2 Little Known Ways That Retailers Are Making You Fat and Broke

November 17, 2014 Permalink

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Every year, consumer spending on unhealthy, fatty processed “food” increases.

It’s not that North Americans are starting to get weaker willed as the years pass – it’s that retail giants collect more and more data each year. They are getting more savvy when it comes to pricing, product placement, and general consumer manipulation.

Human behaviour is heavily influenced by environment. Have you noticed that when you walk into a health food store, you get excited about eating healthy food? You probably walk out of the store with fresh produce, nuts, and organic food.

When you are in a mall, chances are you’ll consume some sort of unhealthy mall food, such as hot dogs, cinnamon buns, or fries, because it’s there.

Our environment influences what we spend money on, what we eat, and even what we think about.

You are far less likely to want potato chips if they aren’t out on the counter. You are also far less likely to want to watch television if your television isn’t positioned in front of your couch.

Knowing that human behaviour is so heavily influenced by environment is how many retailers get us to buy things on impulse.

There are many studies that examine consumer behaviour and movement throughout a store. It has been found that consumers automatically turn right when they walk into a store.

This isn’t something that you think about, but it was observed again and again.

Grocers (or at least the smart ones) take this into account when considering product placement. Consider how most chains place fresh fruit and vegetables to the right of the store, to ensure that is the first thing that consumers see when they walk through the doors. As a result, customers end up getting their produce first, before going down the aisles and perusing other goods.

Studies have shown a huge increase in unhealthy, processed foods purchased if the customer shops for healthy food like produce first. So it makes sense that the grocer would set up their stores this way. More products purchased = more profit.

Thus, if you went through the packaged food aisle first, you would be less likely to cave to impulse purchases of these unhealthy foods.

Consider also that the pharmacy is usually at the back of the store. You have to walk through aisles of junk food before hitting the pharmacy. If you only went to the store and only picked up your prescription, the store wouldn’t benefit from your business as much as if you were to buy something.

Large retailers like Walmart spend a lot of time and money analyzing this type of data. They use it to manipulate what you buy under different conditions.

You Buy Things You Don’t Want Or Need Because They are Relatively Desirable

There have been dozens of studies to analyze consumer behaviours resulting from different pricing schemes.

It has been shown that humans need reference points to make decisions. We need to compare our decisions against something else. If we are given three options – for instance a plain donut, a plain donut with icing, and a chocolate donut – we will almost always choose the option that is slightly better compared to the option like it. So most people will choose the plain donut with icing, even if they really prefer chocolate.

That’s because, relative to the plain donut without icing, the plain one with is better.

Retailers know this about humans, so they will price their goods accordingly.

This is described in great detail in Predictably Irrational, a fabulous book by Dan Ariely. In the book, Ariely describes a pricing observation with a popular newspaper. There were options for only web access (cheapest), only print (more expensive), and both print and web (comparable in pricing to the print only access).

Regardless of whether you only wanted web access to the newspaper when you were looking to sign up, you’re far more likely to pay for the print and web package, because relative to the print only package, it’s a better deal.

Now you know the results of these two studies and can probably think of a dozen times you’ve fallen into these traps. I know I can.

After I read about that study, I was driving to the mall to get some sunglasses. I pulled into the parking lot, and saw a handful of parking spots available. There was one parking spot under a tree, which provided shade on a hot summer day. There were two parking spots, side by side. One was next to a small car, and one next to a large truck.

You can probably guess which parking spot I chose. Instead of the desirable parking spot on its own in the shade, I chose the parking spot next to the small car. Relative to the one next to the huge truck, it was the better spot.

Think about how you’ve previously been sucked into these traps. You’re not immune to them (neither am I!) but recognizing them for what they are and how you’ve been influenced by them in the past can be a powerful behaviour hack.

If you have a hard time controlling impulses when you are at the grocery store or find yourself buying things you don’t need because they are a good deal relative to another package or product, you can use this information to your benefit. Keep these studies in the back of your mind next time you go to buy something or go grocery shopping. Manipulate your environment to ensure success.

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How to Fail at Your Big, Hairy, Audacious Goal (And How to Set A Goal That You’ll Reach)

November 10, 2014 Permalink

A few years ago, my husband and I set a huge, exciting goal: to save up $80,000 over the course of 3 years for a down payment.

Initially, our goal amped us up. We imagined the huge benefit that having an $80,000 down payment would eventually provide. We got to work budgeting, doing the math, and analyzing the numbers. Then, we started to actually transfer money into the down payment account as our money trickled in.

There was something wrong, though. The savings were anticlimactic. In the grand scheme of $80,000, putting away $100 here and $300 there seemed pretty pathetic.

After saving for two months for $2,000, we realized that we’d only reached 1/40th of the goal, and gave up.

Our big, hairy, audacious goal was a bust, and left us feeling like failures.

What Went Wrong?

We had this great goal. It met the “SMART” criteria – it was specific, measurable, attainable, relevant, and timely.

We certainly could have saved up $80,000 over the course of three years. At $26,000 per year, it would have only been $13,000 each, which was attainable with our incomes and expenses at the time.

What went wrong was simply that the goal was too removed from what we were already doing.

We weren’t actually saving any money at the time toward a down payment. There were no small steps or changes in our habits to build us up. We wanted to go from saving nothing to saving over $1,000 per month each, every single month.

Small Wins = Big Gains

Instead of being a huge motivator, our big, hairy, audacious goal ended up being discouraging. We made very little progress over the few months after we set the goal, despite our best intentions. If we had set a goal like saving $300 per month each and then working our way up from there, we would have seen actual progress. That would have been motivating for us. We would have been able to move from $300 per month up to $500, then upward from there.

