Even as someone who works regularly in the world of financial education, I recognize that information alone is not a cure-all. Knowledge may be power, but knowing what's right, or what you should be doing, is not enough. To bridge the gap to financial security, we must put that knowledge into action.
Seems simple enough, but if it were, we wouldn't see challenges like credit-card debt and a lack of savings regularly on display. So what's holding us back?
Sarah Newcomb, a researcher for Morningstar Magazine, wrote an article that summarizes the four main factors that drive our financial behaviors. My hope is that by understanding what shapes our behaviors, we have an opportunity to improve them. Read on for Newcomb's "Four Factors of Financial Behaviors."
1. Financial literacy does matter. Good news for people like me: Financial education does have a positive impact on our behaviors. However, it's a bit of a lightweight in terms of the punch it packs. Keep reading, keep learning and plant seeds with your kids and grandkids; it does matter.
2. Be deliberate. How many times have you made snap decisions that you later regretted? If you're like most folks, there probably have been some memorable ones. (For me, several relate to cars -- but that's a story for another day.) The point is, impulsivity negatively influences your finances. You can combat the influence of impulse by relying on cooling-off periods or having discussions with your significant other/accountability partner before you make a big purchase, investment or other financial decision.
3. Craft your personal vision of the future. People with good financial habits take the long view. As someone who has been associated in some form or fashion with financial planning for the last quarter century, I know that your vision for the future provides a powerful "why?" that can keep you on the straight and narrow. Taking the time to write down your personal goals will help you shrug off immediate gratification and embrace systematic saving, spending less than you earn and prudent shopping.
4. Embrace what matters most. Shopping is a nice transition to Newcomb's final negative influencer: materialism. If "having stuff" drives your financial decisions, it follows that good financial habits may be a scarce resource in your life. Make a list of what's important to you; my guess is that list will be a lot less about stuff and a lot more about people and experiences.
While knowledge is not enough, it provides a great starting point. In 2021, resolve to keep your eye on the ball and shun the materialistic messages you're bombarded with on a daily basis. Good luck.
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