money-that-is-quickly-gained-is-quickly-lost

… Payroll Psychology, and Consumerism

This is an archived version of a blog post that I originally published on June 16, 2016.

Summary: In this post, I present a hypothetical error that humans may make when they receive their monthly or bi-weekly paychecks and explore how the error might help the economy but cause workers to suffer.

I recently came up with the quoted aphorism that is in the title, and while I quickly realized that it isn’t necessarily true,¹ I was interested in the possibility that we (humans) might be psychologically inclined² towards spending/using/losing money at a faster rate than we would usually spend it, following our receiving of money at a faster rate (“fund gain rate”) than usual.

I have thought about such primarily with regards to the fact that most people are, currently, paid only once or twice a month. If, in addition to this, the possibility that I suggested in the previous paragraph was true, one might expect to find that people spend money at a higher rate during a period of time that immediately follows from when they are paid.³

I think that the time that people, who are paid only once per month, are paid is an event quite unlike the rest of their month because during that time they see themselves gain a significantly larger amount of money in return for their usual amount of labor per day worked.⁴ Following from this, I am concerned that people may wrongly come to feel (not deliberately think) that they will gain far more money for their usual amount of labor per day worked, or that they have a higher fund gain rate than they actually do. People might think such by incorrectly dividing the funds gained, through their paycheck, by merely the amount of labor that they had to give on that specific day in order to receive it, instead of the amount of labor that they had to give during the period over which they were not paid.

If this was found to be the case, I suspect that the rate of money spent (fund loss rate) would decrease⁵ during a certain time period (the period during which one is still affected by the sudden gaining of money) until it reaches a common rate (when one may be said to be no longer affected). While one is still affected by the feeling that they have a higher fund gain rate than they actually do, however, they will likely spend money at a higher rate, or have a higher fund loss rate.

The world’s economy may be helped by the monthly or bi-weekly boosts in fund loss rates per worker, through their increased consumption, but I suspect that the worker ultimately suffers as a result of this.⁶ However, while monthly or bi-weekly payments may have been efficient in the past, when accounting and payroll was done by hand, those tasks may soon be able to be automated, thereby enabling workers to be paid daily, if not hourly. Increased payment frequency per month and decreased payment periods might lead workers to not feel the effect that I have suggested above, if there is such an effect.

However, I am concerned about the possibility that if the payment frequency per month increases and payment periods decreases, workers will become greater workaholics than they currently are. I say this while envisioning a future where workers are no longer anxious about the prospect of working a whole ‘nother month to receive a paycheck but are unwittingly obsessed with the thought of working just one more day for just one more dollar.

Footnotes

1. One might invest their money in something that quickly thereafter earns them a profit, then save the profits gained. ↩

2. My consideration of such irrational-ish thinking and psychology was prompted by listening to Taleb’s Fooled By Randomness (audiobook). Taleb would no doubt ask me, worriedly, “are you deaf?”, if I did not state that the lead aphorism isn’t necessarily true, as his whole investment strategy, as he outlined it in Fooled, ran quite contrary to it. ↩

3. One may or may not want to exclude a person’s scheduled monthly expenses (“bills”) from deriving the rate of spending. You may wish to exclude bills if you assume that the person has rationally accounted for the expenses, which may mean that the expenses would be unaffected by the increase in fund gain rate, or include bills if not. ↩

4. Assuming that they are paid during a day that they are working, or are not forced to collect their paycheck on a day they aren’t working.

   The issue of one feeling like they have a higher fund gain rate than they actually do might be worse in cases where one isn’t working on the day that they receive their paycheck, as (money gained)/(labor given on that day) is even less. ↩

5. Because feelings fade, and the worker may slowly wake up to the reality of how much money they actually make per day. ↩

6. Assuming that due to my proposed effect of the monthly or bi-weekly payments, a worker spends more money, which they earn through working, than they otherwise would, thereby leading them to work more to recoup the money they spent (assuming that they would wish to recoup that amount to attain some ultimately desired level of income). ↩