Latest / Prosper With Wayne / The Scarcity Trap: Why Your Brain Sabotages Wealth Before You Even Start
Transcript
- Wayne Sutton: Here's something that's going to sound backwards. The less money someone has, the worse their financial decisions get. And I don't mean that as a judgment. I mean it literally. The less money you have, the worse your brain gets at making decisions about money. Not because you're careless, not because you weren't taught right. Because scarcity itself changes how your brain processes every single decision in front of you. And once you see this pattern, you're going to start spotting it everywhere in your own life and the people you love and decisions you've made that you still don't fully understand. So stick with me for the next few minutes because I promise you This is gonna reframe something you thought was a character flaw into something that's actually just biology. Welcome to another episode of Prosper with Wayne. I want to start with a memory. So there was a season in my life, and I think a lot of you probably have had these seasons too, where every financial decision felt like a triage, not what investment makes sense, but what bill can absolutely wait to be paid. And looking back now, I made some decisions in that season that don't make sense to the version of me sitting here today. You know, I borrowed money at high interest rates instead of waiting a few days, paid a fee to access money instead of waiting a few days. bought the cheaper thing that broke down in two months instead of the thing that would have lasted two years because I didn't have the extra $40 that day. And at the time I thought it was just poor discipline. But what I didn't know, and I want you to know today, is there's actual science on why this happens and has nothing to do with discipline at all. So there's a book I want to put in front of you, you've never encountered it, written by an economist and psychologist, and it's called Scarcity, while having too little means so much. And what these two researchers found changed the way behavioral economists think about poverty, time pressure, even the way we eat food. And here's the core finding. And I want you to really sit with this one. Scarcity of any kind, money, time, even food when you're on a diet, consumes mental bandwidth, not as a metaphor, literally measurably on cognitive test. In one of their studies, they brought in people from a New Jersey mall, some that were financially comfortable, some that were not, and they gave them a scenario. Imagine your car needs a repair. Half the group, the repair cost a small amount. For the other half, it was a large amount. Now everyone took a cognitive test. Fluid Intelligence, impulse control, the kind of test that measures how sharp your brain is thinking at the moment. And here's what they found. When the repair cost was small, both groups performed the same on the test. But when the repair cost was large, when it activated real financial pressure, the lower income groups' performance dropped significantly. Not intelligence, not their character, their available mental bandwidth in that moment. Because part of their brain was now occupied running the math on a problem they couldn't solve. The researchers put a number on it. And I think about this all the time. The cognitive effect of financial scarcity was comparable to losing an entire night's sleep. Have you ever gone and lost hours of sleep or a whole night of sleep? How did you how did you function, right? And 13 to 14 IQ points and some measurements. So think about that. We would never tell someone who hasn't slept in 24 hours, just try harder to focus. We understand it's a resource problem, not a willpower problem. but we say that exactly to people in financial scarcity constantly. Budget better, try harder, make better choices. When the actual finding is that scarcity itself is quietly taxing the mental resource you need to make smarter choices. This is why the same person can be sharp, capable, even brilliant at their job still make a financial decision. It looks obviously bad from the outside. It's not a contradiction, it's bandwidth. They're working minds running two programs at once, the one in front of them and the one constantly recalculating the gap between what they need and what they have. And that second program never shuts off. Now I want to introduce a second concept from the same research It's called tunneling. Scarcity doesn't just tax your bandwidth broadly. It narrows your focus like a tunnel onto whatever is most urgent right now and blocks out everything else, including things that would actually help you. Here's what it looks like in real life. Someone in financial scarcity misses a bill that if paid on time would have saved them a late fee and protected their credit. From the outside, that looks like they're careless, right? But from the inside, it's not carelessness at all. It's a tunnel that was completely occupied by a more urgent fire that week. And anything outside of that tunnel, even something objectively important, simply didn't register as