There are numerous psychological factors that influence financial decision-making.
One of the most prominent is the fight between the current self versus the future self.
Here’s a classic example: “Do I spend my £5,000 bonus and take my wife on a dream vacation or do I save and invest it for a trip in 20 years?”
Your current self’s response: “This is a no-brainer! You clearly take your wife on a dream vacation and enjoy the moment now. Your future self in 20 years will be able to take care of himself. Plus, what happens if you don’t even live another 20 years??”
Your future self’s response: “In 20 years, you’re going to be tired of working every day and would love to have enough money to be financially independent and no longer slaving away. I’m sitting here with yourself in 20 years and you won’t stop telling me how badly you wish you would have saved more money when you had the chance!”
As you know, and as research confirms, the current self often emerges victorious in this rivalry.”
This excerpt discusses Dr. Hal Hershfield on decision-making. Dr. Hal Hershfield is the foremost authority on the topic. His award-winning research on the current versus future self has been featured in top academic journals, and he joined us to explain the battle between the current and future self, the challenges, and what we can do about it. To listen to the podcast click here
So how do you get the balance right between what’s good for today v tomorrow? Wherever possible, it needs discussion. It’s not a process you conceptualise and then decide. It’s more about speaking out loud to clarify your thinking.
In our world, we want to create a safe place for investors to talk through their thoughts and ideas. Whilst anyone can talk to anybody, it’s important to understand bias and incentives. Most wealth managers have a bias toward managing your money and a bias toward selling their own services. It means conversations are never as open and transparent as they should be.
Let’s have a proper conversation. We’ll help clarify and challenge your thinking.