Why? Because of the emotions and meanings we attach to money.
Money is still a Taboo subject. In 1913 Sigmund Freud wrote, “money questions will be treated by cultured people in the same manner as sexual matters, with the same inconsistency, prudishness and hypocrisy.”
I think his observation is still applicable today. Look at this NY Times article
Lynda Moore http://www.mymoneyseeker.com
It’s called the framing effect. We view money differently depending on the source, and what is even more interesting is we generally aren’t even aware that we are doing it.
Imagine you are walking down the street, minding your own business, when you happen to look down, and there right in front of you is a $10 note. You look around to see if you can see anyone who might have dropped it. No one is there so you pick it up and pop it in your pocket. You are probably thinking “this is my lucky day; I’ll go and buy that magazine I was looking at”. This is the framing effect in action found money you can spend on anything you want.
I can still clearly recall receiving my first week’s wages when I started working as an 18 year old. I was so excited; I had never had that much money at one time. I went out and shopped and spent most of it. My prize purchase was a beautiful white sheepskin rug.
Money mistakes; yes we all make them, but do you ever wonder why? It’s all about what is going on in our head. But you knew I was going to say that didn’t you.
This is what happens. The more we attach emotion and meaning to money, the more we lose sight of what it really means. The maths bit goes out the window. It is when 1+1 equals more than 2 that mistakes kick in.
Here are five tips to help you avoid money mistakes
1. If you are feeling emotional, don’t make important financial decisions. Sounds really obvious doesn’t it; but when you are emotional your perspective narrows and you can lose sight of the big picture. A warning here, have you tried to help someone see logic when they are in a highly emotional state? It can backfire and they dig their toes in even more, empathy and understanding is needed more than reasons and logic until they have calmed down.
2. Being stressed or tired are also not good times to make financial decisions. We just don’t think straight. Wait until the tension has eased. I remember my Mum saying, never go to bed angry as you may say things you regret later, the same applies to money decisions when you are tired you may regret what you buy. Continue reading
We went to an ANZ Economic Insights breakfast the other month to hear ANZ Chief Economist, Cameron Bagrie give his thoughts on the key issues shaping the economy and financial markets.
I like these guys (bank economists). They don’t pull any punches, they tell it like it is and for the most part, they talk in language that everyone can understand.
We heard (what we all really knew) that the USA is still precariously fiscally balanced. Cameron used the analogy of a household budget to explain, they have:
- an income of $23,000
- outgoings of $35,000
- credit card debt of $12,000
- and only $385 in savings!
As I said, precarious.
In Europe, it’s more of the same; Cameron says their economic models are basically flawed. In the Eurozone, the economic architects and power houses are Germany & France (who have not been the best of friends for the past 1,000 years). On top of that, they have differing money psychologies. On one hand Germany says, we have to save money before we spend it (makes sense) and on the other, France, which has a Balance Sheet in tatters, has just lowered the retirement age so people can get to the dosh sooner [that the govt doesn’t have]!