Why do we hate making financial decisions?

May 14, 2018
Alisson Clark
photographer: Photo illustration by Robbie Smith
Warrington College of Business

The advice to use your head, not your heart, might not be helpful after all

We make tough decisions all the time, but choices relating to money send many of us running in the other direction. The science of decision-making offers some explanations for why we do this: We’re befuddled by too many choices, content to defer to our partner, or think we don’t have the expertise to do a good job.  

Consumer behavior expert Aner Sela thought there was more to the story. His research points to another reason, driven by our stereotypes about money matters.

“There’s something that feels very cold and unemotional about financial decisions,” explained Sela, a marketing professor at the University of Florida’s Warrington College of Business. “The more we see ourselves as emotional decision-makers, the more we see financial decisions as something that’s just not for us.”  

That aversion leads us to put off things like funding a 401(k), refinancing a mortgage or managing credit-card debt, which hurts our long-term financial health. Sela and co-author Jane Jeongin Park, now with the City University of Hong Kong, expected perceptions of emotional decision-making to have a similar effect on choices in other complex areas, such as health-care. But in their study, published in the Journal of Consumer Research, the phenomenon applied only to decisions about money — and it persisted even after the researchers controlled for how knowledgeable or confident participants were about personal finance. 

“It surprised us how unique and how extreme these effects were when it came to financial decisions,” Sela said.

UF Warrington College of Business professor Aner Sela
Sela

Sela and Park’s findings suggest that the longstanding advice to use your head rather than your heart when it comes to money might be counterproductive if it causes people to avoid those choices. 

The good news: study participants were less likely to avoid financial decisions when those exact same choices were reframed as decisions about their lifestyle. That’s a hack you can use to tackle a money matter you’ve been putting off. Try to picture the pleasant outcome you’re creating down the line, not the icky decision facing you right now, Sela says.

He also suggests that just acknowledging the forces at work on us can help us overcome them. Knowing that our reluctance has more to do with our perceptions than our abilities can help us move beyond our financial foot-dragging, Sela says.

The study’s insights could also help employers, policy-makers and financial-product providers present information in a way that makes us more likely to engage instead of run screaming. Sela points to Twine, a financial-planning app for couples, as an example of a warmer approach. 

“It treats the whole thing as a game, encouraging couples to think about how they would like their life together to be in the future,” he said. “Those types of products or interventions can really go a long way.”

[Audio transcript: When we think about financial decisions, what is different about those decisions? People often neglect to choose a 401(k) option or options just because it's complicated, there's too much information. Some people tend to avoid financial decisions because they let their spouse or their partner do that, and there's this polarization and specialization. When you think about it, those things are clearly valid explanations, but we felt that there was another piece of the puzzle. We started with this intuition that there's something that feels very cold and mechanical, almost inhuman, about financial decisions and you think about a stereotype of Ben Affleck playing "The Accountant" — you know, somebody who is emotionally almost dysfunctional or are you know like "The Big Short" and "The Wolf of Wall Street." And of course that's a stereotype, but that stereotype exists in our culture and we all can relate to it in some way. So what we found the research was that people indeed associate financial decisions with a very cold and analytical way of thinking. We measured people's individual perception of their thinking style but we also manipulated those perceptions in several experiments where we led people to think of themselves as either people who tend to use emotions more or less. And the more people perceived themselves as warm-blooded creatures who occasionally rely on their emotions and let their emotions lead them, or intuition, in many life experiences, the more they will tend to see financial decisions as something that's just not them, that's just it's not the kind of person that they are. We expected to find to find these effects for financial decisions but maybe also for other some other types of decisions. I think about medical decisions. People perceive those decisions as equally or more complicated than financial decisions, decisions that require just as much and probably more specialized knowledge. Those decisions should be perceived as more difficult but we found that people do not have those stereotypical perceptions about those types of decisions though in our studies. We, you, know we measure people's confidence in making financial decisions or their perception that they knew or didn't know enough about those things and we controlled for these things. And we found a very significant effect of this perception of thinking above and beyond how much I think I know about financial decisions, how much experience I feel like I have making financial decisions, how much I like or dislike using numbers, which we thought, I mean, maybe that's that's all it is. Turns out it wasn't. You know we are constantly exposed to that message that we should keep emotions away from financial decisions. And there's probably some truth to that. But there is a point beyond which this message itself you know becomes harmful if it keeps people away from financial decisions. Adding a little bit of human warmth to a financial decision or framing it as less intimidating — people then feel less alienated if people realize it's not because I don't know enough about it, it's just because it has that stereotype, can that motivate me to try to overcome that, realizing that it's really — it may feel like it's, "I don't know. I don't want have anything to do with it," but if I if I understand it's really just these stereotyped perceptions — just realizing, you know, "It's not me, it's not my fault, it's in the culture. But I can overcome this. It's not fate." That's one thing. And the other thing is really trying to think about "Why I'm doing this?" So HR called me and said, "Heym I need to you need to choose a 401(k) option." Thinking about in terms of, "What do I want to achieve in life? What's important to me? What do I want my life to be like when I retire?" Those kinds of things, rather than making choices among options that I just feel have nothing to do with me. So even if it can improve people's or increase people's engagement by only a few percents, it's worth it.]

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