Why we make bad financial choices -- even when we know better | Your Money and Your Mind

Transcriber:

"Always wear sunscreen."

"Eat a balanced diet."

"A penny saved is a penny earned."

You probably all learned these lessons as a kid,

maybe from your parents,

or if you grew up in the '80s, on the public service announcements

at the end of every episode of the G.I. Joe cartoons.

But chances are, despite knowing this,

you still stepped outside without putting on sunscreen,

devoured an entire bag of chips in one go

or spent way more of your paycheck than you anticipated.

So why is that?

[Your Money and Your Mind] with Wendy De La Rosa

A few years ago, two Yale professors coined the term "G.I. Joe fallacy"

to describe this very phenomenon.

It's the mistaken idea that knowing is half the battle.

But as it turns out, in most situations,

just knowing something is not nearly enough

for you to put it into practice.

Information doesn't always change behavior.

As a behavioral scientist helping families make better financial decisions,

I've seen people struggle to save money,

to cut back on their expenses or to manage their debt,

even after they've taken a financial literacy class.

And the reality is that people fundamentally know

what they need to do to improve their financial situation.

We all do.

The equation is simple: they need to save more and spend less.

But the thing is, that's just really hard to do.

It's easier said than done,

and I've been in this boat as well.

So for example, I had a magazine subscription

that I knew I should just cancel.

I never read the magazine,

and every month, money was coming out of my checking account,

and every time I reviewed my budget, I saw it,

I knew I had to cancel it, but I didn't.

It took me two years to cancel that magazine subscription.

And I'm sure I'm not alone.

You probably have some type of subscription

that you know you should cancel.

So the critical piece in all of this is to get rid of this belief

that financial security is just a problem that we can teach away.

In the US, for example,

we spend nearly 700 million dollars every year on financial education programs,

yet a team of researchers have found

that these programs explained only 0.1 percent

of the variance in financial behaviors.

Not zero, but pretty close to it.

Meanwhile, 20 states mandate financial literacy classes in high school,

but studies have found that unless these programs are well-implemented,

they are unlikely to have any effect on a student's future credit score

or their likelihood to invest.

A more significant predictor of how well you manage your finances

is your general ability to do math.

From all of this, I've learned that behavior change

is not an educational pursuit.

It's an environmental one.

If you are struggling,

it's not because there's something fundamentally wrong with you.

It's most likely because there is something wrong

with how your environment is set up.

Look around you.

The cues to spend money have gotten smarter,

faster and more efficient.

Targeted ads are becoming more personalized,

corporate content is becoming more engaging,

and everything around you is focusing on spending.

So let's change that.

You can reshape your environment and how you interact with it,

and I can guide you through it.

Over the course of this series,

I'll take you through a step-by-step look

at how you can change your environment

and regain control of your finances.

At the end of every episode,

I'll share practical tips based on research

on how to spend less and save more today --

not tomorrow, but today.

And your future self will thank you.