Most of us would agree, as we go through life, we make blunders, mistakes, misjudgments… In short, we all “screw up.” Nothing noteworthy here.
The issue though is, these blunders usually occur from our behavior – the way we are wired. So, when the topic of personal finance, the way we do money, gets discussed, many opinions from many personalities take center stage.
As we have done in the past, Jim Chilton, founder and CEO of SOFA – the Society for Financial Awareness – has been asked to weigh in with us on the very issue of financial blunders and how our behavior sets us up to allow these mistakes to occur.
Common Financial Blunders Made by Americans
Jim, as a financial advisor for almost 40 years, I am quite sure you have come across some real messes in your day. Tell us about it.
Answer: Sure, most of the mistakes occur from a “ready-fire-aim” mentality. I believe when people are ready to act, they do so first, because they want to. Often that want turns into a need.
However, as strong as that willpower is, what’s usually missing is enough critical information to balance out that “purchasing desire,” which slows down or delays the transaction.
Question: What would be some examples of this?
Answer: Easy. Credit card purchases. If we don’t have the money at the moment, what do we do? Pull out the credit card and still purchase the item because our desire to have it now, overrules our logic to wait until we have the money. And we wonder why our personal debt grows!
Question: You talk a lot about rationalization and justification as the two slippery slopes that keep us out of our financial reality. How and why is that?
Answer: When one chooses to do or not do something, logic usually loses out to spending. Spinning it to ourselves, justifying why we “need it” at the moment of purchase, or conjuring up some type of sensible reasoning – which later fades away, buyer’s remorse! – becomes habit-forming. Sometimes it becomes addictive behavior.
Look at our country, we are a nation of spenders versus savers, investors, or planners with our money.
Question: Give us one great blunder, besides accumulating debt, that we as Americans continue to stumble through as we age. What comes to mind?
Answer: That is easy. Not paying ourselves first. Think about this.
Are we going to stop working someday? If we have kids, are they probably to attend college or trade school someday? If we have an aging automobile, are we going to need to replace it someday? Do we all wish to travel somewhere someday?
Yes, yes, yes, yes!
How is that going to occur if we do not pay ourselves, out of every paycheck we earn?
Sadly, it won’t happen. Not setting aside money for our future wants and needs is unvarnished moronic, delusional behavior. However, that reality is ours, and it will show up somewhere down the road.
Question: So, what’s the advice you share with clients who come to you with these issues?
Answer: Two steps… First, a call to action, identify where you are currently at and how you got there.
Second, proving to these frustrated customers the “how” it occurred… behavior!
“If we always do, what we have always done, then we will always get, what we have always gotten”… new stuff, with new debt!
About the Author
Jim Chilton is the founder and CEO of the Society for Financial Awareness, a nationwide non-profit started in 1993. SOFA is dedicated to offering pro-bono community financial workshops and to ending financial illiteracy, one community at a time.