Barriers, Behaviors & Biases, Oh My!
Barriers, Behaviors & Biases, Oh My!
In my practice, the number one thing I find people often need beyond a financial plan is confidence-building coaching, emotional support, and accountability to their own money.
I ask questions like:
- Are you saving enough?
- Are you getting into too much debt?
- Are you overspending?
- Are you risking disaster by not having the right insurance?
- Are you trying to retire too early?
- Are you taking Social Security too early?
- Are you overlooking what could go wrong?
Fraud, business failure, divorce, disability, natural disaster, an economic meltdown, and, as we have learned—even a pandemic are just a few unexpected situations to plan for.
Many psychological elements go way beyond what you might think a financial advisor normally does.
I sometimes even act as a therapist.
As an advisor, I am trained to look at financial markets and decisions objectively, so I can guide my clients through negative emotional reactions such as fear, shame, or greed that may come up when discussing—or avoiding discussing—money.
This anxiety-heightening atmosphere can affect your ability to make rational financial decisions.
Money Behaviors
In addition, your attitudes toward money also play into it.
Do any of these money behaviors describe you? Review this list of money behaviors and think about which influence how you make important financial decisions.
- Money Silence — let’s just not talk about it
- Money Shame — having feelings and making statements like …
- I’m ashamed of my debt
- I haven’t saved enough
- I have made stupid mistakes
- I have loaned money I am never going to get back
- I can’t seem to control my spending
- The self-shaming list goes on and on …
- Contagious Attitudes — ”everyone does it” — such as taking student loans, keeping up with the Joneses, or you feel like you’ve got to have crypto or the hottest meme stocks
- Avoiding Unpleasant Topics – ESPECIALLY extremely unpleasant and unlikely but absolutely ruinous things like disability or premature death
- Living For Now — paying too much attention to NOW and not your FUTURE.
- Underestimating Your Longevity — this is probably the top blind spot that people have when planning to have enough income to last throughout their retirement
- Sunk Cost Fallacy —This is the tendency to continue a course of action even when stopping it would be more beneficial. Because of investing time, energy, or money, you may feel that it would all have been for nothing if you quit so you continue throwing good money after bad and compounding the mistake.
- Bad Decisions — making bad decisions and/or non-decisions.
- Needs vs. Wants — Can you spot the conflict between what you want and what is best for you?
My clients always answer “yes” to at least one of these behaviors.
There is no guilt or shame in owning up to them. Admitting this is the first step in letting them go.
What’s important is recognizing how they have affected your financial goals so you can change them to empower yourself to make more positive decisions moving forward.
Confirmation Bias
Another question to ask yourself is do you have any confirmation bias that could cloud your judgment to make fully-informed decisions?
For example, take someone listening to a colleague bragging about the latest hot stock.
They may feel anxious about missing out and decide to do some research on their own.
As they search the internet for validation, their mind may be picturing the possible impact of this stock and how they may be perceived if they don’t get in on the deal.
This person may let fear and greed creep into their research process, and it could affect their ability to spot red flags or stick to their investment strategy.
Confirmation bias works subtly inside the minds of people striving to make decisions that bring them close to their goals. Even in people who spend time analyzing the cons as well as the pros of a decision, confirmation bias may give more weight to the pros if there is already a preconception in favor of it.
Or, to put it simply, it may cause us to discredit information that doesn’t already align with our beliefs. This is a potentially harmful mindset where finances are concerned.
Overcoming confirmation bias doesn’t necessarily mean abandoning your preconceived opinions; it means recognizing how your bias may lead to making harmful decisions in any aspect of your life.
When gathering and analyzing information, try to find opinions that don’t conform to your beliefs and aim to understand why.
This may involve inviting people who don’t share your opinions to give you their views without arguing yours. Just listen and evaluate.
The same can be done by reading articles by people with different views.
Trying to work through the thought process rationally without fighting opposing views is a good place to start.
Additional Resources:
Fast Financial 101: Is It Time For A Money Mindset Makeover?
How to Stop Subconsciously Sabotaging Your Financial Goals
Don’t Let Past Financial Decisions Dictate Your Future