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Resisting financial temptation: How credit cards are like a bowl of cashews

Nobel prize winning economist Richard Thaler put a bowl of cashews out at a dinner party before the main meal. Within a few minutes, it was clear to him that the whole bowl would be consumed. So he removed the bowl.



Upon his return to the dining table, guests thanked him for removing the bowl. Removing the possibility of ruining their appetite before a succulent meal.


In economics, and basic thought for that matter, it is assumed that you can never be made worse off by having more choices. As you can simply turn down the ones that will negatively impact you. But the results of the experiment suggest otherwise. Guests were made better off, and happier, once the choice was taken away.


But why?


Thaler identifies two states in which we can be in, that affect purchasing decisions.

  • Hot State

  • Cold State


For the cashew experiment, a cold state could be two days prior to the dinner. If I asked my guests on a Wednesday, how many cashews they’d like to eat before my slow-roasted, opulent, juicy meal which will be served on Friday evening - the answer is likely to be a few, or zero. As ruining your appetite before a nice meal, is not optimal.


But when in a hungry ‘hot state’, an hour before the meal, the bowl is far more likely to be devoured, ruining the guests appetite.


What is the conclusion?


  1. We consume more to our own detriment when in a hot state

  2. Removing the temptation whilst in a hot state can be optimal


Credit cards and buy now pay later accounts enable you to spend more while in hot states.

I urge you to take a look at your credit card limits in total.


Credit cards should not be used as a fallback. Far too many individuals rationalise a $25,000 credit card limit by using “what if something happens and I need a lump sum fast?”. This is NOT what credit cards are for.


It is far more logical to think “how much debt at 20% interest, could I handle if I were to splurge?”. “How would $25,000 in debt affect my life?”


Thaler’s lesson:

  1. Make financial decisions from a cold state

  2. Remove the temptations that allow you to act in your hot state


The Polaris suggestion

  1. Reduce your credit card limits as low as possible, certainly your limit should not exceed your monthly salary. Or cut up your credit card altogether

  2. Get yourself a smart backfall solution, like:

    1. High interest savings account

    2. Redraw or Offset account on your home loan

    3. Appropriate insurance policy

    4. Create a budget and savings strategy

  3. If you do find yourself in need of a lump sum fast, ask your broker about your options. The below options ALL generally charge FAR LESS interest than a credit card:

    1. Personal Loan

    2. Home Loan cash out / equity release

    3. Business Loan

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