If you’ve been making excuses for your lack of financial resolve, science may have your back: Believe it or not, researchers have identified a gene that could determine whether you’re good or bad with money. Specifically, the discovery has to do with self-control — or how some people are better able to resist temptation to make sound financial decisions.
Money picture from Shutterstock
According to a new report from Chase Blueprint, “Born to Spend? How Nature and Nurture Impact Spending and Borrowing Habits”, a specific section of the human brain lights up when we face a choice, such as, say, spending on something that we know we shouldn’t.
“Only 25 per cent of us are born with the ‘good’ variant of that gene,” says report author Dr Hersh Shefrin, a professor in the finance department at the Santa Clara University Leavey School of Business. “Some people are simply better than others at self-control, and neuroscientific studies have shed light on why this is the case.” (Note: These annoying people are also more immune to office birthday cake and mid-afternoon sugar binges.)
But before you run off to get your grey matter tested, you should know that research also shows that, in this arena, nurture trumps nature — every time. In other words, there are proven ways that you can trick your brain into being smarter about money. Not convinced? Test out a few scientifically proven strategies to be a better financial version of yourself than you ever thought possible.
Adopt a New Mantra
How It Works: For this exercise, you’ll be using the help of a fancy scientific term known as a “heuristic”, which is essentially a rule of thumb that you live by to make decision-making easier. You probably already have many money heuristics that you abide by every day — whether you’re conscious of them or not.
Some examples: “I only buy used cars”, “always take your tax return to the bank” and “I deserve to shop online after a hard day at work”. As you can see, some heuristics are better for your finances than others.
Why It Works: If you’re conscious about adopting helpful heuristics, they can be powerful enough beliefs to override bad money behaviour. Case in point: “Banking raises, if it becomes a habit, helps us avoid being tempted to spend the money, when we’d rather save it,” says Dr Shefrin.
If you have bad money habits that you’d like to improve — from getting zinged by bank fees to overspending on gifts — come up with a specific heuristic to help you combat each one. Psychologists have found that we tend to feel poorly about ourselves for breaking the rule, even if we created it. Weird but helpful.
Make Saving a No-Brainer
How It Works: In an experiment called Save More Tomorrow, employees were asked to save more for retirement by voluntarily increasing contributions by a set amount every few months. The results? Over the course of 28 months, the average participant’s savings rate jumped from 3.5 per cent to11.6 per cent.
Why It Works: By having the money come directly out of their pay, before it hit their bank accounts, the participants never missed the money. Essentially, they bypassed the portion of their brains that loves temptation and activated the slow-thinking region that promotes self-control.
While they could opt out of upping their contributions at any time (so they didn’t feel trapped), what happened instead was a phenomenon called “status quo bias”. In layman’s terms, it’s a tendency to keep doing what we’ve always done. In this case, it benefited the people in the experiment, because they continued to participate in the plan.
You can also apply this bit of trickery to any savings goal. Simply pick a start date, set calendar alerts for set times when you want to up your contributions, and then sit back and watch your balance grow. Certain banks and brokerages will even automate the process for you by letting you program a percentage amount by which you can increase your contributions over time.
Pick a Plan and Stick to It
How It Works: Have debt to pay off? There’s a way to outsmart your brain here too. In another experiment called Borrow Less Tomorrow (it came to be after Save More Tomorrow was such a smashing success), people with debt were put on a three-pronged program to help them pay down their balances.
First, they met with a member of the program’s staff who advised them on several different repayment strategies, including “accelerated” plans that would up the amount that they paid off by a little each month. Then they corralled a buddy (or three!) who’d send them monthly reminders to keep them on track. At the end of 12 months, 51 per cent of the people who’d adopted a debt repayment plan were on track — and 41 per cent of them had used an accelerated plan to pay down their debts faster.
Why It Works: Researchers chalk the success up to three factors: choosing a particular plan, committing to the idea of allocating a certain amount to repayment each month, and engaging peer support (read: those telephone or email reminders from friends). Once again, effort trumped any underlying genetics: “Good habits do end-runs around the parts of our personality that give in to temptation,” explains Dr Shefrin. It’s easy to emulate this on your own: LearnVest’s Money Center allows you to set a financial goal and then calculate how long it will take to reach it, depending on how much you put towards that goal each month.
Spend on Your Best Self
How It Works: To make your money behave the way you want it to, you need to first decide who you are and then make your budget obey that identity. Perplexed? Let us explain.
It can be hard to just “save” blindly or “not spend so much” when you don’t have a larger goal driving you. But if you’re someone who believes that providing for your children is important (like this mum, who says paying for her daughter’s college is her ultimate financial goal), you’ll be a lot more likely to make financial decisions align with your principles.
Accomplishing this is a cinch: You can break down your budget into three essential categories based on the 50/20/30 rule — but you have free will when it comes to creating and naming the folders that describe your saving and spending. So if owning a house is important to you, designate a “dream home” savings folder. If being physically fit is your top priority, christen an exercise savings folder to reflect that goal.
Why It Works: “If we identify ourselves as responsible, and take pride in living up to the virtues associated with that identity, then we activate reward centres in the brain associated with goal achievement,” says Dr Shefrin.
The other helpful factor: Humans have a desire to see themselves in a certain light, and we’ll reject anything that conflicts with that reality. It’s a phenomenon known as identity reinforcement theory. In other words, you can override bad money behaviour by adopting good habits that reflect the person you really want to be.
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Carrie Sloan is the editor in chief of LearnVest. She came from AOL, where she was the Editor in Chief of Lemondrop, a website for 20- and 30-something women with 4+ million readers a month. She was the founding online editor of yourtango.com and has been on staff at Budget Travel, Marie Claire, Mademoiselle and Seventeen. Her work has appeared in Cosmo, ELLE.com, Martha Stewart Weddings, Real Simple, Women’s Health and the New York Daily News, and she has been featured on the CW11, ABC, MSNBC and the Today Show. Carrie lives in Brooklyn with her husband, her daughter and their fuzzy dog, Ruggles. Follow Carrie Sloan on Twitter: @CarrieSloa