Buzz
Offering advice is much easier than taking it. You can tell your friend that she should end things with that awful person, but when it comes to breaking up with your own toxic partner, it's a different story. This situation mirrors our behavior with money. Research shows that we tend to overvalue our own funds compared to others'.
A recent study published in the Journal of Consumer Research reveals that we tend to assign more value to our own purchasing power. The study’s abstract explains:
Through nine studies, it was found that people believe their own money has more purchasing power than an equivalent amount of someone else’s money. Participants, whether they were choosing socks, clocks, or chocolates, consistently thought they could buy more with their own money. This belief also extended to less desirable items. Additionally, participants felt their financial contributions—whether in the form of donations, taxes, fines, or fees—would be more impactful than the same amount from others.
In one of the studies, participants were asked to estimate how many different products they could buy with $50, from socks to paper towels to frozen pizzas. Another group was asked the same question but about someone else’s $50. Overall, people believed they could get more with their own money than they could with others'—even when incentivized to answer correctly.
This bias may seem harmless at first, but it can create problems when managing finances or planning for future expenses. For example, when calculating how much you need for retirement, you might mistakenly believe your savings will go further than they actually will, leading you to save less than necessary. The study offers another scenario:
...even though they knew their friends had barely managed on $100 a day during a recent trip to Barcelona, vacationers might underestimate their own budget and find themselves surprised by overspending.
Just recognizing this bias can help you take a more objective look at your finances, but you can also try distancing yourself from it. One technique is to imagine the money belongs to someone else. For instance, what would you advise a friend to budget for a trip to Barcelona? As the researchers conclude, “we found that framing one’s own money as distant (versus near) reduced the self-other difference in perceived purchasing power.” To manage your money more impartially, it may be helpful to view it as if it were someone else’s.
