Financial Lessons from Poker

Common advice about controlling spending is to track all your purchases and add them up each week or month. I believe that this is effective, but have been fuzzy on why it seems to work so well. Why can’t people just spend less without the constant reminder of how well they are doing? I got some insight on this question from, of all places, poker.

For poker players there is a certain thrill to dragging in a pot of chips. The thrill is there whether it is a $1 pot or a $10 pot. The $10 pot gives a bigger thrill, but not 10 times bigger. Similarly, losing a $10 pot feels worse than losing a $1 pot, but not 10 times worse.

This leads to some players playing in such a way that they maximize happiness by taking in many small pots, but losing some big ones. As long as they don’t count their dwindling chips, they can actually be happy playing this way.

Counting your chips is a lot like adding up your spending at the end of the month to see what happened. You may feel good about having saved small amounts of money several times, but if you wasted a big amount just once, you’ve had a bad month. If you don’t add up your spending you might actually feel good about all the times you saved money even though you’ve had a bad month overall.

Ignorance can be bliss for a while, but when the debts finally start catching up to you, there won’t be much happiness. The worse your financial trouble, the more often you should be adding up your purchases to take stock of your financial situation.

Some people can get along by assessing their finances monthly, and others have to do it weekly to keep a lid on spending. Then we have the families who appear on Gail Vaz-Oxlade’s television show Til Debt do Us Part who have to assess their financial position with every purchase by abandoning debit and credit cards entirely and using cash.