Ah, March. So close and yet so far from the shiny new start of the year when we were all promising ourselves that THIS year we’d be good with our money. By now, most of us have blown it on at least one useless thing (is Bubble Tea really useless though?). But WHY have we done that? Why have we lost sight of what we wanted to achieve with our money resolutions this year? We spoke with former Sydney Swan turned investment and behavioural economics expert, Ted Richards, to shed a little light.
Why Do We Fail?
In a nutshell, it’s because we’re programmed to make our decisions, including the ones about money, on a few ingrained biases and by taking mental shortcuts.
“Our biases cause us to jump to certain conclusions and sometimes this can cause us to pay to much for something, not save enough money, rack up credit card debt or block out the fact that one day we need to retire (and should be saving now),” explains Richards.
So why do we have a such a teensy three month limit on holding strong to our money resolutions? Because we kind of gave up, plain and simple.
“You can only overcome your mental biases for so long. Knowing that there’s a growing amount of money in your savings account can be too alluring for some to ignore,” he says.
What Are The Biases?
Yeah cool, biases. But what does that even mean? Richards says the main things affecting your mney choices can be broken down into three main categories.
Present bias – “We’re more likely to choose benefits now than benefits that may come in the future. It’s part of the reason credit cards can be so tempting.“
Recency bias – Recent events and headlines on the money situation can kind of freak us out which often leads t us making incorrect and rash decisions.
Anchoring – “Often we put too much emphasis on the first piece of information we see, and retailers know it. Retailers anchor us to an inflated higher price, then discount the price so we feel like we’re getting a lot of value. It’s just a trick to encourage us to buy things we don’t need.“
How Do We Fix It?
Don’t worry, a few little mind tricks can help change your automatic thinking around money and help get you back on a savings path.
“Once you understand how your mind works, you can put tactics in place and almost trick your mind into working WITH you, instead of against you,” says Richards.
“Chop up your credit card and transfer your savings into a bank account you don’t look at. You’ll always be tempted by new things, especially if you’re following your brands on social media, so make it harder to act on those motivations.“
“Try not to pay too much attention to market noise [and] don’t be fooled by advertised sales and discounts on price tags. Question whether or not they provide real value, or whether it’s just marketing to tempt you to buy something you don’t really need.“Image: Arrested Development