome), but who took risk and got lucky. Such as those who took a lot of debt, started a company, and succeeded.
Speaking as someone on the austerity side, if you want to convince me to buy something specific, tell me exactly how much it costs (and preferably add a link to an online shop as evidence). Sometimes I make the mistake of assuming that something is too expensive… so I don’t even bother checking the actual cost, because I have already decided that I am not going to buy it… so in the absence of data I continue believing that it is too expensive.
Sometimes I even checked the cost, but it was like 10 years ago, and maybe it got significantly cheaper since then. Or maybe my financial situation has improved during the 10 years, but I don’t remember the specific cost of the thing, only my cached conclusion that it was “too expensive”, which was perhaps true back then, but not now.
Another way to convince me to use some product is to lend it to me, so I get the feeling how actually good it is.