What Your Gut gets Wrong About Money

I’ll let you in on a little secret. My gut lies to me about money, just like yours does, because we’re human.  There are many reasons why I do what I do, but it’s not because it comes easily. If anything, it’s because it doesn’t. I am endlessly fascinated by how, why, and when our instincts might lead us astray when it comes to financial decisions. Our gut instincts are incredibly useful when it comes to survival, but they really stink with money. 

Even the oracle of Omaha himself, Warren Buffet famously said “…be fearful when others are greedy and to be greedy when others are fearful.”^[i] Instead of denying this, I embrace it. We might not be able to prevent the initial feeling, no amount of education or credentials could change this, it’s in our very nature to be short sighted. Potential ancestors who didn’t make snap judgements when threats arose didn’t get to pass down their genes. This is one of the many factors that complicate financial planning. As financial psychologist Brad Klontz puts it “… the concept of delaying gratification and saving for the long, distant future is just not something we are wired to do."^[ii]

These potentially counterproductive instincts don’t only impact on our financial decisions. Essentially, they’re optimized for quick action, not long-term consequences. The better we are at understanding and talking about when our gut could be misleading the higher the likelihood, we can take a step back to question our gut.

It’s not your fault, and it’s not even something that was well understood until pretty recently^[iii]. Our gut was designed by evolution to optimize for survival. The only legacy evolution selects for is a genetic one, the idea of accumulating things and passing things on is very new. It’s not that we should ignore our gut, it’s that there are times when we should probably question it. Fear and greed will make suggestions at different times that intuitively feel defensive but can be detrimental. If we can talk more openly about how and when our gut should be challenged, then perhaps we could help each other with decisions under uncertainty.

I truly believe that our hesitation to openly discuss money perpetuates our difficulty with it.  “This anticipatory distress may create a self-reinforcing cycle: individuals avoid financial disclosure due to expected discomfort, thereby preventing the discovery that doing so can actually reduce anxiety.^[iv]”

The more we can collectively admit that it doesn’t come naturally and are willing to explore and learn from each other’s experiences and mistakes the better. 

We needed to be able to make snap decisions to avoid danger, and thinking is very calorically expensive. These adaptations that allow many decisions to happen almost automatically, were and still are, crucial for our survival. This default mode is running constantly and is quite useful, however it is based only on the immediate. It treats stress as a life-or-death scenario happening right now which frankly is not how money works most of the time. 

Money is a tool, and we can help each other learn to use it better. Your own blind spots might remain hidden, but we can see each other’s. It’s time to stop pretending anyone is naturally good at this, let’s have open and frank discussions about why we aren’t and how we could be better.