My wife and I are avid fans of Star Trek (no surprise there right?). Having grown up watching Star Trek: The Next Generation and continuing on to Deep Space Nine and even a little Voyager, but recently we’ve been watching the four seasons of Star Trek Enterprise. It’s the one with Scott Bakula as Captain Jonathan Archer of the NX-1 Enterprise (there it is to the right) and the only one set in the near future. I have no idea how the seasons were received when they aired but we’re really enjoying them because it’s not set hundreds of years into the future, only a hundred and fifty. In future Earth, we’ve developed warp drives, transporters (though we’re not comfortable using them), and have made contact with alien species (no universal translator, just a really good translator).

One of the interesting aspects about Star Trek is how it treats money. Even a mere 150 years into the future, there is no concept of money. People do their jobs because they take pride in their work, satisfaction in their accomplishments, and work hard because they don’t want to let down their peers or their society but receive no monetary compensation. While they get all of their needs satisfied (food, shelter, entertainment), no one is saving for retirement because there’s nothing to save.

It was always difficult for me to see the logical jump from society today to anytime in the future where money is obsolete. Entire industries exist solely because money exists (mortgages, finance, banking to name a few) and you can bet your last dollar they’ll do anything it takes to make sure money keeps on existing. So how are we supposed to get from our money driven world to one where money has no meaning?

By having social norms overtake market norms. It’s an idea I first read in Predictably Irrational. In one of the chapters of Predictably Irrational, Dan Ariely talks about how in the workplace we’ve replaced a bit of the market norms with social norms. In the days of Ford and the assembly line, workers punched in and punched out. They worked for the paycheck, trading in their time, effort, and expertise for money. It was a clear trade, punctuated by the sound of time card machines. As we’ve moved away from a labor based economy to a service based economy, social norms have begun to replace market norms.

I have friends who work 40+ hours a week but are compensated for only forty, the extra being spent “to get the job done right.” I routinely worked a few hours over forty myself to get the job done because I didn’t want to let my team down (I was very fortunate to be on very strong teams that didn’t find ourselves under the gun or behind on deadlines). I didn’t work those extra hours out of the goodness of my heart but I also didn’t do it for direct compensation. I worked those hours because I knew I had an obligation to both the project’s clients and my teammates. It was the social norms, not the market norms that compelled me, and so many others, to work without direct monetary compensation.

It’s an interesting idea and while it clearly doesn’t explain everything, it’s the first time I’ve read of an idea that will even take us in that direction. Eventually social norms can overtake market norms, a social support infrastructure will be put into place, and we’ll have abolished money, developed warp drives, met alien species, and find ourselves cruising among the stars in one of these:

(Both photos by anthonygrimley)

If you’re a fan of behavioral economics (think Freakonomics and Undercover Economist), you should pick up a copy of Predictably Irrational by Dan Ariely. I reserved both the print and audio book versions (I didn’t know which would be available first) and have been listening to the CDs in my car as I drive around.

I was delighted to hear, somewhere on the third CD, and then confirm in print, on page 122-123; Ariely mentioned a New York Times article written by John Leland that featured several debt bloggers I know: Tricia of BloggingAwayDebt.com, Stephanie of PoorerThanYou.com, Him and Her of MakeLoveNotDebt.com, and a blog called We’re in Debt (I thought I recognized the URL but it resolved to a landing page - oops).

Here’s what the passage said, it was in reference to how you could force yourself to save and control destructive consumer spending behavior:

John Leland wrote a very interesting article in the New York Times in which he described a growing trend of self-shame: “When a woman who calls herself Tricia discovered last week that she owed $22,302 on her credit cards, she could not wait to spread the news. Tricia, 29, does not talk to her family or friends about her finances, and says she is ashamed of her personal debt. Yet from the laundry room of her hom in northern Michigan, Tricia does something that would have been unthinkable — and impossible — a generation ago: She goes online and posts intimate details of her financial life, including her net worth (now a negative $38,691), the balance and finance charges on her credit cards, and the amount of debt she has paid down ($15,312) since starting the blog about her debt last year.”

It is also clear that Tricia’s blog is part of a larger trend. Apparently there are dozens of Web sites (maybe there are thousands by now) devoted to the same kind of debt blogging (from “Poorer than You” poorerthanyou.com and “We’re in Debt” wereindebt.com to “Make Love Not Debt” makelovenotdebt.com and Tricial’s Web page: bloggingawaydebt). Leland noted, “Consumers are asking others to help themselves develop self-control because so many companies are not showing any restraint.”

BLogging about overspending is important and useful, but as we saw in the last chapter, on emotions, what we truly need is a method to curb our consumption at the moment of temptation, rather than a way to complain about it after the fact.

The book is very very good and provides great insight into how predictably irrational we are.

The paradox of choice is that the more options we are given for a particular choice, the less likely we are able to make a choice. Penelope Trunk discussed it in her article about taking a job, any job and references Dan Ariely, an MIT behavioral economist, and his book Predictably Irrational. In the book, Ariely discusses a study about how people ended up buying more jam when given six potential samples versus twenty four. Twenty four potential samples was simply too much and people ended up not deciding, even though they had more information.

How does this apply to banks and credit cards? Too much information paralyzes us. It paralyzes me. In the case of jams, there’s no pain in not buying a particular flavor. In the case of credit card debt, there’s a significant pain in not paying down a card. With a bank, there’s a bit of pain in interest not earned and a bit more if you overdraft because you forgot which account held how much (or you forget how much you need to keep in an account to avoid fees because you have too many accounts). Too much information, like juggling many balls, hampers our ability to make good decisions and causes us unnecessary pain.

The solution is the simplify your finances.

If you have credit card debt, pay down the smallest amounts first. This may sound similar to Dave Ramsey’s Snowball technique and that’s because it is. However, rather than focusing on the psychological benefits (yay! another debt conquered! let’s get the next one!), I argue that removing one headache from your life, even if it’s not the most financially distracting one, is beneficial. Next, try to consolidate bigger debts into as few accounts as possible without sacrificing the interest rate. By not sacrificing the interest rate, I mean don’t consolidate lower interest cards to higher interest cards (which sounds obvious but sometimes we make mistakes). The number of credit cards offer zero fee 0% balance transfers are dwindling but they often have a fee transfer cap that could be to your benefit.

With banks, don’t keep accounts you no longer need. I kept an old employer’s credit union account open for a year and a half and it cost me $20. I had transferred money into that account from my Emigrant Direct account and written a check. The check didn’t get cashed for several weeks and before it could be cashed, I went into my account and saw some money sitting around. Not remembering why the funds were there earning a low interest rate, I transferred them back and got dinged with an NSF. While I was able to get the NSF removed, it was entirely my mistake but caused by keeping an account I didn’t need or use anymore. There are no negative credit impacts of closing bank accounts, so close the ones you don’t need anymore and drop juggling that ball.

Simplify your life and reduce the number of things your brain has to manage, you’ll be happier and richer for it.

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On a happier note, my post on the Top 5 Online Banks made it into this week’s Carnival of Personal Finance hosted by Canadian Dream.