As a money coach, I firmly believe that whatever the state of their finances, everybody is just trying to do the best they can, with what they know, in the situation they find themselves in.
The outcomes may not be great, and there is almost always room for improvement. But nobody chooses to be anxious, ashamed, guilty, or regretful about their money decisions.
After reading Fixed by John Y. Campbell and Tarun Ramadorai, it’s now very clear how the personal financial system also contributes to the problem. Over time, it has evolved to exploit our biases, weaponising our own systematic thinking errors against us.
It’s amazing if you know how it works and how to use it.
But if you don’t, it will exploit you.
And together with a lack of understanding of what really drives money behaviour, this can contribute to a sense of disempowerment around money.
As you would expect, this has a disproportionate effect on the poorest, least educated, and most vulnerable members of society. This perpetuates and increases wealth inequality. And because money is still taboo, it adds weight to the perception that financial challenges are a reflection of moral or personal failure.
In effect, the system is out to get you if it can – and you will end up blaming yourself.
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But it’s not all about maths and a failure to understand compound interest.
The system runs on inertia, on shame, on people not checking the small print.
The authors organise mistakes into four categories:
→ Misperceiving a benefit — not understanding a true benefit or believing in a benefit that isn’t there.
→ Misperceiving costs — not seeing the hidden costs or fees
→ Failure to search or shop around – just taking the first offer
→ Mismanaging products once they’re purchased – e.g. failing to refinance a mortgage
In my experience, inertia is probably the biggest issue.
Forty per cent of UK adults have the same bank account their parents chose for them. What are the chances that’s still the best account for them? If it ever was.
We let insurance auto-renew without checking the price. Or we let it lapse.
Two-thirds of UK energy consumers are still on Standard Variable Tariffs, which are generally more expensive than fixed-rate deals and vulnerable to price spikes.
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So the system will exploit your unwillingness to engage with it proactively. And at the same time, we now have to make more personal finance decisions than ever before.
When we don’t know what to do, we often proceed intuitively. But in the financial context, human intuition fails.
The trouble is, in personal finance, a lot of outcomes are delayed. You won’t know that you didn’t save enough for retirement until you’re old and it’s too late to save.
You think BNPL is free credit, but not when you miscalculate your ability to make future payments.
So, often outcomes are delayed and they’re also uncertain. Was it bad luck or a bad decision?
And it’s easy to find yourself reacting to all of these difficulties by not liking to think about your finances, not liking to plan, not liking to shop around, making financial decisions intermittently, only when forced to do so, and very often emotionally.
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So what should you do?
Blaming the system is easy, but it only increases disempowerment.
Most people believe that increasing financial education is the answer. And while it’s helpful to know how the system works, the real game-changer is understanding what drives your money behaviour.
Because if you don’t believe you can do better with money, you never will. And the financial system will confirm that for you.
Don’t blame yourself – but do get help.
We use coaches for everything that we want to get good at – let’s start with a free chat.