visible. Tunneling explains why payday loans trap people who are perfectly intelligent inside the tunnel, borrowing against next week to solve this week's emergency vet bill or whatever it may be. Because next week isn't in the tunnel yet. This is also honestly why so much financial advice fails to people who need it the most. Just make a budget, just build an emergency fund. That advice is built by people outside that tunnel for people in the tunnel, right? This is where a lot of people will go to Dave Ramsey and other people and they're like, hey, this makes sense. But they're so far into their own fire, their own problems they cannot see, or they don't have the mental bandwidth to actually take the advice. So all of this advice assumes bandwidth that scarcity is already spent. So it's not that it's the wrong advice, it's advice aimed at the wrong moment. You cannot budget your way out of a tunnel using the same bandwidth that the tunnel has already consumed. So, if the problem isn't willpower, the solution can't be more willpower either. this is what I actually want you to walk away and use today. The research points to one consistent answer. You fix scarcity by removing the bandwidth tax, not by adding more discipline on top of an already taxed mind. Practically. That means building systems before the tunnel hits, not during it. Automate the decision making. Automate the decision so the future you standing inside of a tunnel doesn't have to make a decision. Auto pay on essentials. So a taxed mind in a hard month can't accidentally skip something critical. Automatic transfer to savings on a day you're paying before scarcity has a chance to narrow your focus on everything except that savings transfer. It means building deliberate slack into your system. Not just a budget with every dollar assigned, but actual buffer. Because a system with zero slack guarantees a surprise becomes a crisis. and a crisis is exactly what triggers tunneling in the first place. here's where I want to connect this to something I talked about in the reframing episode, because I don't think this is just a financial principle. Scarcity is a mindset your brain defaults to under any kind of pressure, not just money. Time scarcity does the same thing to your calendar. Emotional scarcity does the same thing to your relationships. And the practice of deliberately stepping outside the tunnel, pausing before a decision, taking a breath, even a moment of prayer or or meditation before you react Isn't just a spiritual token tacked on to good avice. No, it's functionally the exact intervention this research points to. It interrupts the tunnel. It gives your mind back a slice of bandwidth. Scarcity just took from you. Whether you frame that as cognitive technique or just an act of faith that's doing the same job. Pulling your focus wide enough to see the thing outside the tunnel that scarcity was hiding from you. There's been many times in my life, in my career, I grew up in poverty that I've had to go and say, Lord, help me. And spend time in prayer. Spend time focusing on where how he's helped me overcome in the past. And the and then looking at the future plans I have. I don't play checkers, I play chess, right? So you got to look at that. And sometimes just stepping outside of the tunnel helps you make better decisions. So here's what I want you to do with this. Sometime this week, notice one decision that's making you feel urgent, narrow, immediate. That's your tunnel. And ask yourself just one question before you act on it. What would the future me standing outside of this tunnel? Wish I'd set up in advance so I didn't have to decide this under pressure. You don't have to fix your whole financial life today. You just have to build one system, however small, so then the next time scarcity shows up, it has a little less of your bandwidth to take. A number of years ago when I first got married, I remember thinking, money is tight. We you know, we were never in like a deficit, but it was truly paycheck to paycheck. And that fear, that stress was taking a toll on me. So I went and I did, I said, okay, let me step outside of this and I looked at where I could save money. I got rid of several subscriptions. I changed car insurance. I did a lot of little things to save $50 here, $100 there, $200 here. And when I saved that four to eight hundred dollars, okay, then we took that when I had that those debts paid down, and then I went and did a refi on my home, which saved me another $500 a month. Now we have $900 that we started putting to savings. A savings account, an emergency fund, whatever you want to call it, is one way of stepping outside of the tunnel. Now, next episode, I want to go deeper on the flip side of this. What happens when you flip scarcity thinking into abundance mindset? whether that's just a nice phrase, abundance mindset, or something with real weight behind it. So if you landed on this video, stay close, hit subscribe, comment below, let me know what your biggest takeaway was, and we're going to build on that on the next video. I'll see you then.