Happy Friday – Happy Money: Pay Now, Consume Later


This is part 4 in our series on the recently published book, Happy Money: The Science of Smarter Spending, by behavioral scientists Elizabeth Dunn and Michael Norton. Their tagline is:

“If you think money can’t buy happiness, you’re not spending it right.”

According to their research, there are five basic ways in which money can be spent that increase happiness for the average person.

  1. Buy Experiences
  2. Make It A Treat
  3. Buy Time
  4. Pay Now, Consume Later
  5. Invest In Others

And we’re hitting these main points one-by-one. Feel free to start at the beginning (links above) or hop right into this week’s.

Part 4 – Pay Now, Consume Later

That’s right.  Read it again.  This is the exact opposite of what every credit card company, and in-store financing plan wants us to believe makes us happy.  That is, “Buy Now Pay Later”.  Rather than getting enjoyment out of the immediate gratification that’s becoming more and more available (instant downloads, anyone?), what humans really seem to enjoy is the build up.

“Why does yet-t0-be consumed sangria taste so sweet?  Because the future hasn’t happened yet.  It’s inherently ambiguous inviting our minds to fill in the details as we would like them to be….  A product we don’t yet own is like a distant image coming into focus.  It captures our attention because we don’t know exactly how it will turn out.”

In this chapter, Norton and Dunn use as one of their primary examples a company called Birchbox, which allows people to sign up to have random makeup samples sent to them once per month.  People can’t choose what’s in the box, and it’s a mystery until the boxes are sent out.  But therein lies the tension.  While people want to reduce their uncertainty by finding out what is inside the box by searching the internet before it arrives at their doorstep, “taking away the uncertainty can also take away the fun.”

The Pain Of Paying Now

As it turns out, the pain of paying is more than a metaphor.  Brain scans taken while research participants went “shopping” inside the machines showed visible signs of activity in an area of the brain that responds to impending pain when faced with high prices.  The conclusion, therefore, according to Norton and Dunn is that “because the pleasure of consumption is purest without the experience of paying for it, anything we can do to separate payment form consumption can enhance the pleasure of the purchase.”

However, prepayment can have its own kick in the pants when it leaves you open to disappointment if your purchase is not fulfilled later.

 

Mr PoP

I dunno about this one; but I suppose it’s a variation on delayed gratification. In both cases, you could spend a lot of time thinking about how much you’re going to enjoy doing X, before you actually get to the event itself. Oddly, when I actually practice delayed gratification, I usually get bored with the idea of actually doing X before I pay for it. Unfortunately, if I paid first, then waited before doing it, even if I was bored with the idea I would still be out the amount I paid, and unhappy with what I purchased…

 

Mrs PoP

This is perhaps the only area that I think that Norton and Dunn’s advice is perhaps a little off base.  In pre-paying, I think we have a tendency in our culture to over consume.  N&D even noted that when vacationers paid for their all-inclusive vacation ahead of time, they were far more likely to enjoy their “free” booze, but as Norton and Dunn themselves pointed out, they were over consuming precisely because it felt “free”.

Buying desserts in bulk might be cheaper and feel like we’re just “pre-paying” for dessert for the next 3 months, but it’s not cheaper (and it’s much worse for our health) if we over consume and eat it all in a few weeks – which is really the basis of my skinny cow dilemma.

We don’t always have a very good intuition of what it will take for us to feel satisfied in the moment when trying to plan things far in advance, so we are likely to have a tendency to over consume because of it.  Planning a vacation and want to pre-pay for it?  You might stuff an activity in each morning and afternoon/evening in the hopes of getting the most out of every experience, when in reality when the time comes you might be much happier sleeping in or enjoying leisurely activities.  I think the danger is that we don’t always have a good grasp on Quality over Quantity when we are trying to plan things that are far in the future.

So while I think this is an interesting concept, I’m more apt to err on the side of NOT over consuming right now.

 

What are you paying for now to consume later?  Do you think it made you happier?

34 comments to Happy Friday – Happy Money: Pay Now, Consume Later

  • I agree with you, the topic does seem to promote over-consumption, but I wonder if we would adjust to this (and be happier for it) once we got used to pre-paying for some things.

