Little-known facts about big money and holiday spending

On the Money
From the December 7, 2003 print edition

At this time of year when excess spending is the norm, here are some monetary facts that might brighten your spirits, or at least enlighten you during those holiday spending sprees:

• How much cash is there in America? In November 2003, the “M1” money supply (which includes all coins, currency held by the public, traveler’s checks, checking/savings account balances, NOW accounts, automatic transfer service accounts and balances in credit unions) was $1.25 trillion. That is on the order of $4,257 for each of us.
• The U.S. Secret Service was originated in 1865 to combat counterfeit money. There was a time when as much as one-third of all the money in America was counterfeit. The Secret Service estimates there is currently about $32 million of counterfeit currency in circulation in the United States.
• U.S. currency is not printed on paper, but on cloth: three-quarters cotton and one-quarter linen.
• A mile of pennies laid out is $844.80. By this standard, America is about $2.5 million wide from coast to coast.
• Parker Brothers has printed more money for its Monopoly games than the Federal Reserve has issued in real money.
• A check is merely an IOU, and IOUs can be written on anything. Someone once wrote a $15 check on an eggshell. The recipient took the eggshell to a bank in Canada, where it was cashed like any other check.

Spending average rises 

• According to one report, Americans spent an average of $1,395.06 per family on holiday gifts in 1984. Another report puts it at $5,580.25 per family in 1989 (The Wall Street Journal, December 1989).
• In 2002, the American Sociological Review estimated that 4 percent of our annual income is spent on holiday presents. Median household income was $42,228 in 2001, according to the Census Bureau. That means holiday presents will cost an average of $1,689 per family. In New Jersey, the average is $67,914, yielding $2,717 in holiday presents.
• Americans send 3 billion holiday cards a year. If you have the average number of friends, you should get at least 12 a year.
• The average person spends 148 hours per year waiting in lines, more so in December than any other month. If you could be paid just minimum wage ($5.15 in Colorado) for those 3 1/2 work weeks, you would receive $762.20.

Your money and holiday shopping

Research has shown that music influences not only how much time people spend in a store, but also how much time they think they’ve spent in a store. It can even help promote one type of product.

A study in a British supermarket on how music could affect wine sales revealed that when the store played French music, people picked up more French wine. When the store played German music, Gewurztraminer sales rose.

The holiday shopping season offers innumerable examples of this kind of not-so-subtle musical message. It’s almost impossible to go into a retailer in November or December and not hear carols designed to get us into the gift-buying mood.

Automated wallet may curb waste

Research affirms that individuals think about their purchases differently depending on whether they use cash, credit cards, debit cards or checks.

They also put a much higher value on something they already own than on the same thing if offered for sale. This “prospect theory,” which won the 2002 Nobel Prize for professor Daniel Kahneman and cited his research partnership with the late Amos Tversky, helps explain why people hold on too long to losing stocks or pay way too much to insure themselves against small losses.

MIT Sloan School of Management Professor Dan Ariely and his graduate students are experimenting with an “electronic wallet” that would advise users on how best to spend their money. For example, your wallet may run a Monte Carlo simulation displaying how, based on your payment behavior, you would save $150 in the next three months by using cash for a purchase instead of your Visa card.

In other words, tomorrow’s technologies will load the dice in favor of people not repeating the sort of silly statistical mistakes that lead to Nobel Prize-winning research.

And that will merit a prize of its own.

© C. Stephen Guyer for American City Business Journals Inc. All rights reserved.