Tightwads and Spendthrifts

Both of these extreme spending personalities suffer pain and guilt when faced with opening up their wallets. Here's how you can strike a better balance.

Is spending painful for you? Or are you so free with your credit card that you live in a constant state of buyer's remorse? Either way, don't be too hard on yourself. How we feel about spending depends a lot on how we're wired, and that has implications for everything from debt to marital harmony.

Consider the results of brain scans performed on people while they made buying decisions. Researchers found that when subjects were shown products and then prices, about 30% of them experienced a fired-up insula. The insula is the part of the brain that's active "when we're getting socially excluded or somebody's unfair to us or we have to smell something gross," says Scott Rick, a professor of marketing at the University of Michigan and one of the researchers. The study also found that about half of subjects had a more measured response when contemplating a purchase, and 20% seemed to feel pleasure and little pain.

That study was the genesis of a scale that measures how likely you are to be a tightwad or a spendthrift. Spendthrifts don't feel enough pain for their own good, so they overspend, carry more debt and feel guilty later. Tightwads, however, experience too much pain, which leads to feelings of regret for not having spent enough. Rick says it's worse to be a spendthrift because of the financial costs, but neither extreme is as good as the middle group, labeled unconflicted. "Spendthrifts are bad off financially and psychologically," he says. "Tightwads have big bank accounts, but we find that they're less happy than the unconflicted group."

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Where Do You Stand?

You don't need a brain scan to figure out where you land on the scale; a simple survey will do. In a 2008 paper, "Tightwads and Spendthrifts," Rick, George Loewenstein, of Carnegie Mellon University, and Cynthia Cryder, now with Washington University, surveyed more than 13,000 adults. They found that spendthrifts were three times as likely as tightwads to be in debt, regardless of income. (Take the survey yourself: Are You a Tightwad or a Spendthrift?)

Fatal Fiscal Attraction

Rick and two colleagues, Deborah Small, of the University of Pennsylvania, and Eli Finkel, of Northwestern University, applied their scale to a study of married couples, "Fatal (Fiscal) Attraction: Spendthrifts and Tightwads in Marriage." Although people who are alike tend to attract one another, the researchers found that tightwads and spendthrifts regret their spending habits and often marry spending opposites to compensate. Such a marriage starts out well, says Rick. The spouses "help each other meet in the middle." When dining out, for example, "they don't spend a million dollars on a great meal, but they don't go Dumpster-diving either."

Tensions rise with purchases that really matter, such as cars and houses, says Rick, a self-described spendthrift. Such marriages "might be refreshing at first, but my own guess is that they then become maddening" as couples begin to bicker over spending issues. (See FROM THE EDITOR: 5 Sources of Financial Friction for Couples.)

The study suggests that spendthrifts who marry tightwads tend to be better off financially than spendthrifts who marry spendthrifts. But spendthrifts who marry spendthrifts tend to have a happier relationship, even though their financial situation is often worse. When two tightwads marry, they enjoy both better finances and a more satisfying relationship.

Balance Your Spending

To help rein in spendthrift tendencies, you can focus on the opportunity costs of buying more than you need. For example, when buying a car, instead of spending $3,000 on the luxury-options package, think how that money could be put to better use.

Tightwads can frame some outlays as investments -- think of a vacation as an investment in productivity, Rick suggests. They can also buy with plastic because it's less painful than paying with cash.

As for picking a spouse, a good prenup might be in order before a spendthrift weds a tightwad.

Bob Frick
Senior Editor, Kiplinger's Personal Finance