Stories

Jun 22, 2023
Money and the Brain: The Psychology of Inflation

In Money and the Brain, PayPal's Bob Carley explores the psychology of money: how we talk about it, how we think about it, and how it shapes our relationships and our lives.

In this first episode, Bob speaks with behavioral economist Dr. Meg Elkins to get her thoughts on the inflation we've experienced recently and how, Bob asks, it's affected not just our pockets and wallets, but our heads and heart.

When it comes to thinking about inflation and your expenses, are you more like Mr. Spock or Homer Simpson? It’s a pertinent question at this time when rising prices and inflation are putting the squeeze on household budgets.

Dr. Meg Elkins, a behavioral economist and senior lecturer at RMIT's School of Economics, Finance, and Marketing, believes the everyday person tends to be more like Homer Simpson. Instead of making cooly rational decisions based in logic, we tend to get caught up in the emotions that come with rising costs, and instead end up making Homer-like choices.

“If there's a fear of missing out, we tend to want to buy that thing and have that thing,” Dr. Elkins told PayPal's Bob Carley. “We tend to value things more that we can't have.”

This, in turn, can help fuel inflation, as our “scarcity bias” kicks in and we raise the demand on things that we're afraid we're no longer going to be able to afford, she explained. It may be unintentional, but these decisions have an impact.

So what can we do about this? Dr. Elkins explains that we should learn about what's happening and educate ourselves, so that we're making smart, informed choices that are less driven by our instinctive fears over inflation.

“We're not always going to make the best choice, but we want to help people make choices they feel comfortable with,” she said.

That might mean adjusting our spending and saving habits in ways that we hadn't considered before. “In the whole, the economy's been really strong for a very long period of time,” she said. “We haven't really had to adjust our behavior.”

But the times are changing. So what might an adjustment in behavior look like? PayPal offers some tools and services that can help you keep your finances in order. Let's take a look at some options.

  • Find deals on the things you need: With the PayPal Honey browser extension, you can easily find coupons and earn points when shopping online. Use the Droplist feature and automatically get notified if prices drop on something you've been after.
  • Set money aside in a savings account: PayPal Savings, provided by Synchrony Bank (Member FDIC),1 offers customers a competitive annual percentage yield with no minimum balance or monthly fees. You can create savings goals and track your progress or set up automatic transfers to PayPal Savings to help create regular habits and achieve financial goals.
  • Spread out payments to fit your schedule: With PayPal’s buy now, pay later options, like Pay in 42, you can pay for your purchases over time and give yourself some room to handle your finances.
  • Earn points while you shop: With the PayPal Cashback Mastercard®3, customers earn unlimited 3% cash back when paying with PayPal at checkout – online, mobile, or in-store with the PayPal QR Code where eligible – and unlimited 2% cash back on all other purchases anywhere Mastercard is accepted.

Watch the full episode above to hear more from Bob's interview with Dr. Elkins and delve deeper into what inflation is, the ways we think about it, and how it affects our lives.
 

The content of this article is provided for informational purposes only. You should always obtain independent business, tax, financial, and legal advice before making any business decision.
 

1PayPal is a financial technology company, not a bank. Banking services provided by Synchrony Bank, Member FDIC. PayPal Balance account is required to use PayPal Savings.

Pay in 4 is available to consumers upon approval for purchases of $30 - $1500. Eligibility varies by state. CA: Loans made or arranged pursuant to a CA Financing Law License. GA: Installment Lender Licensee, NMLS #910457. RI: Small Loan Lender Licensee. Learn more at paypal.com/payin4

3 The PayPal Cashback Mastercard is issued by Synchrony Bank pursuant to a license by Mastercard International Incorporated. Purchases are subject to credit approval, and the PayPal Cashback Mastercard must be used for payment. See Rewards Program Terms for details and restrictions.

 

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