Financial Literacy

5 financial toxins and antidotes

Faced with the choice between changing one’s mind and proving that there is no need to do so, almost everyone gets busy on the proof.

~ John Kenneth Galbraith

I mentioned at the end of my last post that I often struggle with the knowledge-action gap. I know what needs to be done, but I don’t always do it. Why don’t I make the changes necessary to improve? Change is one of the founding principles of Balance Junkie and I wrote early on about 3 keys to change: education, effort, and perseverance.

I’ve always been pretty good at gathering knowledge, but actually putting it into practice and sticking with it has been real stumbling blocks for me. Apparently I’m not alone. Understanding Financial Behaviour is The Task Force on Financial Literacy’s Consultation Topic #3 (p.22). They are asking 3 important questions:

  • How can we help people to stop procrastinating, create, and stick with a financial plan?
  • How can we counteract the tendency to live for today rather than plan for tomorrow?
  • How can we help consumers navigate the overwhelming number and types of financial products available?

5 financial toxins that keep us from acting on our knowledge

The Task Force pointed to a number of factors that can keep us from acting to achieve our financial goals. I’ll outline these toxins here and offer a possible antidote for each:

1. Procrastination

We tend to postpone important tasks like budgeting and retirement planning. I think we may do this, at least at first, because we’re not sure how to go about it. Once we learn how to do it, we don’t always stick with it.

Antidote: One way to combat a bad habit is to replace it with a good one. Make financial planning and monitoring an automatic, regular occurrence. At first, you may want to do it weekly. As you get better at it, you can probably go monthly. Don’t forget to do a quarterly (or at least annual) review of the big picture too. And don’t get discouraged if you temporarily get off track. Perseverance can be your greatest asset. Just keep at it.

2. Inertia

As noted in today’s quotation, it’s so much easier to maintain the status quo than to implement changes, even if we know that’s the best thing for us.

Antidote: Make change a priority. Make a list of changes that you want to enact. Keep it small and simple. Just write one thing down if that’s all you can manage. Focus daily on that one goal. Stick a post-it note on your desk, bedside table, or bathroom mirror. Aim to do or think at least one thing that gets you closer to your goal each day. Check out 5 Goal Setting Guidelines and choose a strategy that works for you.

3. Choice overload

It seems like everything is becoming more complex nowadays. Financial products are no exception. We seem to have a tendency to identify a good thing and then bring so many versions of that thing to market that the consuming public becomes dizzy and disinterested. ETFs are a good example of this phenomenon.

Antidote: Choose simplicity. If you don’t understand ETFs, stocks, bonds, or mutual funds, put your money into a savings account or GIC until you learn more. And there’s no law that says you ever have to invest in any of those products if you don’t want to. Just because they offer you complex products, that doesn’t mean you have to buy them.

4. Overconfidence or optimism

Surveys have shown that Canadians feel quite confident in dealing with financial and economic matters, but measures of broader economic knowledge don’t bear that out. Apparently we aren’t quite as knowledgeable as we think we are.

Antidote: Knowledge is power. I know I say that a lot, but it’s true. We’re never done learning. If you aren’t happy with something in your life, change it. Learn about what it might take to make the changes you desire. Don’t assume there are no good answers until you’ve at least sought them out. Give your financial future the time and attention it deserves.

5. Zeitgeist

This means “the spirit of the time”; the moral and intellectual thought or feeling of age or period of time. Modern culture encourages us to live for today, in constant pursuit of the latest, biggest, and best clothing, gadgets, homes, and “stuff” in general. The Task Force suggests that budgeting might be a way for us to overcome this and control our spending. In a recent survey, only 51% of Canadians indicated that they had a budget.

Antidote: I’m a huge fan of budgeting, but I have an even simpler solution: Say NO. Refuse to buy into what they’re selling. What are they selling anyway? A better life? I wonder how many people with McMansions, designer everything, and the mountain of debt that goes with them feel happier? By all means, spend on things that truly bring you joy. But don’t sentence yourself to destitution in retirement to have “stuff” now. The future will not take care of itself. We have to do it ourselves.

Of the 5 toxins above, procrastination and inertia are my biggest problems. I still struggle with putting my plans into action.

Which toxins give you the most trouble? Have you got any antidotes to share?

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