    As a somewhat-related example, I imagine that if I retire early (prepay for my time) I would waste massive amounts of time initially since I’m not feeling the pressure of a job any more, and I’m feeling “free”. But I’m pretty sure that after a month or two of wasting time I would start to “normalize” and use my time more effectively.
    FI Pilgrim recently posted..Financial Lessons I Remember Learning From My DadMy Profile

    • I hadn’t thought of retirement (early or otherwise) as prepaying for that time. But you’re probably right – we might only be able to waste so many months before figuring out some interesting project to work on.

  • People drink more alcohol if it’s free whether or not they paid for it in advance so that’s not the best analogy.

    I do like prepaid vacations (I just took one) to all inclusives more so because they are less stressful as you paid for it in it’s entirety and you don’t have to worry about spending money while on the trip.

    This also reminds me of a comic in long-defunct Zillions magazine (Consumer Report’s attempt at a kids magazine). A kid wanted a Nintendo 64 for Christmas so his parent’s said he could get one but it would have to be split with next year’s Christmas. The kid thought he was getting the game system this Christmas, but alas, his parents planned otherwise. He had to wait until next Christmas to get the present! That is extreme delayed gratification and I wonder if that’d really work for a teenager in real life?
    Tara @ Streets Ahead Living recently posted..Aren’t you shopping this weekend?My Profile

    • That’s funny, I’m probably the opposite – I think I drink more alcohol if I’ve paid for it! A $7 glass of wine? I’m gonna have more than a couple sips if I’m not driving. If it’s free I might just have a taste and let it be. =)

      Mr PoP is kindof the king of delayed gratification, which is helpful since he definitely has a taste for very particular expensive things!

  • Yeah I’m not really sure about this one in terms of buying products, but in terms of saving for the future it might be a useful framework. If we can help people imagine a more pleasurable future retirement, maybe it will help them “pre-pay” by saving more for it today.
    Matt Becker recently posted..Stop Buying Features. Start Buying Benefits.My Profile

  • Great stuff. I belonged to a wine club once, where three bottles arrived on my doorstep that I’d already previously purchased. It was a fun activity and I thoroughly enjoyed every minute of it. When we moved I cancelled the club, and haven’t since gone back. Why? It was pretty expensive! But you’re right: the process of removing the purchase from the actual wine showing up on my doorstep made it a fantastic activity.
    AverageJoe recently posted..Financial Wisdom for Teens Buying Their First CarMy Profile

  • I remember reading a similar idea in Lyubomirsky’s book about anticipation of happiness being just as good as the happiness itself. So, like Mr. Pop said, it’s similar to delayed gratification…plan a series of vacations throughout the year and you’re happily anticipating some trip all year long.

    As for the payment aspect, I don’t know. I have to leave it to the experts there.

    That said, I do like paying for something online and waiting for it to magically arrive at my door. I prefer that to going out to a store, dealing with lines, and getting my stuff “right now”.
    Done by Forty recently posted..Government Assistance and Backwards IncentivesMy Profile

    • Mama PoP

      Dear Done,

      I’m with you. I like the “surprise” factor of getting a package delivered to my door. It’s usually something that I bought and is usually not really too exciting or fun once I unwrap it from the shipping, but I have often forgotten I purchased something by the time it arrived. For example, the sport socks that arrived from Amazon yesterday were not special, but I enjoyed getting them anyway. I especially enjoy my “free” shipping from Amazon through my Prime membership.

      • Well Mama PoP, you have a lot of surprises in store for you when you get here for Thanksgiving! =) If they’re all socks, it’s a LOT of socks!

    • Sometimes there’s something about going to the store that makes you feel like you earned it a little more. If I had to go there, wait in line, pick out the exact right package… it’s an odd sense of accomplishment sometimes that I don’t get in the same way with an online purchase.

