Your money behaviour, explained

By Nina Hendy

This content is produced by The Australian Financial Review in commercial partnership with MLC.
 

Can we train ourselves to think about money differently? The experts weigh in on how mindset can affect preparations for life after work.
 

Is there a reason so many of us put off planning for our financial future by focusing on short-term gains instead?

Our ability to focus on any goal – whether it’s short-term or long-term – has a lot to do with what is happening in our brain, particularly with dopamine, which is commonly known as the “reward chemical”.

Dopamine is a link to motivation, meaning when we get a dopamine hit from something we do or achieve, we feel more motivated to repeat it.

When we achieve short-term gains our feel-good reward is more immediate. With long-term goals the “reward” is further away, and may feel more tenuous, so when you are setting financial goals it is important to build in milestone rewards to keep yourself motivated and focused.

Jane Monica-Jones – Financial therapist

 

Why does our upbringing influence our financial decisions through adulthood?

Socialisation or conditioning from our childhood impacts and defines our views, values and beliefs on everything in our life, from politics and religion to sex and health, so it stands to reason that we are going to absorb a lot from what we were exposed to or experienced growing up around money.

This can be particularly tricky when we cognitively know how to budget, but have deeper issues that might compel us to overspend, gamble, risk or under-manage our money.

But just like our relationships with others and our health, we can improve our relationship with money by looking at the psychological or behavioural issues behind our bad money habits.

By unpacking our own complex history with money, we can create change by having more awareness of our stress points and triggers to do with money.

When you build good money habits you are not only improving your financial wellbeing, but also increasing dopamine levels in the brain, which is vital for good mental health and resilience.

Jane Monica-Jones – Financial therapist

 

How can we implement new financial behaviours and what are the psychological rewards that come from doing so?

Recognise that your current self is the boss of the present moment; it holds the reins. Your current self doesn’t want to exert any effort, so we need to make things simple and easy. It has a short attention span and is liable to lapses in memory and motivation, so we need to keep it on track.

Setting up an automatic superannuation contribution payment is a good example of how this can be achieved. Once it is established, little ongoing thought or action is required. In the long term, a few of these types of small actions can make a big difference.

Other behaviour changes include regularly reviewing the investment options you have selected in your super fund; or making sure as a person with a mortgage and dependants, that you have adequate life insurance to cover your death or permanent disability; or as a more established investor, that your share portfolio continues to maintain adequate diversification as your investments evolve over time.

If, having completed one small task, your current self feels that it needs a reward, feel free to give it one.

Simon Russell – Director, Behavioural Finance Australia