The Daily Item, Sunbury, PA

Business

November 11, 2013

The Color of Money: How scarcity rules our choices

 WASHINGTON -- I've often said that money problems are the result of issues that people haven't addressed or don't even know they have.

     One of those issues is scarcity -- having less than you feel you need.

     And that's why for this month's Color of Money Book Club, I've selected "Scarcity: Why Having Too Little Means So Much" by Sendhil Mullainathan and Eldar Shafir (Times Books, $28). Mullainathan is a professor of economics at Harvard University, and Shafir is a professor of psychology and public affairs at Princeton University.

     Reading it could help you deal with the psychological barriers that prevent you from having the financial life you deserve.

     When my husband and I teach a new financial class at our church, we start not with budgeting, as some participants expect, but with discussions about behavior that impedes people from achieving their financial goals. We talk about feelings of entitlement and the lack of decision-making skills. That's how Mullainathan and Shafir approach scarcity. They explore the why behind the scarcity mindset by using academic studies, anecdotes and vignettes.

     Theirs is an academic approach that is easily accessible. "Scarcity" isn't beach reading.  But it's intriguing if you want to understand the significance and consequences of scarcity.

     As the authors point out, there are times when scarcity can be a good thing.  When you have less money or time, it may result in a "focus dividend" or heightened productivity. Scarcity can also result in "tunneling," which is when you focus on one thing so much that you neglect something else.

     Ever miss paying a bill because you're too focused on deadlines at work?

     "Focus is a positive: scarcity focuses on what seems, at that moment, to matter most. Tunneling is not: scarcity leads us to tunnel and neglect other, possibly more important, things," Mullainathan and Shafir write.

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