  • CincyCat

    When I read this post, the first thing that popped into my head was lay-away. My mom used to “buy” all of our school clothes ahead of time this way, and spread the cost out over 6-8 weeks. To be honest, there are several major purchases that we wish we could pre-pay on a “lay-away” type of payment plan. Saving the money ahead of time doesn’t always work if the item is at risk of being discontinued before you have enough cash reserved, so we do the next best thing: same as cash installments. (The key with this method is that you must pay off the entire balance before the promo period ends.)

    • I think it’s interesting that with the recession lay-away has come back. I’m sure it also makes times like the holidays easier to know that everything is already paid for and you don’t need to worry about the January credit card bill.

  • Debbie M

    It looks like you still have your question from the last happiness tip–you might want to update that.

    I enjoy this strategy for travelling. I really enjoy reading all about the new place, picking out a bunch of things I’d like to do, and prioritizing those things a bit. (I don’t enjoy organizing the activities by location, in case something takes less time than anticipated or falls through, but I sure like having that organized list during my travels!)

    And it’s fun to look forward to events like parties and to work on things like costumes.

    And I read the blogs of a few people with highly variable, lowish incomes–they definitely feel better when they have pre-paid rent for a while or been able to completely fill the gas tank or something like that.

    However, I don’t think it makes me any happier to buy things online (where I don’t get it for a while) than in person (where I get it right away). I’m usually not using the item right away anyway (except, occasionally, when I’m out and buy a raincoat or hat because it’s unexpectedly rainy or cold and I can’t go home because I’m at, say, an amusement park or different state). In that case, it definitely makes me happier to have the item right away!

    Good point on the bulk buying. I definitely should not be allowed to eat cheese puffs out of a large bag–it’s better to dish some out into a cup and tell myself that when I’m finished, I’m done for the day.

    The whole focus on paying first seems odd to me, too. Maybe because paying doesn’t hurt me anymore. Actually, now that I think about that, maybe I am seeing support for this argument. For example, I budget a certain amount for car upkeep, house upkeep, and health upkeep. Subtracting that amount from each check to put into savings actually does hurt a bit. That’s sort of like paying for it before I get it. Then later when I need a new car battery, a plumber visit, or yet another crown on another tooth, the payment doesn’t hurt me. I’m not going to say I enjoy those purchases, but it’s definitely less stressful having pre-paid. Maybe this is why people like to buy those over-priced insurances so much and often prefer low-deductable insurance–they know they’re doing paying for that item for a while.

    • Thanks for the heads up, Debbie! That’s what I get for cutting and pasting formatting and not reading carefully =)

      I think you’re onto something with the budgeted amounts being like paying first in a sense. Spending in a given category doesn’t “hurt” until we’re starting to get near the budgeted limits for the month. Then we take notice a bit more.

  • I prepay for things in the sense that I live within my means. I save up for large items or vacations and don’t borrow money. Since I’ve already paid for them and know they are within my means, I don’t feel any stress about spending the money.

    I’ve lived without debt (other than a primary mortgage) for 15 years and even when I can pay cash for something, I typically budget it in and save money over time. I’m saving for a new computer now. This gives me plenty of time to plan and window shop. It doesn’t completely cure buyer’s remorse, but it certainly helps.
    Betsy @ Consumerfu.com recently posted..New FSA Rule will Help Prevent Loss of SavingsMy Profile

    • I think that meshes nicely with what Debbie was saying about budgeting.

      Good luck with your new computer purchase. Mr PoP is probably going to get a new one before too long as well.

  • I like prepaying for things just to be done with it, but I’m not sure it brings me more happiness. The one I think of right now is the garbage collection bill. You have the option of paying annually, and then I don’t have to fool with the $11 a month. We did do the meal plan at Sea World once. It think it was $70 a day, and we did feel like we had to continuously eat and buy snacks and drinks to get our money’s worth. I think one big meal would have been a better option.
    Kim@Eyesonthedollar recently posted..Making an Extra $600 For Ski PassesMy Profile

    • Oh I hear you on bills like your garbage bill. I’m so tempted to do that with our pool service, but the one time I was about to they switched our pool guy and the new one slacked off. I had to call in and complain. My complaint would not have meant as much if I had already pre-paid for the next year =)

