Bad with money? Blame your brain

Part 1 of our 3 part series on personal finance management

Sjors Timmer
Sep 11 · 7 min read

We all know the story. It’s barely halfway through the month and our bank account is already spiraling rapidly towards zero. We blame ourselves, we tell ourselves we will do better next month, but next month arrives and it’s the same old story.

That this happens to us is no surprise. Our brains evolved during a time when little counting was needed and when calculating compound interest was still millennia away. Behavioral economists have been researching the way our mind misjudges financial challenges, and found that the ways we do this are predictable, to a large extent. Not only our flaws are predictable; also the art and science of effective personal finance management is a domain well understood. What’s currently missing are widely available tools that help us bridge the gap between what we want and what we do.

Every euro you spend is a vote for the life you value.

The challenge of personal finance is to balance what you value in the short term with what you value in the long term. To do this, you have to answer two questions simultaneously. 1) Is this action the most valuable way to spend my next euro?; and, 2) Given all the money I will make in my lifetime, am I spending most of my money on what I value the most?

Why we’re bad with money

🥰 Value is determined experientially

⛹🏽‍♀️ Value is determined in relationship to other things

🧮 We pretend we can do bookkeeping in our heads

These challenges highlight how hard it is to assign a monetary value to experiences, and to keep track of them. It’s therefore no surprise that we keep on wondering if we should have spent our money the way we did.

Loss hurts

💳 We embrace technology that hides the pain of paying

📊 We make bad investment decisions (or none at all)

Even when we convince ourselves that investing is the right thing to do, we’re still likely to sell when the markets fall — and buy when everyone around us cheers. One bank that ranked their clients from most to least successful investors found that those who forgot they had investments outperformed everyone else [5].

👴🏼 If it were up to us, we wouldn’t save for retirement

When loss aversion helps us to make better decisions we use technology to ignore it, and when it would be a good idea to ignore loss aversion and to take care of our future, we let it speak too loudly.

It‘s hard to decide what something is worth to us in the future

🔭 The further away the event, the more abstract our imagination

🔮 We can’t feel the future


Stay tuned for parts 2 and 3 of our 3-part series on personal finances. In our next installment, we take a look at how to address some of the complex psychological issues around money that humans get hung up on. Once we figure out how our personal values can align with our finances, what are the practical steps we can take to put this partnership in motion?…

1, 2, 3, 4, 5: Dan Ariely, Jeff Kreisler, Small Change: Money Mishaps and How to Avoid Them
6, 8: Richard H. Thaler, Misbehaving: The Making of Behavioral Economics
7: Yaacov Trope, Nira Liberman, Temporal Construal

Sjors Timmer

Written by

Senior UX designer. Interested in the space between words and things.

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