How your brain influences money habits

Some kids couldn't wait and ate the treat. Others were able to summon a sort of inner reserve of patience in order to reap the bigger reward. Over the following decades, Mischel

followed those children as they grew, and what he learned was illuminating: that the early indicators from the now-famous "marshmallow test" seemed to predict vastly different

outcomes. The kids who delayed gratification generally ended up with better marriages, better health and better jobs. The more impulsive kids—not so much. The less impulsive savers, brain

activity was constant whether they were promised the money today, tomorrow or next year. These traits or preferences endure over time. "When we've studied people who were more

impulsive as kids, they stayed impulsive relative to their peers," says Glimcher. WANT TO TEMPER YOUR SPENDING? Make it your goal to spend only on what you truly value, be it travel,

special times with family, a hobby, entertainment... whatever. And cut out the frivolous spending on what you don't value. "You'll be amazed at how many things you can happily

live without because you're getting what you really want," says Donna Freed- man, personal finance expert. Larry and Murray Suid can attest to that. And so can some of the

"marshmallow kids," now adults. A few years ago, researchers armed with sophisticated fMRI technology instead of treats gathered a group of them to see if their brain patterns

exhibited differences as well. Indeed, those who were able to delay gratification as children had more activity in the rational, pre-frontal cortex, even as adults. Poor delayers had more

activity in the limbic system, which is linked to the "I want it now" reflex. From this experiment, researchers could extrapolate that impulsivity is a predictor of whether you are

an impulsive spender. How impulsive you are is not only an innate trait—governed by distinct brain mechanisms that persist over time—but also a driver of how you spend and save. Paul

Glimcher, a professor of neural science, economics and psychology at New York University, has used modern brain imaging to further explore the relationship between impulsivity and spending

behavior. In one of his studies, researchers offered subjects $100 either today or sometime in the future, then gauged their responses using fMRI (functional magnetic resonance imaging). For

all subjects, brain areas associated with gratification were active with the offer of an immediate $100. But for some, the notion of waiting for the payoff sparked less brain activity the

longer the payment was deferred. In other words, these were the spenders. For the less impulsive savers, brain activity was constant whether they were promised the money today, tomorrow or

next year. These traits or preferences endure over time. “When we’ve studied people who were more impulsive as kids, they stayed impulsive relative to their peers,” Glimcher says.  MONEY

HABITS PERSIST But does impulsivity influence people's real-life money habits? Scott Rick, a behavioral  economist  and professor at the University of Michigan, sees a strong link

between them. He is known for a test called the spend- thrift-tightwad scale: Based on a short survey about your money habits, you rank as either a tightwad, a spend-thrift or somewhere in

between. About a dozen years ago, Rick and his colleagues surveyed more than 13,000 people using this measure and analyzed it for behavior toward spending, saving, income, debt and so on.

Interestingly, he found that tightwads outnumber spendy types by about 37 percent and that men are three times more likely to be cheap than extravagant, while women were split more evenly.