Understanding your personal finances and choices is the key to boosting your financial wellbeing, according to a new book.
In her book ‘Good Money’, behavioural scientist Nathalie Spencer explores why so many of us avoid facing up to our finances, why we spend on so much stuff that fails to make us happy, and what we can do to take back control of our finances.
She said: “Behavioural science is about understanding our human nature. The first step to financial wellness is self-awareness. When we learn more about how we behave when it comes to money, we can unpack how we make our decisions and start to change them for the better.”
The book guides the reader through a series of 20 practical lessons, based on Nathalie’s extensive expertise in behavioural science, using a unique visual approach. It examines the common yet subconscious behaviours that drive our financial habits and provides tools you can use to boost your financial wellbeing.
Nathalie said: “There are subsconcious things we do every day that could be having a negative impact on our financial wellbeing. For instance, contactless payments are now so easy we can rack up money on our cards in a mindless way. When we acknowledge that we are doing this, we can think about what we can do to stop spending on autopilot.”
She says the difficulty so many of us have with saving for our retirement could be overcome if we understand the psychology behind it.
She said: “It’s really hard to start saving for the future, because in our minds it is so far away. We think ‘it’s not me, it’s the future me that I’m saving for.’ Humans are very focused on the here and now, it is hard to sacrifice spending now for something that seems a long way off.”
Nathalie believes that one answer to this problem is to improve the emotional connection you have with your future self. She points to research by psychologist Hal Hersfield which revealed that when people are confronted with their ‘future selves’ they experience an emotional sense of connection that can influence long-term financial and ethical decision-making.
Hershfield did an experiment in which a group of college students were shown images of their own faces digitally altered to appear 40 years older. A second group of students was shown unaltered images of themselves. Those who were shown pictures of themselves looking older said they would save 30 per cent more, on average, than the students who saw pictures of their current selves.
Nathalie said: “That emotional connection with our future selves can have a powerful impact on how we choose to manage our money now.”
When it comes to ethical investing, she says many more of us would align our money with our ethical values if we had a better basic understanding of our finances.
She said: “Many of us have our head in the sand when it comes to money and we’re scared to look. Ethical investing has huge benefits, and there is an increasing desire from people to make their money do good. However, ethical investing requires making a conscious choice to put our money into funds which benefit society and the environment. Therefore, we must first have a sense of what we are doing with our money generally.
“The best start is to truly understand our financial position. This doesn’t mean micro-managing and getting bogged down with it, just knowing where our money is and how we are spending it. We can then start to make more informed decisions on where we want to put our money, and how it should be used.”
In her book, Nathalie combats the myth that financial wellness is something only people on higher salaries can achieve.
She said: “It’s not just people on low incomes who struggle with their finances. Often there is an idea that low income families must have poor financial wellbeing. In reality, lots of high-earners live way above their means and are truly struggling with money. They would be at risk if their circumstances changed. If you aren’t on a high salary, you can still understand your finances and choose to spend and save your money wisely.”
Nathalie’s biggest tip for those who want to obtain financial wellbeing is to have self-awareness when it comes to money.
She said: “When you have self-awareness, you can design your situation to really help yourself out. For example, if you are regularly missing credit card payments which is leading to fines, you could set up a direct debit so you aren’t caught out. If you are guilty of spending to the last penny on your current account every month, try putting some money aside at the start of the month so it isn’t available to spend on things you might not need.”
She also says it is crucial to start thinking about your future as early as possible.
She said: “It’s so important to start saving as early as possible. Even if you think it’s too late, now is better than later!”
Nathalie is a behavioural scientist at Commonwealth Bank of Australia. She explores financial decision-making and how insights from behavioural science can be used to boost financial wellbeing. Prior to CBA she worked in London at financial institution ING where she regularly wrote for eZonomics and at insurance group RSA where she co-authored Wired for Imprudence: Behavioural hurdles to Financial Capability.
If you would like to find out more about how you can improve your financial wellbeing, you can buy Nathalie’s book Good Money from Amazon.