Much as we prefer abundance—in time, wealth, love, friendship, we have a lot of experience with scarcity. Two of the most common flavors of scarcity for Americans are the financial and time varieties (I’m purposely not addressing loneliness which is beyond the scope of this blog post). Have you succumbed to busyness? That feeling of never quite getting to the things you meant to do? Are you one of the majority of Americans who is financially worse off due to the pandemic? Maybe you’ve lost your job, or your business is way down, or your investment portfolio is shrinking? Then you’re familiar with the experience of scarcity.
The Consequences of Scarcity
Scarcity brings along its own consequences, consequences that perpetuate more scarcity. In Scarcity: Why Having Too Little Means So Much, Sendhil Mullainathan and Eldar Shafir don’t claim to have found the cure to scarcity, but they have some profound insight into the consequences and how we can act to avert those and disrupt the downward spiral. I highly recommend the book—it’s an eye-opener! But for now let me quickly summarize the research cited. There are two main consequences of scarcity:
Tunneling: Ever been on a diet and found yourself unable to think about anything but food? You’ve experienced tunneling. When we are in scarcity, the current lack draws all of our attention. As a result, we neglect things that fall outside of the tunnel. While I’m scrambling to find the money to pay the rent, saving for the car insurance next month, much less retirement a decade or more away, is outside of the tunnel and not likely to get any of my attention.
Reduced bandwidth: This second consequence, a loss of cognitive function, may be a little harder to recognize by examining your own experience, unless you’re really looking for it. But research shows it is no less real than tunneling. Studies measure IQ drops of as much as 13 points when we move from a condition of abundance to one of scarcity. And 13 points is enough to move an individual from superior to average or average to borderline deficient, to dramatically alter our performance when playing a game or processing information or making a decision. We can’t dismiss this as poor people making bad financial decisions—the data shows that any given person will make markedly worse decisions, financial or otherwise, when suffering from scarcity. And all of that busyness, feeling time pressure? It creates time scarcity which has the same impact on bandwidth and cognitive function as money scarcity, friend scarcity or cookie scarcity. Wow—this revelation hit me like a ton of bricks!
There’s a silver lining in this dark gray cloud. The silver lining is that understanding the impact of scarcity allows us to take action to alleviate the impact and measures to avoid future scarcity. The dark gray cloud is that neither alleviation nor preparation is easy or particularly effective.
Easing the impact
We can’t add hours to our days to battle time scarcity. And the typical solutions to financial scarcity, increasing income and decreasing expenses, come with their own bandwidth tax. Figuring out how to increase income is both a cognitive challenge and a stressor. Downsizing our lifestyle can work those same two levers. What strategies can we employ to minimize the impact of tunneling and reduced bandwidth?
Delay decisions: The first thing to do is notice when you’re in scarcity and suffering from a cognitive deficit. Delay important, consequential decisions until your bandwidth improves!
Optimize your prime time: Personal bandwidth changes, not only due to scarcity, but also with the time of day. You probably know when your prime time is, the time of day you are best able to focus and think clearly. When operating with reduced bandwidth, it is critical to reserve prime time for any tough decisions.
Reduce stress: Our physical condition and stress level also impacts bandwidth. Are there steps you can take to reduce stress and free up some bandwidth? As you’re reading this, you may be sheltering in place with your family, those people you love who are inadvertently contributing to your stress level. Might you choose to let go of your efforts to train your husband to put his dirty clothes in the hamper? Can the kids wear mismatched socks? Maybe the closet doesn’t have to be reorganized this week. And, if you’re thinking about losing a few pounds, this probably isn’t the best time.
Schedule thoughtfully: Checking email before tackling work that requires your undivided attention is not effective. Once you’ve gotten up-to-speed on all of the requests and demands in your e-mail box, it’s hard to turn your attention fully to the project at hand. Schedule your important work first so you can really concentrate. The e-mail will be there!
Use reminders: If you tend to run over in meetings or scheduled time blocks, use reminders 5 or 10 minutes before the scheduled end and again at the appointed end time. Reminders can ward off the daily domino effect—run late on your first meeting, then run behind and furiously try to catch up for the rest of the day. If you have an assistant, fantastic—ask that he call, text or message your reminders. Or just use the timer or alarm function on your closest digital device.
Breaking the Cycle
Most of Mullainathan and Shafir’s suggestions for avoiding the consequences of scarcity involve planning in advance—anticipating times of scarcity while we’re still in abundance. Sounds like retirement planning, doesn’t it? Can we harness the memory of scarcity to take action to prevent a reoccurrence? Everyone experiencing financial scarcity today is promising to start contributing to a rainy day savings account as soon as this is over! The data says, despite our best intentions, it won’t be easy.
The seeds of scarcity are sown during abundance. It isn’t only college students who squander abundant time during the semester and cram to write the final term paper the night before it’s due. No, speaking from experience, I didn’t prioritize writing this blog post earlier last week when time was abundant, and now I’ve missed my deadline and get to scramble! While tunneling keeps us completely focused on our present life during scarcity, even during abundance we tend to be present focused. We procrastinate, waste time and money, and are overly optimistic about the future’s ability to take care of itself. My failure to meet my blog post deadline is living proof that it isn’t easy to beat they abundance/scarcity cycle, even after many decades of practice!
Sadly, throwing money at financial scarcity doesn’t stop the cycle, it just introduces a delay. Most of us have experienced this as our income has increased over time. Immediately after an income increase, you feel like you have plenty. But the feeling doesn’t last too long. Before you know it, some unexpected expense arises, or even the anticipated insurance or property taxes are due, and you feel scarcity kicking back in. Failure to have a large enough buffer built-in to the system means that a single shock, like a big expense, can restart the cycle.
It isn’t easy to overcome our optimism and present focus during abundance, but that is what we need to do to prepare for future scarcity. Only during times when we aren’t feeling the pressure of scarcity do we have the capacity to put in place the means to avoid it in the future. Consider the following:
Create a buffer—whether in your schedule or in your savings account—that will absorb future shocks without sending you into scarcity.
Make it automatic--Automate saving for retirement, education, and a rainy day fund to build your buffer. Block
Use deadlines—trick yourself out of squandering abundance by breaking projects into phases and giving each its own deadline. This is a great way to tackle personal finance tasks, too, like updating beneficiaries, getting estate planning documents in place or consolidating all of your accounts in one place.
Be accountable--Find a like-minded accountability partner and check in regularly.
Engage a personal trainer—that might be a business or life coach to help you avoid time scarcity or a financial planner on the money front. Just like you aren’t likely to miss sessions that you’ve paid for with your personal trainer, paying a coach or financial planner is a strong incentive to stay on track.
Need a personal finance trainer? Give me a call (336-701-2612) or send me a message.
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