You, Your Money, and the Mind Games You Play
In case you haven’t caught the pattern yet, I’ve been focusing on simplifying your financial life in this In case you haven’t caught the pattern yet, I’ve been focusing on simplifying your financial life in this month’s blog posts. One powerful factor in this quest is recognizing how your own instincts can play for or against you as you make your financial way. There’s even an academic field of inquiry called Behavioral Finance that studies how our minds play tricks on us when we think about our money.
With my inquisitive, engineering background, I’m fascinated by this field of study. That’s mostly because it helps me help my clients de-stress their financial decisions. But also, it’s just pretty cool stuff. Here are a few examples, out of countless possibilities:
In a June 2013 Wall Street Journal MarketWatch article, “Thinking About Money Leads to Bad Behavior,” the author cited new research coming from Harvard and the University of Utah’s business school indicating that, “People are more likely to lie or make immoral decisions after being exposed to money-related words.”
Jason Zweig frequently covers behavioral finance in his Wall Street Journal Intelligent Investor column, and also has authored a powerful book on the subject, entitled, “Your Money and Your Brain.” Among my favorite quotes from Zweig’s book is: “There’s not much difference in the brain between having a rattlesnake slither across your living room carpet and having some stock you own go down 40 or 50 percent.
The New York Times published an article in January 2014, “You Can’t Take It With You, but You Still Want More.” Citing research published in the June 2013 Psychological Science journal, the article presented evidence that most of us have “a deeply rooted instinct to earn more than can possibly be consumed, even when this imbalance makes us unhappy.”
Carl Richards, author of The Behavior Gap, is another fantastic resource, since he masterfully combines two of my favorite financial concepts: behavioral finance and financial simplicity. As Richards expresses, “We’re emotional creatures. This emotion may make us more enjoyable to be around, but it can get in the way of our investing success.”
These and countless other evidence-based insights are well worth being aware of. After all, the first step in preventing your brain from playing financially unfortunate tricks on you, is to know what it’s got in mind.