      Food is so tricky since over consuming can seem like such a good idea in the moment, but not at all a little while later. =)

  • I’m not sure I full grasp the concept. Perhaps I haven’t had enough coffee! :) It’s doesn’t seem like either pre-paying or not pre-paying is a huge factor is someone’s happiness. Perhaps they were grasping at straws here?
    Budget and the Beach recently posted..We’re Doing The Best We CanMy Profile

  • When I was not making good financial decisions,and struggled with urges to buy things that I couldn’t afford, Bill Me Later was very attractive to me. I am thankful I never applied. I feel prepaying for stuff sometimes helps a lot. As a business owner who offers services, I have to be paid first…lol
    Demaish @ Borrowed Cents recently posted..Beware of the cash back thievesMy Profile

  • Yeah, when I stock up on food or alcohol, I’m way more likely to overconsume. Prepaying seems to be odd advice for happiness. Also, Birchbox sucks, in my most humble opinion :)

    Hmm, I don’t know. Maybe prepaying a vacation would make me happy. Perhaps I should test this theory…
    Erin @ My Alternate Life recently posted..November 1st NETWORTH Update!My Profile

    • Oh I’m so glad there’s another BIrchbox hater out there. The first time I heard about it I was like, “WTF?!? Why would I pay you to send me carp I don’t want every month? I’m paying for garbage? No!”

      We’re getting closer and closer to pre-paid vacations. AirBnB requires payment upfront, as do some of the hotel bookings, so if you do hotel and flight in advance, the day-to-day vacation costs aren’t a whole lot.

  • This is the one recommendation that didn’t quite jive with me. I agree that it kind of encourages over consumption. However for super frugal people, it could be a way of enjoying an experience without worrying about penny pinching.
    Cash Rebel recently posted..That time my parents offered me fifty thousand dollarsMy Profile

  • I think “pay now, consume later” works when you think about it in terms of setting aside money for savings and retirement.

    I’m obsessed with this quote…
    “If you think money can’t buy happiness, you’re not spending it right.”
    Stefanie @ The Broke and Beautiful Life recently posted..Financial Savvy Saturdays 11th EditionMy Profile

  • I think I kind of understand. The only example I could think of would be pre-paying for an all-inclusive vacation. There is definitely some joy in being able to show up to the hotel and eat and drink all you want without having to take out your wallet. It would take away from the experience if every time the server came back with another drink I had to fork over some cash. But it does encourage over-consumption.
    This Life On Purpose recently posted..Why NOT Buying a House Was My Best Financial Decision to DateMy Profile

  • I only pay advance for only vacation. Otherwise, I do not like to pay for something to consume later. Who knows, later I would need that already paid service or product.

  • Oh, I do NOT understand all those monthly subscription services! (Then again, I use basically no beauty products at all.)
    eemusings recently posted..Link love (Powered by plane food and house hunting)My Profile

  • We will take a hybrid approach to the all-inclusive in our next vacation – the airfare, room, car are all prepaid – then we’ll hit the grocery store and stock our room with convenient food and drinks that we can eat all week without overspending or having to think about buying food the rest off the week. We are taking our boys to Disney, staying in a discounted condo with full kitchen. It’s a little work upfront, but the prepaying and pre-planning for food will save us a bundle!
    Amy @ Spin The Meal recently posted..Deep Fried Chicken Nuggets & Onion RingsMy Profile

  • Not a fan of the pay now, consume later concept. Just don’t think it is an effective deferral of desire. I’d rather sit on my money, wait and see if I still want it later, then buy it if I do. No need to part with my cash in the off chance that I don’t end up wanting whatever it is. The obvious exception to this is traveling where you are booking flights, accommodations, etc. I generally have no issue with maintaining my desire for my travel plans! :)
    writing2reality recently posted..2013 Prosper Investment CriteriaMy Profile

  • Agreed that it makes you over consume, except if it is for something you will have to pay anyway. If I pay for a flight 6 months in advance, it will be cheaper and I need to fly anyway. In France you have to do it with taxes and it is mandatory. I hate that you lend the government free money during 12 months then they send you a “hey, be happy, your taxes are only X this year”