Picture of Christopher A. Hopkins, CFA

Christopher A. Hopkins, CFA

TikTok strikes again: Girl Math

Suppose that two months ago you had navigated the Ticketmaster meltdown and scored a pair of tickets to a future Taylor Swift concert for $400 each (no judgment). As the day arrives and the music starts, you convince yourself that the show was actually free since you had long ago spent the cash. What’s more, you check StubHub on your phone and see that you could theoretically have resold the tickets for $1,000 each, so you really turned a profit of $1,200. Got a headache?

Welcome to the latest TikTok craze: girl math.

The trend began this summer on a New Zealand podcast when a caller sought affirmation for spending $400 on hair extensions for her wedding. The hosts began by positing that the true cost was “only” $1.40 per inch of hair and ultimately concluded that if the hairdo avoided future regret and the need to completely restage the extensive wedding photos, it saved her $40,000.  A subsequent caller seeking reassurance for paying $330 for a dress was convinced that if worn 3 times the actual price was just $110 per wearing, and if she received 30 compliments the dress was a bargain at $11 per compliment.

The female hosts, tongue firmly in cheek, dubbed the tortured logic “girl math” and unwittingly launched a social media trend that neatly illustrates a fundamental human behavioral quirk that can lead to overspending and poor investment returns.

An economist named Richard Thaler was awarded the Nobel Prize in 2017 for his work on behavioral finance, the study of psychological barriers that cause us to make financial mistakes. While the standard theory underlying economics and finance assumes that humas are rational actors, behavioral finance focuses on the cognitive errors we routinely make that cost us money and show that our instincts are often quite irrational.

Thaler’s work built upon the groundbreaking research of psychologists Amos Tversky and Daniel Kahneman who developed clever experiments to study and document human decision making. Researchers could hardly have dreamed up a better lab experiment than girl math.

In a 1999 paper, Thaler coined the term “mental accounting” to describe how humans tend to categorize money into subjective mental bank accounts depending on the source and intended use of the funds. To an economist, money is “fungible”, meaning that a dollar is a dollar regardless of whether it was earned, received as a gift, or found in the sofa cushions. Most people, however, draw mental distinctions between $100 in salary versus $100 in “found money” like a tax refund or lottery winnings viewed as a windfall to blow on a luxury item.

Mental accounting is so common that most of us fall victim to it. For example, many people build up an emergency fund in a low-paying savings account while maintaining a high-interest credit card balance. This is clearly irrational as it eats away at net worth especially since a zero-balance credit card could be viewed as an emergency fund. Yet this situation is surprisingly common.

Girl math presents an extreme example of mental accounting. According to the most-followed TikTok influencers, anything purchased with cash is essentially free since no money left the bank account. Anything less than $5 is free. Purchases made with funds already in a Venmo account or loaded on a Starbucks card are also, you guessed it, free. If you buy a garment and later return it, anything purchased with the refund is gratis, while buying something on sale for more than 50% off represents a profit. And if you wanted to buy expensive shoes but decided not to do so, that counts as income to spend elsewhere. This is the mother of all mental accounting.

Of course, while the term girl math was popularized by 20-something females on social media, the phenomenon is hardly restricted to the distaff side or even just to Gen Z. A cursory examination of the average man cave, golf bag, or 4×4 will likely reveal artifacts of boy math. It also bears remembering that numerous studies have consistently shown women to be more successful investors on average than men, largely because they tend to trade less, remain more diversified, and exercise more patience. The most recent Women and Investing study by Fidelity Investments showed that female investors outperformed their male counterparts by 0.40% annually over the past decade.

One suspects that most devotees of the girl math fad really do understand the game and are simply trying to justify overspending they know is extravagant. But we also know that not everyone is in on the joke. According to a survey conducted on behalf of Forbes Advisor, 79% of Millennials or Generation Z has sought financial advice from social media and rank Reddit and YouTube as the most trustworthy sources, far ahead of financial advisors. Meanwhile, credit card balances have been surging and reached $1 trillion for the first time in June. In this light, girl math is not a helpful trend.

We are all subject to cognitive biases, but we can fight back. Try not to label dollars but think instead of all money as interchangeable and avoid mentally segregating funds. Create a budget on paper instead of mental envelopes, and if necessary, write down all your cash outlays to get a clearer idea of your actual spending. And try to think in terms of investing unexpected cash rather than splurging. That’s real math.

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