Podcast Summary: So Money with Farnoosh Torabi Episode: 1828: The Science of How We Spend
Release Date: May 19, 2025

Introduction to the Episode and Guest

In episode 1828: The Science of How We Spend, award-winning financial strategist Farnoosh Torabi delves into the intricate psychology behind our spending habits and debt management. Joining her is John Dinsmore, a Wright State University professor and author of the insightful book, The Marketing of Debt: How They Get You. Together, they explore how biology, psychology, and marketing intertwine to influence our financial decisions.

John Dinsmore’s Journey into Financial Behavioral Research

John Dinsmore shares his transition from a marketing professional to an academic focused on financial decision-making. Triggered by the financial turmoil following the collapse of Lehman Brothers, Dinsmore pursued a Ph.D. to better understand the complexities of financial behavior.

[04:38] John Dinsmore: "I've taken a million finance classes, I should understand this better than most. And yet I still just face planting all the time trying to make the right decision."

This personal struggle motivated him to investigate why financial decisions often remain challenging despite extensive education.

The Psychology Behind Debt and Spending

Dinsmore’s research highlights how our brains misjudge the costs of debt due to inherent biases and optimism.

[07:42] John Dinsmore: "Our tendency is to overestimate our ability to pay and underestimate the challenge of being able to handle debt."

He explains that marketers exploit these psychological tendencies, making debt seem more manageable and appealing than it often is.

Optimism vs. Pessimism in Financial Decisions

Farnoosh probes the role of optimism in financial planning, questioning whether a touch of pessimism might lead to better financial outcomes.

[07:42] John Dinsmore: "Optimism is definitely helpful for us to just keep on living our daily lives or getting through any sort of hardships, but it can be expensive when we're thinking about our finances in the future."

Dinsmore concurs, emphasizing that while optimism is beneficial, it can lead to overspending and unrealistic financial expectations.

Debt as a Tool for Status Building

The conversation shifts to how debt is often used to enhance personal status, especially through branded credit cards and luxury purchases.

[12:35] John Dinsmore: "When someone of lower means has a status-branded card, they tend to use them more in front of others and spend more as a result."

Dinsmore discusses the evolution of status symbols in finance, noting how even high-interest cards are marketed as prestigious, encouraging increased spending among users seeking social validation.

The Rise of Quiet Luxury

Farnoosh introduces the concept of "quiet luxury," a trend where individuals choose understated brands to signal status without overt display.

[14:41] Farnoosh Torabi: "It's almost like there is a backlash now to wearing a lot of the brand names out loud."

Dinsmore relates this to evolutionary psychology, suggesting that the subtle display of wealth still fulfills the human desire for status without attracting unwanted attention.

How Money Influences Behavior and Generosity

Dinsmore presents his research on how handling money affects behavior, particularly generosity. In a study, men handling $20 bills experienced a rise in testosterone and were less likely to donate to charity compared to those handling blank or $1 bills.

[22:52] John Dinsmore: "People who handled $20 bills experienced a rise in testosterone and became less likely to donate to charity."

He connects this to evolutionary traits, where increased status leads to decreased reliance on cooperation, thereby reducing generosity.

Gender Differences in Financial Behavior

Farnoosh highlights how women often exhibit greater generosity, supported by research indicating higher empathy levels.

[26:32] John Dinsmore: "Research backs that up. On average, women are much more empathic and think about others more so than men."

This distinction underscores the varying impacts of wealth on generosity across genders.

Wealth, Success, and Social Dynamics

The discussion touches on how sudden wealth or success can lead to social pushback and internal conflicts, such as survivor's guilt.

[30:17] Farnoosh Torabi: "Some write to me, they're like, I feel icky. It makes sense."

Dinsmore explains that newfound wealth often disrupts social relationships, leading to feelings of guilt and isolation as peers may resent or distance themselves from the wealthy individual.

Conclusion and Key Takeaways

Farnoosh and John wrap up the episode by emphasizing the importance of understanding the psychological underpinnings of financial decisions. Recognizing how our biases and societal influences shape our spending and debt can lead to more informed and healthier financial behaviors.

[32:05] Farnoosh Torabi: "I love that correlation, which is it feeds my self-interest because I'm here to try to help more women get rich. And I want to say, I want to make the claim that when women make more, the world becomes a better place."

This final insight reinforces the notion that financial empowerment, particularly among empathetic individuals, can have positive ripple effects on society.

Notable Quotes

• John Dinsmore [04:38]: "I've taken a million finance classes, I should understand this better than most. And yet I still just face planting all the time trying to make the right decision."

• John Dinsmore [07:42]: "Our tendency is to overestimate our ability to pay and underestimate the challenge of being able to handle debt."

• John Dinsmore [12:35]: "When someone of lower means has a status-branded card, they tend to use them more in front of others and spend more as a result."

• John Dinsmore [22:52]: "People who handled $20 bills experienced a rise in testosterone and became less likely to donate to charity."

• Farnoosh Torabi [26:32]: "I want to make the claim that when women make more, the world becomes a better place."

Final Thoughts

Episode 1828 of So Money with Farnoosh Torabi offers a deep dive into the neuroscience and psychology of spending and debt. By understanding the factors that drive our financial behaviors, listeners are better equipped to make conscious and informed decisions, ultimately leading to greater financial well-being and societal benefit.

Recommended Resources:

• Book: The Marketing of Debt: How They Get You by John Dinsmore
• TEDx Talk: John Dinsmore’s TEDx Talk on Money and Behavior

For more insights and resources, visit SoMoneyMembers.com.