Dumb things we do with money
The emotional side of our brain often gets us in a financial fix.
You’re not stupid. So why do you do things like splurge on yourself to punish your spouse, drain your bank account to bail out spendthrift kids, or pay high interest on credit card debt when you have the savings to pay it off?
- Bing: Dumbest money mistakes
The brain is a funny thing, says a post at CBS MoneyWatch.com, and an oversized part of it is often getting the best of us and our money. Writer Kathy Kristof turned to psychologist Brad Klontz for some analysis. She writes:
A financial psychologist, Klontz says that when it comes to money smarts, size matters: The logical part of your brain is so much smaller than the emotional side that it’s like “a circus performer riding an elephant.” To make smart decisions about your finances, you need the logical side to dominate.
Her post describes nine dumb things we do with money when emotions get the best of us. Among them:
Letting a “sale” price influence purchasing decisions. Two TVs have a purchase price of $500, but one is marked down from $800. You buy the one that’s on “sale” because you assume it’s a great value. Even worse, you weren’t even in the market for a new TV AND you can’t afford one. One solution is to do your homework first.
Indulging in “take that” spending. Remember that expensive trinket you bought because your spouse ticked you off? New York psychologist Bonnie Eaker Weil gave this behavior a name: POP (pissed-off purchases) spending. Let a friend, rather than your credit card, console you.
Ruining your finances to help your adult children. Kristof calls this “parental martyrdom.” Klontz calls it “financial enabling.” If you’re going to help out, set limits and stick to them.
Compartmentalizing your money when it makes no sense. That is what’s going on when you can’t bring yourself to pay off credit card debt with money from your healthy savings account. Sure, you need an emergency fund. “But,” Kristof writes, “if you’ve got considerably more savings than debt, there’s no excuse.” (Don’t touch your retirement funds.)
Hoarding money. Apparently this irrational behavior more commonly afflicts those over 53 or so, when financial acumen begins to decline. (I can identify with this.) You won’t spend money because you’re afraid that you’ll run out. If that’s the case, ask a financial adviser to assess your situation. The truth could set you free to indulge yourself and those you love.
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