financial planning: Why you should not judge bad money habits, decisions of others

We regularly encounter people who make what we would call stupid financial decisions. Someone bought DFHL stock yesterday, hoping to make a quick buck; someone borrowed to buy a third house at a high price and increased their EMI; someone withdrew money with their credit card. etc

The theory and concepts of personal finance are not complex. They are not beyond the comprehension of ordinary people who have to make financial decisions. But many are not able to put this theory into practice. They know they need to stabilize their income; but they left their jobs in a hurry. They are aware that they must spend within their means; but they splurge impulsively. They told themselves several times that they had to save; but they don’t start. They like the idea of ​​investing regularly; but their money remains unused.

How do you behave with such people? Many choose to be rude. Don’t you know, they are shrinking. Shaming someone who has bad financial habits is very common. It seems obvious to others that bad financial decisions are made because the person making those decisions is ignorant, stupid, or grossly misinformed. But that may not be the case.

Those who make bad financial decisions may actually know they are stupid. But their motives are different. As Atticus tells Scout in To Kill a Mockingbird, you have to step into the other person’s shoes and walk in them. Empathy can make all the difference.

Those who returned home hundreds of miles last year, refusing to stay in camps and settlements for migrants, made a heartfelt choice. In a situation that seemed scary and where there was likely to be no job or income, staying close to family mattered most to them. They made the decision not to leave their families to suffer alone. Whatever the situation, they would be there together. We did not see their need; we still fail to recognize their situation without income. Empathy is hard.

A day laborer who buys lottery tickets is well aware that he cannot win after all; the gambler who gambles his small winnings over and over again knows the odds are stacked against him; the novice day trader who has taken up trading full time knows that the markets can turn against him. They all act out of desperation. Their motivation is the realization that there may be no other way to get rich. In their minds, it takes a miracle to propel them into the league of the rich and they believe miracles can happen. No one sympathizes with the bettor.

While offering financial advice and encouraging households to develop healthy savings and investment habits, it is important to show empathy. Putting yourself in the investor’s shoes and understanding, without judgement, their motivations and constraints when making financial decisions is essential. There is always a story about why an investor behaves the way he does. Find this story and you might find some interesting solutions to their personal finance problems.

A young middle-aged entrepreneur has spent most of her income being more than generous with her employees, friends, family and neighbors. She gave money, food, clothes as if it were obligatory. Her sisters accused her of using the money to build relationships and warned her that others would exploit her. They tried to convince her to save, without success.

In a conversation, it emerged that she had been scarred by her husband’s bankruptcy. The sound of moneylenders screaming at the door and the shame of fleeing the city still haunts her. She wants to be that person who has had enough; she wants to tell the world that she is not short of money; she wants to make sure people haven’t abandoned her.

When we created a plan in which she would invest for the future of her employees, she readily agreed to contribute. Opening an investment account for her with her employees and crediting it with others was easy. She started saving effortlessly.

A young father had accumulated huge credit card debt and hid it from his wife for too long. He lost his job unexpectedly and when the bank representative came to the house to collect the dues, his wife was shocked. She had always worried about her lavish spending habits. But he handled the money and didn’t involve her. She had no idea her husband was racking up a mountain of debt.

The psychological and emotional reasons were not hard to find. He had been the underachieving brother in the family; he was also not much of a performer in college or school; he wanted to show that he was doing much better in life. He spent more than his relatives and peers just to establish a position for himself. He was convinced that everything would be fine and lived in denial of his reality.

His wife started a baking business. She roped her husband to support her. She told him that no one would know their reality, but that they would work together and repay the loans. She gave him the cover he needed and kept his mistakes a secret. That was enough to knock him down. In four years, they’ve bounced back to run a successful, profitable business. They have a lifestyle that is really supported by their earnings and income.

There’s little empathy in the personal financial world for those who don’t follow the much-hyped path to financial independence. Everyone knows the rules and those who break them are sinners. How can you spend what you haven’t earned, making fun of the righteous. How could he not have life insurance, the savvy peers sneer.

But the reality of those who slip up, fail, fall behind, or make bad decisions might be different. They may have beliefs sharpened by their experiences and need help to see differently. It can be nursing complexes that need a patient ear. They may seek privacy and trust out of fear of shame and exposure. But they also need help with their personal finances. It’s just that they need a big dose of empathy as well as personal finance advice.

(The author is president of the Center for Investment Education and Learning)