Do other people's recommendations or opinions influence how you spend your money? If so, you could be overlooking facts about products and services and building up expectations that cloud your judgment. Here’s how you can avoid the so-called Tom Sawyer effect.

In Mark Twain’s novel The Adventures of Tom Sawyer, one Saturday morning Tom's Aunt Polly makes him paint her garden fence as punishment. Every child in the neighbourhood is out playing, except Tom. When a boy called Ben passes by, Tom pretends that fence painting is a "privilege" that few people have. He convinces Ben not only to lend him a hand but also to pay him for the honour of painting Aunt Polly's fence. Shortly after, more children want to join in, and Tom charges them as well.

The Tom Sawyer effect is a form of financial bias that affects how you manage your money. It follows the notion that a recommendation, opinion, or the way someone feeds you information can cloud what you think something is worth, manipulating your expectations beyond objectivity.  

Researchers at the Federal Reserve Bank of Boston conducted experiments to show how the Tom Sawyer effect changes people’s perception of value and consumption. In one experiment, a professor told his students he was going to recite poetry for 15 minutes. First, he split the class in two groups. Then, he told each student in the first group to pay two dollars if they listened to his recital; the second group, he said, would receive two dollars for that same reason. Only 3% of the first group were willing to pay, while 59% of the second group accepted payment.

The professor then said he would ultimately read to both groups for free. 35% of the first group were happy to listen, but only 8% of the second group, a significant fall from the 59%, were ready to take payment. So? The initial request for students to pay or receive money determined how they perceived the recital’s value.

The Tom Sawyer effect on your personal finances

Being informed is key to managing your expectations. The same goes for managing your finances. You might have bought something or signed up to a service because someone else did or recommended it to you. Even if you haven’t tried a product or service before, you give it a certain value that you are willing to pay for it. You could end up spending (too much) money on something you don’t need.

Investment and other components of your finances are also susceptible to the Tom Sawyer effect. You might want to invest in the stock market if you know someone who's made money from it or because of favourable market outlooks. Either way, you would be basing your expectations on information that you receive.

How to repel the Tom Sawyer effect

• When it comes to financial bias, your emotions have a direct impact on your behaviour. Recognizing that psychological, social and cognitive factors have a bearing on your financial decision-making is the first step to pinpointing them.
• You should double-check the information you receive about products, services and investments before you spend your money. Knowing facts like how much money you can borrow and what disposable income you have, as well as understanding your expectations, can help you make better decisions. 
• Some simple-but-effective techniques can help you combat the Tom Sawyer effect. For instance, drawing up a budget to keep tabs on your income and expenses, making shopping lists to stop you impulse buying, and taking the time to weigh up the good and the bad of your financial decisions. 

You should always do whatever it takes to keep your finances in check. Distinguishing between fact and opinion will benefit your financial health by helping you recognize when you're biting off more than you can chew. That way, you won’t fall victim to daylight robbery because of information you have received or expectations you have built, just like the children swindled by Tom Sawyer in Mark Twain’s novel.