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Page 8 The Skanner Portland & Seattle October 31, 2018 Financial Literacy Why We Hate Making Financial Decisions – And What to do About It By Aner Sela The Conversation he advice to use your head, not your heart, might not be helpful after all. We all make tough de- cisions, but choices relat- ing to money send many of us running in the oth- er direction. Unfortu- nately, ample evidence indicates that aversion toward financial deci- sions leads many of us to put off things like fund- ing a 401(k), saving at a sufficient rate, or just do- ing a better job managing our credit card debt. All of these things can hurt our long-term financial health. Economists and be- havioral scientists have proposed several expla- nations for this phenom- enon. For example, finan- cial products are often quite complicated, and we may feel we lack the necessary expertise. We may be overwhelmed by too many choices — such as when picking mutual funds to put in our 401(k) portfolio. But as valid as these reasons may be, my co-author Jane Jeongin T Aner Sela is an associate professor of marketing at the University of Florida, which provides funding as a founding partner of The Conversation US. Park and I felt that there was more to the story. Money matters I have an MBA with a concentration in finance and a Ph.D. in business, yet I still hate dealing with financial decisions. Whenever I get a state- ment from my bank, my instinct is to shove it in my desk drawer. Clearly, knowledge re- garding financial prod- ucts or subjective per- ceptions of competence do not explain this type of behavior very well. What is going on here? Our research suggests that the culprit might be our stereotypes about money matters. We dis- covered that people per- ceive financial decisions — more so than decisions in many other equally complex and important domains — as cold, un- emotional and extreme- ly analytical — in other words, as highly incom- patible with feelings and emotions. This may not be sur- prising considering how media gurus routinely caution people against allowing feelings to get in the way of our per- sonal finances, and how popular culture often portrays Wall Street and other financial profes- sionals as “cold fish” who are morally and emotion- ally apathetic. Emotional thinkers Consistent with this notion, we conducted several studies to exam- ine how people’s percep- tions of their own think- ing style might influence their tendency to avoid financial decisions. In our initial study, we asked about 150 people to fill out an online survey, which involved several sets of questions. First, we asked about their tendency to rely on emo- tions in decision-making generally. We then tried to ascertain their ten- dency to avoid decisions in a range of domains, such as finance or health. We also asked specific questions reflecting en- gagement in everyday financial decisions like, “Do you read your bank statements?” or “Have you ever tried to fig- ure out how much you needed for retirement?” Finally, we looked for evidence of financial literacy with questions like, “Do stocks or bonds normally fluctuate more over time?” We found that the more people perceived themselves as emotion- al thinkers, the higher their tendency to avoid or neglect their personal finances. For example, people who ranked high on emo- tional decision-making were less likely to have ever tried to figure out how much they needed to save for retirement, read financial statements, or know the fees and inter- est rates on their credit cards. Interestingly, this rela- tionship did not extend to decisions in other areas, such as buying clothes or making health care deci- sions. It was also unrelat- ed to respondents’ finan- cial literacy or feelings of competence. In four more separate studies, we led half of the participants to view themselves as emotional decision-makers and the others as more analyti- cal. We found that when people were led to view themselves as emotion- al decision-makers, as opposed to analytical, they became more likely to avoid tasks in which they had to engage in fi- nancial decisions and in- stead preferred to work on other tasks that were equally difficult and time-consuming. They were also more likely to decline our of- fer to participate in an educational workshop on personal finance, which could potentially improve their financial well-being. In other words, our studies show that the more people perceive themselves as emotional beings, the more they feel alienated from money matters. This appears to be because they perceive the type of person they are — warm, emotional — as incompatible with how financial decisions are made – cold, unemo- tional. A lifestyle hack So is there a way to get around this problem? The good news is yes. We found that study participants were less likely to avoid financial decisions when those exact same choices were reframed as decisions about their lifestyle. For example, in our survey, when we asked participants to think about choosing annu- ities for their retirement portfolio as “a decision about your life in re- tirement” instead of “a decision about financial investments for retire- ment,” seeing themselves as emotional thinkers no longer resulted in deci- sion avoidance. That’s a hack you can use: try to picture the pleasant outcome you’re creating down the line, not the icky decision fac- ing you right now. These insights could also help policymakers and other in ways that make us more likely to engage — instead of run screaming.
