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Misbehaving, My Ex-wife and Money

When I first started reading Richard H. Thaler’s “Misbehaving – The Making of Behavioural Economics”, I couldn’t help but think of my ex-wife.

Now, I realise tales of one’s ex are always problematic. As Christine Keeler so eloquently said all those years ago, “Well, he would say that, wouldn’t he?” However, I’m going to step right in and risk it.

My ex-wife had a credit card with a limit of $2000, which used to hover somewhere between $1700 and $1950. When I suggested taking out a personal loan and paying it off, she rejected the idea on the grounds that she didn’t like borrowing money.

“What do you call that stuff on the credit card then?” I said, demonstrating to everyone reading this both my superior grasp of economics, and why the marriage was doomed. This brought an end to the conversation.

Every now and then, she’d get some windfall money like a tax return and pay most of it off, and resolve never to use it again, but this usually only lasted a couple of months. When I suggested that rather than paying the minimum off, that she pay off a large chunk of the credit card and put the petrol and groceries on, which would mean that she wasn’t paying interest on that chunk of money until the next month where she could do that again. This would mean that she was paying down more than if she simply paid the minimum. (And also, I suspected would mean she was less likely to make an impulse purchase than if she had money left in her actual account, but that’s a whole other story!)

No, I didn’t understand, she was trying to not use her credit card, at all.

Richard H. Thaler’s book is full of examples of how people think about money, and how much economic theory works on the basis that we’re all rational people who do what’s best for ourselves in the long run.

He gives the example of people purchasing wine which appreciates in value. When they drink it, many of them argue that it’s not like they’ve gone out and purchased the wine for what they could sell it for – it only cost them what they paid, so therefore, it’s quite ok to drink it, even though they’d baulk at paying the $XX.

Another good example is how people feel about “sunk costs”. Sunk costs are the costs of what you can’t get back whatever you decide to do. For example, if I pay a deposit of $400 and organise construction of gigantic statue of Tony Abbott in our front yard costing $4000, when I argue that we have to go ahead with it, or else we’ve just wasted $400, my wife can correctly argue that if we do go ahead with it, we’d actually be wasting a further $3600 and we could do better things with the money.

(This is an interesting one in the context of the East-West link in Victoria. There were many people arguing that because it was going to cost money to get out of the contract, then it was better to build the road, because at least we’d get something for the money. The question is not about the sunk costs, the question is whether the several billion extra to actually build the road could be better spent on other projects.)

As I read on, I started to think of my ex-wife less, and more on the whole way we’ve been encouraged to think about the economy and debt.

And in particular this week, as Tony Abbott responded to the Infrastructure Australia audit which told us that traffic congestion could be costing $53 billion a year (or over a billion a week as the PM helpfully added, once again doing our division for us. Give him credit, he’s always been good at division!)

What I find interesting is the notion that we can’t land future generations with “debt”, but apparently it was OK all through the Howard years to put off infrastructure spending because there’s nothing wrong with giving them inadequate infrastructure.

Or inadequate education.

Or not enough hospital beds.

Like my ex-wife’s refusal to take out a loan to pay off her credit card, it’s all in how you look at it.

 

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8 comments

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  1. stephentardrew

    Reminds me of the snake that swallows its own tail disappearing up its own self-consumption.

  2. donwreford

    Rossleigh, has touched upon what no man should say for some time now we have heard how angelic women are, men have been the evil ones, we only know 50% of the mythology, many men have been taken for a ride, the men who have done well out of the system is the bastards, often having the money, many women are attracted to this segment of the male domain the men who are reasonable and constructive are often the mugs, they become the the suckers who carry the load for the frustrations of women who have got entangled with the bastards, I have seen it all before and do not need the preaching’s of those who have another point of view, examples from experience? yes I have a few.

  3. diannaart

    Rossleigh, I do understand that you used your experience with your ex as an example of how many people (men and women) simply don’t get economics.

    The East-West link voted against at the last Victorian election is another example of how stupid people can be about money. In fact I feel my blood pressure rise at every lie Abbott spouts about the rejected project – he’s not great at what constitutes infrastructure either.

    I will refrain from further commentary at the moment – my home which I bought with my own money from my work of a lifetime needs a clean…

  4. Michael

    It was Mandy Rice Davies that said, “He would, wouldn’t he.” NOT Christine keeler

  5. Phi

    Using an ex partner to illustrate a point makes me distinctly uncomfortable as a reader Rossleigh. Your article makes good sense but I felt as if I was being forced into entering a fractured domestic situation that I know from experience is rarely as one sided as the parties often present. I think your point could have been made without any reference to an ex as the ‘fall-guy’ so to speak. Cheers anyway, love your writing regardless.

  6. Kyran

    Great analogy, but I wouldn’t answer the phone tonight! In keeping with the topic of budgetary issues and ex’s, I would like to quote Ms Gabor, after one of her divorces, stating boldly “I am an excellent housekeeper”. Her most recent divorcee was read the quote and challenged it on the basis she wouldn’t know where the kitchen was, let alone the vacuum cleaner, as they had ‘help’. When she heard this, her response was along the lines of “No, darling. I meant I always keep the house!” This explains much of the budgetary premise. She knew all about infrastructure spending (building the house on someone else’s money (the taxpayer?)) and retaining the asset for services rendered. Gotta love public private partnerships. (Still wouldn’t answer the phone) As always, great read. Take care

  7. Wally

    “My ex-wife had a credit card with a limit of $2000, which used to hover somewhere between $1700 and $1950. When I suggested taking out a personal loan and paying it off, she rejected the idea on the grounds that she didn’t like borrowing money”

    I am no economist BUT I have accrued considerable wealth despite having to part with 65% of it to my ex wife many years ago. I could but will not bother contemplating how much richer I would be today if I didn’t sell off assets below cost just to get rid of her. Unfortunately if you have kids you are never really rid of your baggage.

    Do not understand why you would take out a personal loan to pay off 42K of credit card debt?

    AND “Every now and then, she’d get some windfall money like a tax return and pay most of it off, and resolve never to use it again, but this usually only lasted a couple of months. When I suggested that rather than paying the minimum off, that she pay off a large chunk of the credit card and put the petrol and groceries on, which would mean that she wasn’t paying interest on that chunk of money until the next month where she could do that again. This would mean that she was paying down more than if she simply paid the minimum.”

    Until you pay off the full amount owing on a credit card you will continue to pay interest on the current balance. To reach the point where you enjoy the credit (interest) free period your account must reach zero or a positive balance. Everything my wife and I spend is on credit card but before the end of each period we pay the full balance so we have access to an interest free loan of approx. $2k whenever we need or we blow the budget on a holiday or something new for our home.

    People are very naïve on how to use credit cards and how to come out on top. If there is an interest charge near the end of your credit card statement you are not using it to benefit yourself the most.

  8. rossleighbrisbane

    Thank you, Michael. Yes, it was Mandy Rice Davies. Mea Culpa.

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