It’s April again, which means it’s Financial Literacy month. I love that the month chosen to remind us to teach ourselves and others (especially children) about financial matters also includes the infamous prankster day. That fact never gets old.
What does get old is that the focus on financial literacy is based on the idea that people don’t know enough to be able to manage money successfully.
It’s irritating because it's the wrong premise, and we know it. That’s what makes this SNL skit so funny:
Note: I included this video in last year's post on Financial Ill-Literacy, but I can't help it. It's just so good!
The Lizard Brain Problem
Part of the human condition is that we’re all equipped with a lizard brain. This primitive structure often overpowers our logical minds with emotionally-driven impulsive behaviour and, if we don’t pay attention, leads us to make choices that cost us dearly over the long term, despite the fact that we know better.
Emotions are powerful motivators in the moment:
- Anger leads to saying things we don’t mean and doing things that we consider as out of character.
- Love makes us throw caution to the wind when our gut tells us it’s a bad idea.
- Envy makes us feel we need what others have in order to be happy.
- Regret (or fear of) makes us vow to never pass up an opportunity, no matter the cost (FOMO)*.
- Desire and jealousy makes us focus on the object of it with tunnel-vision-like intensity, which results in a loss of perspective in the process.
- Shame makes us want to address the source of the shame or deal with it in self-destructive ways.
- Greed makes us gamble by only seeing the upside of potential investments or earnings at the expense of personal relationships and long-term success. It’s often the reason we throw good money after bad or refuse to sell a money-losing investment.
- Fear makes us recoil into inaction, avoidance or force a situation toward any outcome that removes uncertainty from the equation.
- Insecurity makes us look for external solutions that will reduce the feeling or avoid situations that trigger it in the first place.
- Excitement/anticipation can lead us to act prematurely because waiting feels overwhelming.
- Power/dominance makes us hungry for more and less likely to have regard for others.
- Helplessness leads to inaction and reduced our internal drive to action.
*Note: Loss aversion is a close cousin of regret and it has a greater influence on our behaviour than the potential upside, even when the odds are in our favour.
The idea that we succumb to these emotions is vile at best. We’d rather think of ourselves as capable, rational and strong as opposed to weak, manipulated, irrational beings. That’s why advertisers and scammers/con artists are so successful. We like to believe their manipulation only works on others. Right…
Working against out natural tendencies to react to emotion requires focus and the discipline to establish habits that keeps our lizard brain in check. And, well, that’s work. Yuk!
Our aversion to putting in that extra effort explains our tendency to:
- Play Ostrich: Choose to ignore its impact on our lives.
- Play Dumb: Keep saying we need more information before making better choices.
- Act Helpless: Let others decide for us in order to avoid any responsibility for our situation.
These three behaviours are at the root of most of our financial shortcomings. For the most part, we know what we should be doing, it's just that avoidance is just so darned tempting...at least that's what my lizard brain tells me.
1. Playing Ostrich - Self-Justification and Self-Delusion
Instead of getting real about our behaviour, we’d rather ignore it. We’d rather justify our decisions as we make them, or after the fact by finding all the reasons why what we did makes sense, even to an outsider. When we see our friends, colleagues and family members fool themselves in this way, it seems so obvious to us that we wonder how they can’t understand their own behaviour—despite the fact that we’re just as fallible. The fact is:
Emotions drive our behaviour, including our spending and saving choices.
If you don’t believe this statement, please go back to the beginning of this post. I’ll wait.
2. Playing Dumb - We Just Don’t Know Better
The easiest way to avoid changing our behaviour is to play dumb. We say we never learned the ins and outs of investing, that we’re just “not very good with money” or that we’re “not good at math”.
The vast majority of people who say these things don’t actually have any problem understanding money or math. Basic arithmetic is all that’s needed to manage money. The idea of complexity only needs to come into play much, much later...if at all. (And when we get there, it’s a problem few of us lose sleep over.)
Complexity is what Big Banks want to add to the equation to keep us:
- Thinking we can’t possibly manage money ourselves - where to begin?
- Convinced we can’t live without debt and that debt is normal.
- Believing that having monthly recurring payments is just part of modern life.
- Paying more for their services.
- Coming back for more.
Unfortunately, we’re often all too happy to let them feed us these messages because:
Ignorance absolves us from taking any initiative in managing our finances.
3. Acting Helpless - Let Others Be Responsible
Yes, it’s a big, bad world out there, but how does that make us:
- Unable to read the fine print?
- Unwilling to evaluate why a deal seems to be too good to be true?
- Happier to let others make decisions for us?
- Follow others’ behaviour like lemmings when it comes to making purchasing decisions?
We’re happy to do so because it lets us be irresponsible. It we don’t have to make an informed decision, we won’t have to hold ourselves accountable when our choices blow up in our faces.
We get to play the victim with thoughts and statements like:
- No one told me.
- I didn’t know.
- I was ripped off.*
- How can they get away with that?*
- But I just did what everyone else was doing it.
*Sometimes scams and fraudulent behaviour do happen and when someone falls victim to such activity, it can be devastating. I’m not suggesting that such reprehensible behaviour is excusable. Governments absolutely need to protect the public from scammers and from consumer usury practices at Big Banks, no question. In most cases though, let’s be real: the situation does not fit the profile of a scam.
Lack of personal responsibility underlies poor financing or investing decisions.
Getting Real About Dealing with Money
Here are three steps to go through in getting real about how we deal with money.
The first step in addressing a problem is admitting we have one. In this case, it means accepting that:
We're ALL driven by emotions, even when we make good decisions.
Yes, that’s right. Even when we make good decisions.
The second step involves understanding this statement fully by identifying which of the behaviour(s) listed above is allowing us to sabotage our own personal success in managing money.
Finally, step three involves setting ourselves up for success, despite our tendency toward impulsiveness or inaction. We can do that by getting real about the biggest lies we tell ourselves about personal finance—that society supports wholeheartedly—that help perpetuate the myth that this is hard stuff and that we're doomed from the start.
Want to know what some of those lies are? Here's PART 2.