Have you ever noticed that when something is lacking in your life, for example money or time, it gets your attention? Often we respond to this by focusing on solving whatever is causing the shortage. You could think of this as a benefit of scarcity, which it is…in the short run. As it turns out though, once caught in the trap of scarcity, it can be difficult to escape.
Sendil Mullainathan, a Harvard economist professor and Eldar Shafir a Princeton psychology professor, the co-authors of the new book Scarcity – Why Having Too Little Means So Much, have an explanation for this and a solution.
Drawing on research, the authors show that when something is scarce in our lives, whether we like it or not, it captures our attention. They go on to argue that this has two important outcomes: First; by capturing our attention, scarcity zaps our mental capacity which can shave as much as 10 -12 points off our I.Q.! Second; they show that with reduced capacity our ability to make decisions and control impulses is hindered. Taken together these affects create what the authors call the scarcity tax (just what we need, another tax!) which actually serves to create more scarcity.
It’s common to think that scarcity of money only affects people living on the poverty line, but that’s not so. Scarcity, defined as “an insufficient supply of something” is a relative condition. It affects people living on the poverty line and people with good incomes alike. The difference is that the latter group have more options available to end their scarcity.
Thankfully, the authors also have a solution to the problem of scarcity, which they call slack. Think of slack as a reserve or cushion. Here’s an example of how that could work with money, that most can relate to; In November and December we buy Christmas gifts, often on credit cards. When January arrives so does the credit card bill accompanied by a tinge of money scarcity. Some are able to wriggle out of the problem but many get caught in the scarcity trap.
Here’s how slack can help. Let’s say that in March we open a savings account specifically for Christmas gifts. Every month we put, say $125 in that account so that by November it has a balance of $1,125. With no credit card hangover, imagine how this would change the experience of Christmas shopping. From scarcity and stress to abundance and joy!
Of course, we could do exactly the same for other places that cause havoc in our finances, for example, vacations, car repair and clothes. In fact, in my coaching programs (and my own personal finances) that’s exactly what we do. For those who create slack in their money lives, the feelings of money scarcity (and financial disruptions) become a thing of the past. I always believed there were advantages to being a slacker. Now I have the science to prove it!