Watch stocks you care about
Your own personalized stock watchlist!
It's a 100% FREE Motley Fool service...
Here it comes – the big holiday shopping season. Many stores will open their doors on Thanksgiving to get a jump-start offering Black Friday deals. Retailers will pull out their stealth tactics to get us in the holiday spirit, prompting us to open our wallets in a big way. They'll give us free hot cocoa, put some Bing Crosby and Nat King Cole on, and yes, there will be deals. Lots of deals. But are these holiday sales as valuable as retailers want us to believe?
Counting in our genes
The team at eBay Deals put together an entertaining and informative motiongraphic, "Monkey Business: How Baboon Research Explains Our Spending Habits," to help us understand why it's so hard for us to resist a perceived deal, and how retailers use this information when setting their sales.
While we think of counting as a learned skill, it's actually an amalgamation of multiple skills housed in multiple parts of the brain. Ironically, counting very small numbers is an innate human skill and something that we share with some primates. Research conducted by Yale cognitive scientist Karen Wynn shows that babies as young as 5 months can count up to 4 items, long before they can speak or read.
Our innate ability to spot a deal
If these revelations leave you scratching your head, the next portion of the eBay Deals motiongraphic will make you question every "deal" you come across this holiday season.
Dr. Wynn and her research team noticed that once 5-month-old babies had beyond 4 items to count, they automatically engaged a completely different counting system that relied on ratio comparison rather than precise counting. They could tell the difference between the number of items if the difference had a ratio of at least 2:1. For example, they could tell the difference between 5 items and 10 items, though they couldn't tell the difference between 8 items and 10 items. As we get older, our ratio comparison skills grow more sophisticated. 10-month old babies can tell the difference at a 3:2 ratio or higher. As adults, our peak ability to distinguish ratios is 1:1.15.
Our neurological judgment of value
While this is all interesting research for research sake, it's especially fascinating when we apply it to our every day financial habits. These million year old instincts affect how we save, spend, and assign financial value.
In 1984, researchers Daniel Kahneman and Amos Tversky, conducted a study to test the lengths people would go to in order to save money on a purchase. They asked a group of shoppers if they would drive 20 minutes to save $5 on a $15 purchase -- 68% said yes. Only 29% said they would drive 20 minuets to save $5 on a $125 purchase. Even though a $5 savings was at stake for both of these purchases, far fewer would go out of their way to save on the larger purchase because $5 is a much smaller percentage of $125 than it is of $15. They were focused on ratios and perceived relative value of savings rather than the precise dollar savings.
How to protect your wallet this holiday season
Retailers are geniuses in cognitive science. They have studied the human brain and its buying decisions so intently that it informs every aspect of the shopping experience, especially pricing. So are we doomed to fall prey to our own instincts and the retailers who use them against us? Hardly. I've got a few tricks for you that I use every single time I go shopping.
1) Don't look at the sale percentage
Retailers inflate their regular prices deliberately so that they can take a larger percentage off when they go on sale without jeopardizing their profitability. Don't pay any attention to the difference between full price and sale price. Only look at the sale price and decide if that amount feels like a good value for the item you're buying.
2) Consider the effort in your earnings
My first tip might be challenging for some. It can be difficult to assign a monetary value to an item without some point of reference. Retailers count on our inability to do this, which is why they tell us the full retail price and then the sale price. They give us the benchmark by which to measure the value of their sale price. Pretty sneaky, right? Here's the benchmark I use: I work hard for my money. I consider the amount of time and effort it takes for me to earn the money I'm about to spend on an item. If I feel it's worth it, I go for it. If it's not worth it, I leave the item on the shelf.
3) Think about it
Have you ever noticed that the thrill of getting a deal fades quickly? Most of the time, it lasts a couple minutes at best. Put the item in your cart or walk around the store with it in your hand for a while. Has the thrill worn off? Does it seem to have as much value now as it did a few minutes ago? If not, then you have your answer. Put it back.
If the item still seems tantalizing, check out and take it home. Know the store return policy, make sure to save your receipt, and if possible pay for it with your American Express card. Don't use the item or remove any of the price tags. Take it home and mull it over. In a few days you may find that the item doesn't capture your fancy the way it did in the carefully staged retail environment. You've got your receipt and you haven't used the item, so return it if it's lost its appeal. Why buy it on your American Express Card? Most Amex cards carry something called Return Protection. If the retail store gives you a hard time for any reason, submit the claim to American Express. They'll either fight for your money back from the retailer or refund the purchase to your card provided that the item is under $300. There is an annual limit on this benefit that varies card to card so make sure you check your card's specific benefits and any stipulations that go along with the Return Protection benefit.
Happy holidays within your budget
Information is knowledge. Research is substantiated information. The 5-minute motiongraphic by eBay Deals arms you with the understanding of how your brain perceives sales. We can't fight our genetic predispositions, though we can manage them. Use the three tips above and your holidays will be merry and bright without breaking the bank.
Using your brain for investing
It's no secret that investors tend to be impatient with the market, but the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report, "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.