For at least 3 decades, the Financial Services industry has been dishing out money knowledge around what you should and should not do. They give you targets, tips, and graphs. They throw a ton of data at you, and suggest timelines. So after 30 years of hearing this, 50% of Baby Boomers are retiring with ZERO savings. That would suggest our industry approach is not effective (enough).
Saving Isn’t Always Logical
Daniel Kahneman won the 2002 Nobel Prize in Economic Sciences by proving there is emotion in all our decision-making. This includes all money decisions. The retail industry has known this for years, but the finance industry has been slow to accept this belief. There has always been an underlying assumption that traders, investment bankers,advisors,and our clients – YOU – are calm, rational thinkers when it comes to money. NOT TRUE.
Emotion that Derails You
Having emotion when it comes to saving and spending money is human. Some emotions help you save well. Other emotions trigger you to spend more than you’d like. Emotions can often override logic.
Kahneman talks about your intuitive, emotional side that allows you to function on auto-pilot for a large portion of the day. It allows you to save energy and not have to deliberately think about every action you take. When a significant decision is required, the logical, analytical side of your brain kicks in. So in many of your decisions, there is emotion but not necessarily logical thinking.
Let’s say you go down for coffee mid-morning . You’ve had breakfast but you buy a donut. There’s probably emotion behind even that small purchase. You may be having a bad day and need to sooth yourself. Or you may be having a good day and want to treat yourself. What you probably aren’t doing is just buying a donut.
Finance is Talking to the Wrong Brain
So if the Financial Services industry talks to us in a logical and analytical manner, but we’re functioning largely on emotion and intuition, they’re missing the mark. The industry makes us feel judged and inadequate while we just can’t figure out why we’re not able to save enough.
Several things derail even the best of us – our money attitudes developed through life; our auto-pilot behaviors we build along the way; emotional triggers, and a retail culture that conspires to separate us from our money every minute of the day.
To truly be able to manage your money well you need to know yourself, be deliberate about your behaviors, and be clear on personal goals. This series will help you examine what can derail you, and how to get on the right path. So stop beating yourself up and read on. Hope is within your own abilities.
You don’t have to be smart, or work hard to be successful with money. It’s all in your behaviors.
Related Topic: 3 Dangers When Talking Money with Your Banker
Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. Behavioral Cents, LLC and any third parties listed, linked to or otherwise appearing in this message are separate and unaffiliated and are not responsible for each other’s products, services or policies.
Carrie Rattle is Founder of BehavioralCents.com. She helps smart women build money confidence by changing their money practices for the better. Women are then empowered to make wise money decisions. As a veteran of financial services, Carrie sees a significant gap where too many experts tell people what they "should" do instead of actually helping them fit saving practices into their everyday lives. Thoughts always welcome: email@example.com.