You know the right steps to take with your money; you’re just not taking them. It could be a matter of how your brain is hardwired. ME Bank look at the brain barriers that behavioural science tells us can hold you back from making better use of your money, plus tips on how to retrain your mind to overcome the hurdles.
Think of tomorrow, live for today
As humans we experience “present bias” – the tendency to place more value on what’s happening now than in the future. Studies show, for instance, that people would often rather accept $50 today than wait six months to receive $100.
Present bias is a key reason why we can find it difficult to save. But there are ways to make it more compelling to tuck money away for tomorrow.
For a start, try visualising your future self. If you’re saving for a holiday, for instance, try pinning snaps of your dream destination to the fridge as a reminder of what you’re saving towards.
Or partner with a savings buddy. A study in Chile found people who shared savings goals with peers were 3.5 times more likely to grow a pool of cash than those who attempted to go it alone.
More isn’t always better
If you’ve ever walked out of a store empty-handed because the sheer selection of products was overwhelming, you’ve experienced “choice paralysis”.
It occurs when the range of products to choose from is so extensive we find it hard to make a choice – and the less satisfied we are with our eventual decision, even if it’s a good one.
When it comes to financial products like savings accounts, comparison sites can be helpful in overcoming choice paralysis, narrowing down the product range according to the criteria you select.
If so many of us are uncomfortable with the shouting system, how does it survive? The answer is social pressure. Eight out of ten people either feel obligated to shout a round or don’t want to come across as tight with their money.
The key is to remember you can enjoy the company of friends without damaging your budget. Spending isn’t what fitting in is all about. And since most of your friends are probably in a similar financial situation to your own, it’s likely they’ll be grateful if you lead the way by politely bowing out from a shout from time to time.
Simply being aware of how your emotions and instincts impact your approach to money management can be the key to helping you make better decisions.
This article was brought to you by ME Bank, a bank that is 100% owned by industry super funds, including Vision Super. Members Equity Bank Limited ABN 56 070 887 679.
Under-Savers Anonymous: Evidence on Self-Help Groups and Peer Pressure as a Savings Commitment Device https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2003624