Are You Using the Right Tools To Change Your Financial Behavior?
by STEFANIE O’CONNELL on OCTOBER 10, 2014
In addition to my years of intensive conservatory training to become an actor- lying on the floor, breathing into “puddles of sound”, and delving into my innermost self to transform into everything from baby to ape– I also buckled down for some serious studies during my years at NYU and double majored in Psychology (not that acting isn’t serious stuff).
Perhaps it was that time of seeking to understand why it is we do the things we do, coupled with the introspection of my acting classes, that made me so interested in human behavior- specifically in relation to personal finances- and all it’s flaws and failures. After all, we all know (at least to some degree) what it is we’re supposed to do with our money- spend less than we earn, save, and plan for retirement- it’s the execution we struggle with. Even when equipped with all the proper information and requisite advice, consumers still resort to bad spending habits and poor long-term financial choices.
It’s the whole reason weight loss is a zillion dollar industry- there’s a fundamental human failure to successfully change behavior (not all the time, but enough of the time to continue making the weight loss industry big money each and every year).
Again, we know to avoid the fat, sugar, and caloric bombs that threaten to disrupt our waistlines– but when confronted with the donuts at work or the ice cream in the freezer, we cave consistently, unable to stay accountable to the long-term goal.
Changing Financial Behavior
So if knowledge alone is not enough to change our behavior, what is?
New research from UCLA might be able to provide some hope- at least on the personal finance front. According to a study conducted by Yaron Levi and Schlomo Benartzi, when study participants downloaded and used a financial app, in this case, the Personal Capital app, spending went down an average of 15.7%. For someone who makes $50,000/year that kind of savings can add up to $150,000 over a 20 year time frame- certainly nothing to scoff at.
So what was it about using the app that made such a difference in financial behavior? Benartzi suggests that rather than relying on knowledge or advice alone, the app provided participants with the right tool to succeed.
He likened the utility and ease of the financial app to carrying a scale in your pocket when you’re trying to lose weight. If you weigh yourself right before ordering lunch and the numbers are creeping upwards, you’re more likely to make a healthy choice in the moment. Similarly, if you see a snapshot of you’re spending while waiting at checkout and the app shows you teetering on the edge of “the red”, you’re less likely to overspend on things you don’t really need, if at all.
That kind of immediate feedback and constant reminder of your reality in relation to your greater goals is powerful- powerful enough to make some significant behavioral changes that can lead to some significant savings- like $150k.
Changing Your Financial Behavior
So what’s it going to take for you- to save more, to spend less, to fund your emergency account, to start a retirement fund, etc.?
What tools are you going to use to put your good knowledge into tangible action?