Mind Over Money. Claudia Hammond
Criado-Perez eventually won her battle, and Jane Austen will feature on the new British £10 note.
HOW NOT JUST GRANNY STRUGGLED TO GET THE POINT
In 1971, Britain’s whole system of currency was overhauled. To aid the country’s accession to the European Economic Community, now the European Union, Britain changed to a decimal system to match the other countries involved.
Under the old system, a penny was one twelfth of a shilling, and there were twenty shillings in a pound. Under the new system, a penny was one tenth of the new 10 pence coin (effectively the replacement for the two-shilling coin) and ten 10 pences added up to a new pound.
Decimalisation was introduced only three months after I was born, so I’ve known nothing else. But for those who had grown up with the ‘old’ money, the change caused considerable confusion, as well as provoking strong reactions. Some saw it as a surrender of British uniqueness to European uniformity; others were suspicious they were in some way being swindled. Most were at the very least uneasy about such a big change to something as foundational as the currency.
The Government was concerned enough to commission a 5-minute public information film explaining the benefits of the new money. It was called, rather patronisingly, ‘Granny Gets the Point’. (They’d never get away with such ageism and sexism now.) My own grandmother could see the logic of the change well enough, but it didn’t stop her from feeling some mistrust. And that was an entirely rational reaction. For a start, for quite some time, whenever she bought something with the new money, she had to mentally calculate what it would have cost in the old money just to be sure she was getting a fair deal. It was like being abroad and having to work out whether two francs for a cup of coffee was a rip off.
It didn’t help that decimalisation coincided with an era of high inflation. Each month, the new pound bought you a little less than it did the month before. Of course, it was nothing like those situations in countries wracked by hyper-inflation – Germany between the wars; Zimbabwe more recently. In these places, in their darkest days, it took barrowfuls of bills to buy a loaf of bread, workers were paid as often as three times a day and 2,000 printing presses worked day and night to print higher denomination notes. Crazy numbers – 5 million marks, 500 million marks, 5 billion marks – reflected a complete collapse in economic confidence. Even so, in the 1970s British people came to see their new pounds and pence as diminished, not just in terms of what they could buy, but in their actual physical size.
Five years after the introduction of decimal coins, there was an experiment in which people were shown a series of circles of different sizes on a piece of paper and asked to guess from memory which best matched a coin of a particular value. It was true that the new decimal coins were generally smaller than the old coins, but even so people significantly overestimated the dimensions of the old coins.7 It was as if their minds were telling them that old money bought more so it must have been bigger.
Perception of size is something we learn through experimentation as babies and toddlers. As the developmental psychologist Jean Piaget famously discovered, very young children cannot fathom how a taller, thinner beaker could possibly hold the same amount of liquid as a shorter, fatter one. At that age tall means big. Only as our cognitive abilities improve do we develop a more sophisticated understanding of volume that enables us to estimate how much differently shaped beakers will hold.
As we develop, our perceptual skills gradually improve, only for things to go awry again when money is involved. In a classic study, conducted way back in 1947, children more than old enough to understand Piaget’s liquid conservation tasks were presented with a table laid out with a series of coins and cardboard discs. The discs were identical in size to the coins, but again and again the children judged them to be smaller than the real money.8 These were children who knew the value of the coins, and this knowledge seemed to skew their perception of size. More than that, the more the coin was worth, the more their perception became skewed. An abstract concept, the store of value in coins was overtaking their sense of something more concrete – the physical size of the coins compared with the discs.
Masses of studies followed, confirming that all over the world, adults as well as children overestimate the physical size of money, regardless of the currency. And, as we’ve already heard in Chapter 1, people prompted to think about death are even more prone to this perceptual exaggeration. Not only that, but the size of the effect depends on whether or not the participants in studies are rich or poor. For example, the 1947 researchers tried out their experiment both with children in a settlement house in one of Boston’s slums and with pupils at a school in a well-to-do area. The children living in poverty overestimated the size of the coins more than their wealthier counterparts. Echoing findings I’ll discuss later in Chapter 10, their lack of money, and therefore the precious quality they attributed to it, skewed their perceptions that bit more.
MONOPOLY MONEY, THE ACCORDION EFFECT AND WHY BEING GRUMPY LIKE JEAN-MARIE LE PEN CAN BE USEFUL
In April 1983, Britain began the changeover from the £1 note to the £1 coin. The press was not keen on the idea. ‘The Pound Britain Doesn’t Want’ read a headline in the Daily Mail, dubbing the new gold-coloured pieces ‘toy town coins’.9 The economic value of the coin was exactly the same as the note. The problem was that people didn’t see it that way. They viewed and treated the two forms of £1 (which for a limited period were both in circulation) differently, as the economic psychologist Paul Webley discovered.10
Webley persuaded a group of people to allow him to examine the contents of their wallets every day for a month. He marked every note and coin with one of those invisible detective pens that can only be seen under UV light, before returning every penny to their wallets. This allowed him to track the dwell time that each coin or note spent with its temporary owner before it was passed on to someone else.
At the start of the six-month transition period, during which notes were phased out, people obviously had fewer £1 coins than notes. The new coins were a novelty, and were bright and shiny, and you might think people would be keen – for a while at least – to hang on to them. Indeed, some people in Webley’s experiment did hoard them or put them in piggy banks, but for the most part the coins had shorter dwell times than the notes.
What could Webley conclude from this finding? He had some ideas, but first he wanted further evidence. The problem with his initial experiment was that, with so few coins in circulation, it was hard for Webley’s team to collect enough data. So they tried something else. Members of the university staff were given either a pound coin or a pound note, pre-marked with the special pen, in exchange for completing a questionnaire. When the staff returned the following day for the next part of the experiment, they were asked to reveal the contents of their wallets. Half of the pound notes remained, while most of the pound coins had already been spent.
Paul Webley complains that most economists considered this finding to be of no interest.11 Like him, I think they’re wrong. Even if people were simply disposing of the relatively heavy coins weighing down their pockets, this was presumably having some impact on economic activity at the time. Pounds were being spent more readily because of their change of form.
Of more interest psychologically, the study seemed to show that people considered pounds in coin form as loose change that was more disposable. A pound note by contrast still seemed to represent a more significant sum to be used cautiously. That is surely evidence that the form money takes can change our sense of its value, which if nothing else should make central banks pause whenever they consider replacing one form of currency with another.
In the United States, feelings also ran high when an attempt was made to replace bills with coins. Dollar coins were introduced back in 2007, but the famous greenback dollar bills continued to be produced, and the use of the coins was low. By 2011, with more businesses returning than requesting them, the Federal Reserve Banks found themselves with enough dollar coins to meet the demand for the next 40 years. The Treasury ordered production to cease and now, although ticket machines occasionally spit coins out at you in change, the US is the only G8 leading economic power