Our brains need to see small successes to remain motivated.

This is why Dave Ramsey’s Debt Snowball method of debt repayment actually works, whereas it’s rival, the method of paying off the highest interest debt first isn’t as successful.

If you are unfamiliar with Dave Ramsey’s Debt Snowball method, it looks like this:

  • List all of your debts, from largest to smallest by amount owed
  • Continue paying the minimum payment on all debts, and funnel all extra debt-repayment funds toward the smallest debt
  • When the smallest debt is paid off, funnel all extra funds toward the second smallest debt, and so on.

This is quite controversial in the world of personal finance (lol, I know, right?). Many will argue that the debt that is repaid first should be the one with the highest interest rate, which makes sense from a savings point of view.

On paper, this is far better advice, but it doesn’t work. People don’t stick to it. Humans need the affirmation of small wins. It gives us the sense that we are making progress and gives us the confidence we need to continue. Ramsey’s Debt Snowball method takes care of the psychological need to have those small wins.

Is it smarter financially to pay off the debt with the highest interest rate? Sure! But in reality, the financially smarter route is the one that you’ll actually take.

When the first debt is paid off – maybe it’s a $250 credit card – it provides a sense of accomplishment. It’s a small win that makes you believe you can do what you set out to do.

Use Psychology to Set Goals You’ll Actually Reach

Knowing how our brains need small wins to stay motivated, actually make progress by avoiding logical thinking (our brains are NOT logical) and set goals that are almost easy to attain, especially when you are starting from scratch.

– Instead of setting a goal to pay off $40,000 worth of debt in one year, focus on getting to the first $5,000 of debt payoff. Once you reach $5,000 per month, focus on the next $7,000.

– Instead of setting your sights on losing 50 pounds, focus on losing just one. Once you lose one pound, increase your goal to two more.

– Instead of trying to figure out how to build a business that will bring in $5,000 per month, work on earning $500 per month.

With these goals, every time that you transfer $100 onto a credit card, go for a jog, or earn $75, you are making huge progress toward your goal. Reaching 25% of your goal feels far better than reaching 1% of your goal.

Sure, we probably could make progress faster than this – but we don’t. Instead of setting these goals and actually reaching them, we set these goals, realize we can’t run before we learn to walk, and give up completely.

In our situation, going from $0 to $5,000 saved would have been motivating. After we gave up, we spent a couple of months just letting the money accumulate and then set another goal of saving just $5,000. This was far more effective.

So it’s easy. Scale it back. Sure, keep your huge goal, write it down somewhere, and don’t forget about it. But to actually reach it, set yourself up for small wins. And don’t forget to change your environment.

 

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How to Meet Any Financial Goal You Set For Yourself

October 27, 2014 Permalink

how to reach a goal

Five years ago, I was overspending by hundreds of dollars a month on things that I neither really wanted nor needed. Whether it was a tank top on sale for $5, a or cinnamon bun in the food court for $7, nothing was off limits.

I worked in a mall, so I was surrounded every day by shopping, consumerism, and “blowout sales”.

This resulted in a hamster wheel of living paycheque to paycheque. The only thing preventing me from sinking deep into credit card debt was that my credit limit was $800.

I moved in 2010, resulting in a complete overhaul of my life. My environment had completely changed. Instead of working in a mall, I worked on a farm. Instead of spending thousands of dollars a year on junk, my money accumulated and I started the first long term savings account I’d ever had.

When I moved, my time was spent with people who were ambitious and inspired, and I drank the poison.

I moved with no plan to enter into a degree program; I was going to get my diploma and be done with it. My friends’ drive influenced me to enter into a degree program. I graduated two years later, already working in my chosen field.

A change in my environment – what I did, where I was, and who I spent time with – completely changed my life.

Study after study demonstrates your environment’s affect on your progress in health, business, and various other pain points.

Knowing this, we can design our lives so our environment is such that it would be difficult to fail at goals.

We’ve heard the old adage “out of sight out of mind”, and know how true it is for dieters. People who want to try to make a dietary change for the better aren’t going to have much success if their favorite dessert is sitting on the counter.

Your environment has such a huge impact, even, that according to a study done by Brown University, if a teen has three or more friends who smoke, their likelihood of picking up the nasty habit increases by 2,400%.

Who you surround yourself with and what you see and do on a daily basis can make or break your success in meeting a goal or making a lifestyle change.

How to Meet Any Financial Goal You Set For Yourself

If you spent an hour a day with Jillian Michaels, chances are you’d have a higher level of weight loss success than spending an hour a day with a self indulgent friend who is 50 pounds overweight.

If you go to the grocery store and buy chips, it’s going to be awfully hard not to eat them when you take them home.

Consider your finances. If you are in debt, how can you change your environment to ensure that you get out of it?

You could start a blog to track your progress and connect with like-minded people. If you have a weakness for spending money on consumer goods, unsubscribe from promotional emails, flyers and catalogues. Take a different route home from work if you drive by your favorite store.

If you want to make more money, surround yourself with people who make more than you do. Subscribe to a blog about income generation, such as smartpassiveincome.com. Ensure that the posts are delivered right to your inbox each morning. You’ll be compelled to read them.

If your goal is to eat out less, ensure that you have your refrigerator stocked with food that you like, and that you have some easy-to-prepare recipes on hand. Don’t walk by any restaurants at lunch.

Your environment has a huge impact on your success. Watch out for these three things when trying to reach a goal:

– Who you spend time with
– Where you spend your time
– What triggers you expose yourself to

Trying to work around these triggers will only make your transition much more difficult, so if you do reach the goal, it will be at the expense of your will power.

Design your environment in such a way that will help, as opposed to hinder your progress.

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