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What can we learn from drug users about money management?

January 28, 2013

Recently, psychologist Laura Chivers and psychiatrist Stephen Higgins (2012) studies the research on money management for people with a substance use disorder (SUD).  Money management is tough and if a person struggles with addictions, a couple of hasty decisions can destroy someone’s life.  I think we can all learn a few things about money management when looking at the research conducted on money management for people with SUDs.

One of the first factors to look at is delay discounting.  With delay discounting we value things we can have right now, more than what we may have in the future.  This is why it is so difficult for many to save for larger purchases or retirement.  It is easy to value a purchase we make today, whether it is a special dessert or a new TV, more than what we might value what that money could become if we invested it for retirement in 30 years.  Research has shown that people with SUDS struggle with this even more than the normal population.

A tool to use to make sure delay discounting doesn’t harm you a lot is by setting up a commitment response.  When someone can make a commitment in a time of strength it is easier for that person to face temptation than the one who hasn’t made the commitment.  One research study showed a situation where students had 21 days to complete a task and for one group they had assigned due dates for all the tasks within the 21 days while the other group was able to set their own due dates.  One might think that the people who set their own due dates would due worse and set more lenient dates, but the study showed the ones who got to set their own dates had better work completed and met more of the deadlines.

For someone with a SUD there are a few simple solutions that can help them make a commitment.  First, they can se tup to have their paycheck direct deposited into an account.  Then, they can set it up to have money taken out of the account automatically to pay bills and go into saving.  By keep money away from themselves, some individuals with SUDs have been able to avoid making a poor decision because it took longer to get the money to make that decision.  For all of us we can set up automatic withdrawals into retirement accounts.  If we wait to see what we have left at the end of the month we usually won’t have anything, but by setting up an automatic deposit we can usually adjust the rest of our life to make it work.

These solutions also help individuals with a default bias.  As shown in the book Nudge by Thaler and Sunstein (2012) we sometime continue to do what we have always done (the default option) as opposed to what could be best for us.  By setting up these automatic deposits and withdrawals for savings, retirement, and bills, it becomes the natural for these things to happen.  When an extra step is added to make a deposit into a retirement account or write a check for a bill it isn’t as likely to happen as the automatic feature allows.

A third challenge behavioral economics can bring those with SUDs is loss aversion and the endowment effect.  With the endowment effect, we usually value things we already own more than what they are worth.  One research project showed that when college students were given either a coffee mug or a bar of Swiss chocolate they tended to value the object they got, no matter which one it was, more than the other.  I think this is why it is sometimes so difficult for us to sell a house we’ve lived in for a while.  By living there and making it a home we value it more than people who are looking at it objectively.

With loss aversion we are more afraid of loss than we may be of the same gain.  When statistics are framed as a loss or negative  we are less likely to choose this than something is framed as a gain or a positive.  For individuals with SUDs it is important to try to replace the bad behaviors with good behaviors.  If the individual is thinking about the loss of their perceived benefits of drug use it is more difficult for them to abstain, than if they can think about the benefits they have from no using drugs.  This can be better family relations or even the opportunity to get into better physical shape.

I haven’t seen any research, but I think this is a big reason it is so difficult for those who have lost a job to get another one.  It is easy to spend a lot of time thinking about the job that was loss or overstate the value of that job since it was one the person had previously had.  When individuals can move from thinking about the loss to potential future gains it is easier for them to make better decisions.

Tomorrow, we’ll look at how mental accounting and analyzing opportunity cost can be used to help those with SUDs and some overall tips that can be used for individuals with addictions or even adjusted to help you.

Works Cited

Chivers, L.L. and S.T. Higgins (2012).  Some Observations from Behavioral Economics for Consideration in promoting Money Management among Those with Substance Use Disorder.  The American Journal of Drug and Alcohol Abuse.  38:8-19.

Thaler, R.H. and C.R. Sunstein (2009).  Nudge.  New York: Penguin Group

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