The Emotion of Money

by Rob Stam

My wife and recently went through the process of securing a mortgage for a new home. As we were going through the process of making an offer and looking at monthly payments, it dawned on me how mentally taxing, and even emotional, the process was: excitement, anxiety, cautiousness, aggressiveness, doubt…you get the idea. But what specifically got my attention was how certain parts of that process were far more emotional than others.

When making an offer on a home, the purchase price obviously matters. But we don’t have to come up with that amount of money; that’s the bank’s role. So to offer a thousand or two thousand dollars more to make sure we beat out competitive offers was an easy decision that didn’t take more than five minutes to make.

But when my wife and I considered the monthly payment, things changed. That’s the money we would have to come up with every month. It directly relates to the hours we work and the money we could spend on other areas of life. In fact, like many other people, our lifestyle for the next 15-30 years of our lives will be dictated by that number. And so it was the monthly payment that made things extremely personal and emotional for us.

This same emotional variable plays a factor in business.

I was a young entrepreneur attending a business conference in Louisville, KY—just one of thousands sitting in an arena—when a former U.S. Congressman from Ohio named Bob McEwen came to the microphone and delivered an economics lesson like nothing I’d ever heard. In that speech he introduced me to the concept of first-, second-, and third-party spending.

Whenever we spend money, there are two factors to consider: the value and the cost. First-party spending is simply defined as spending your own money on something for yourself. In this situation you can take into full consideration the value and the cost. If you’re buying yourself a new shirt for example, you can try it on, decide if you like the color, and consider the occasions for which you’d wear that shirt. You can fully appreciate whether or not this is a shirt you like and will wear. You can also consider the cost. Can I afford this? Do I like this shirt enough to justify using a couple hours worth of my paid labor to buy it?

Transitioning that to second-party spending, you’re now one step removed from the connection to the money or the purchase. You’re now spending your money on someone else instead of yourself, or you’re spending someone else’s money on something for yourself.

Using the shirt example again, if you’re buying for someone else you can’t really determine the value it will hold for that person because you can only guess if it will fit them correctly or match their stylistic preferences. And for all you know, they may already own the same shirt, or have a closet overfilled with shirts, and the last thing they need is another one! Furthermore, the question of cost now becomes a question of whether that person is worth the money, not the shirt itself.

If you’re spending someone else’s money on yourself, the role is reversed. You can measure the value the purchase holds for you, but you don’t care as much about the cost because it’s not your money. You want the shirt to fit, but you don’t care as much if it’s no sale.

To take that a step further, third-party spending is when the spender is the most removed from the money being spent. For example, you’ve been assigned the task of buying a birthday present for a co-worker. Everyone at the office chips in $5 and you go shopping during your lunch break. You don’t know the person very well, so you’re main goal is to just quickly pick something out that will serve as “the thought that counts.” You can’t really consider the value because you don’t know what the person likes, and you could care less about the cost because you’re only a small portion of the investment.

The point Mr. McEwen (as a politician) was trying to make was that all government spending, by nature, is third-party spending and therefore the less we leave in the government’s hands, the better off we are. That same line of reasoning can, and should, be applied to our businesses and client relationships.

Perhaps your career path is similar to mine and you can relate to working with clients ranging from an individual investing his or her own money in a start-up, to a non-profit using donated funds, to a large corporation with stock holders. In each case, if you stop to think about it, you can see how this truth of first-, second-, and third-party spending unfolds and how we need to be cognizant of an individual’s mindset when making spending decisions.

When you work with a young entrepreneur who perhaps has a young family at home, every penny he or she invests is emotional. It is hard-earned money being spent with you as investment in their business instead of going into a college fund or Disney vacation. Every time you communicate with them, spend time on their project, or send an invoice, you have to be aware of the emotional connection to the money being invested.

Contrast that to a larger entity where the investment is less emotional. That doesn’t suggest that they or you are any less concerned about it being a responsible investment, but the emotion becomes less of a factor. I’ve noticed over the years that the projects we typically have the greatest success with at Navigate are the ones in which the investment is less emotional. That may seem obvious, but should it really be that way?

All business transactions are relationships. We have relationships with with the products we buy, the brands we prefer, and the people we do business with. The ability to master relationships is the key to success in any business. But all business comes back to money at some point—somebody has to pay for something. The realization that money has a direct connection to emotion allows you to better understand how to establish effective relationships with your customers and clients.

My advice is simply this: Before you sign a contract or accept a payment, ask yourself “what did this investment mean to my customer?” With that simple understanding, you will be well on your way to a more successful business relationship—and you will operate more efficiently and communicate more effectively. Establish that mindset in your company culture and see what happens.