Why Do People Keep Making Bad Money Choices?

The rich keep getting richer and the opposite is true as well.  At times it is easy to be frustrated watching those who struggle with finances continue to make poor financial decisions time after time, after time …  I wonder to myself, why do those who are poor money managers keep making bad money choices?

“The way of a fool seems right to him, but a wise man listens to advice.” (Proverbs 12:15, NIV)

I think we are all born with this innate sense of rightness.  This natural instinct says whatever I am doing, my approach, my ways, my decisions, are right.  For this reason people can look at a horrible financial opportunity and come away saying, ‘what a great deal.’  We latch on to one appealing component of a proposition and justify our decision.  Thus, we are often the reason the cycle of poor money managers continue.  As we recognize our weaknesses we can then develop the characteristics and the mindset necessary to become better stewards of our finances.

Photo by Olga_Dietrich

Psychology talks about the four windows or four views of ‘self’:

Things I know             Things I don’t know

The chart above was copied from The Center for Rural Studies.

1. Arena. These are things that you know about yourself and so does everyone else.
2. Blind Spot. These are things others recognize about you, but you do not see that in yourself.
3. Facade represents things you know about yourself, but you hide from others.
4. Unknown. Things you do not see in yourself nor does anyone else.  These remain hidden.

How does this affect your personal finances?

Arena. There are many more people who will admit they are poor financial planners and who will actively do nothing about it.  I recently heard a statistic that something like 90% of smokers acknowledge it is a bad habit, but only 10% are actively pursuing a program to help them quit.  How similar is this to personal finances?  Do you know you should budget, but don’t?  Do you know you should get out of debt, but don’t?  Do you know that you should stop spending, but don’t?  Do you know you should tithe, but don’t?

If you are in this category you have likely developed certain mechanisms to help you cope with the recognition that you are poor at handling your finances.  You might do some of the following:

• Rationalize that your debt is not worse than a friend’s or neighbor’s.
• Use humor to talk about how bad things are.  This way you can avoid dealing with the seriousness of the issue.
• Procrastinate by promising to deal with the issue later.
• Ignore. Don’t answer the phone or read the bills.

Here is one (of many) possible solutions if this describes you.  Recognize that the solution is the same as the problem – you. You need to make a commitment.  You need to decide that enough is enough.  You don’t need any more education because knowledge is not your problem.  You need to increase your resolve and discipline. ChipNet iBOX Plus OSX - Lector de DNI para MAC y tarjetas inteligentes, color blanco

Blind Spot. Oh, oh.  This is going to be a hard one for you.  The reason is because you think you are really good with money.  You are so smart because you reduced your credit card interest from 18% to 12% and you think you are winning with money.  The reality with the blind spot is that none of us know what it is.

Here are some things you might do if you have a financial blind spot:

• Brag about your great investments, good money management, or great purchases.
• Refuse to listen when people question you.
• No one ever suggests ideas to you.  This means either you are perfect or people think you will not listen.  Which do you think is more likely?

One possible solution – ask someone for advice.

“Plans fail for lack of counsel, but with many advisers they succeed.” (Proverbs 15:22, NIV)

Find someone you think is good with the finances and ask them if they have any suggestions about how you could manage your money better.  There is only two rules with this question.  First, you must listen.  Second, you cannot talk back or defend yourself.

Facade. This is another dangerous one.  Your personal finances are a mess.  You know it.  The bill collectors are calling.  You can’t make the payment on your house or car.  Nevertheless, you insist on buying and wearing brand name clothing to give the appearance that you are wealthy.

Here are some signs that you are just putting up a facade:

• In public you falsely represent your financial situation.
• You insist on paying for meals and other public things for others even though you really cannot afford it.
• You care more about appearing wealthy than being wealthy.
• You crave positive comments about your stuff.

One possible solution is to be honest with yourself. That you are an important and valuable person aside from what you own.  Recognize your value in God’s eyes.  Confide in a close friend.  Ask them to hold you accountable.  Educate yourself about finances.  Pray that God will teach you to be content regardless if you have nothing or plenty (Phil. 4:11)

“Your beauty should not come from outward adornment, such as braided hair and the wearing of gold jewelry and fine clothes. Instead, it should be that of your inner self, the unfading beauty of a gentle and quiet spirit, which is of great worth in God’s sight.” (1 Peter 3:3-4, NIV)

Once you address the issues that are causing your poor money management decisions you will be in a place to become a better money steward.  And perhaps then you can break the cycle where the poor keep becoming poorer.

Other Great Articles:

1. Musings About Making Money Blogging
2. Why People Who Live in Colder Climates are Better Money Managers
3. Money-Primed People Show Increased Self-Reliance and Are More Selfish