Spending pain

"There are many things that you can point to, that humans, are not smart. But my personal favourite would have to be, that we had to invent the helmet. What was happening, apparently, is that we were involved in a lot of activities that were cracking our heads. We chose not to avoid these activities but instead come up with some sort of device to help us to continue to enjoy, our head cracking lifestyle. The helmet. Even that didn't work, because enough people weren't wearing them, so we had to come up with the helmet law, which is even stupider because the idea behind the helmet law is to preserve a brain, whose judgement is so poor, that it doesn't even try to prevent the cracking of the head it's in!" - Jerry Seinfeld, stand-up comedian.
I recently came across this snippet from Seinfeld, and humour aside, I tend to leans towards what he alludes, humans are not smart. And we are even less smart when it comes to money. I think I speak for the majority when I say that I always considered helmets to be a very useful and practical invention, however made to think counterfactually, Mr. Seinfeld is rather on the money. And when it comes to spending money, we have designed multiple helmets!
For a while, I have been trying to debunk the view that borrowing to invest on infrastructure is an inviolable growth strategy. Don't get me wrong, I am not fundamentally against borrowing and concede that sometimes you need to borrow to grow; except I am critical about unnecessary spending courtesy un-payable debt. My primary argument goes something like this: As an individual, would you borrow to rent a limousine when all you can afford is an economical 800cc vehicle? In almost all cases the answer is in the negative. So why is the answer in an affirmative when seen in a national perspective; the nation can ill afford spending foreign currency on luxurious air travel of its citizens, but then why do people believe that it is their right to have choices which we cannot afford collectively?
Perhaps because national spending and national debt are abstract notions as they do not directly come out of our pockets, and the vast majority does not understand how they end up paying for everything the government spends, indirectly. How am I responsible for paying national debt, irrespective of the hype created by some segments of the media about increase in per capita debt of Pakistan? The government pays, not me; there is no pain!
"The term "the pain of paying" was based on the feeling of displeasure and distress caused by spending, but more recently, studies using neuro-imaging and MRIs have showed that paying indeed simulates the same brain regions that are involved in processing physical pain", from the book "Dollars and Sense" by Dan Ariely and Jeff Kreisler.
The book was an eye opener in the sense that while I always knew spending hard earned money hurt, but I thought that was because I was getting miserly with old age. Paying is pain, physical pain. I do recommend the book to most everyone being troubled with their ability to save. I completely agree with the authors that when consumption and payment coincide, there can be no enjoyment for the one who is paying; which is why they invented the credit card, another helmet.
In a world where economic growth is measured by and hence largely dependent upon, consumption, there was a need to disassociate consumption with payment and the credit card, lease financing and similar financial products, do just that. Compared to the pain of pulling real money out of your pocket, swiping the credit card is like eating ice cream. All of us spend needlessly when armed with credit facilities because the bank taking the money directly out of our bank account cloaks the pain of payment, until it is too late.
The book also made me rethink a couple of other notions, which by hindsight seem rather idiotic. Just because something is expensive does not mean its good; this by the way is a very popular thumb rule. The ability to pay on your smart phone is not an advantage; a click today has a cost for your future!
Frankly, in today's world, the common man really does not have a chance. It is extremely difficult to curtail spending, let alone save, when the system is conspiring against you and, especially, your loved ones. And this perhaps explains the lack of discipline in spending at the national level. If we are carless about our own spending and don't save for the future, we will be all the more lavish when it involves spending other people's money.
I am not aware of any particular system which pains government officials when they spend out of the national treasury, but there are definitely nudges available to a government if it wants to revive the habit of saving in its populace. Measuring quality of life by the number of motorcycles and refrigerators per capita is definitely not it!
I feel growth in savings per capita is one of the economic indicators to focus upon; and if we can somehow bring back the pain of spending at a personal level, perhaps we will be more censorious about national spending.
(The writer is a chartered accountant based in Islamabad. Email: [email protected])