Want Financial Success? Outsmart Your Brain

How’s this for a convincing excuse not to save for retirement? “I can’t help it. The human brain is programmed for financial failure.”

An estimated 80 percent of our decisions are made emotionally. Our brain is divided into three sections. The upper brain, or cerebral cortex, is where we reason. The middle brain, or limbic system, is where we react to emotional impulse. The lower brain, or basal ganglia, is what regulates the operations of the body.

The limbic system, where our emotions reside, functions to move us toward pleasure or away from danger. Feelings like fear or anger can cause us to move away from a perceived danger, while feelings of joy or pleasure can impel us toward a perceived benefit or reward.

That aspect of our brain serves us very well when it comes to physical danger or life-enhancing decisions like choosing a mate. It isn’t quite so much help when we need to make financial decisions.

Suppose you’re discussing putting that $5,000 into an IRA instead. What does your limbic system see, hear, feel, or smell? You writing a check? A brokerage statement? There’s no particular pleasure response for your emotional brain to get excited about. No wonder it’s going to urge you away from the IRA and toward the trip to the Bahamas.

When we’re faced with decisions, the option with the greatest emotional payoff tends to win. This is how our brains are wired to make financial decisions in favor of our short-term pleasure rather than the delayed gratification that is in our long-term best interest.

Let’s take another look at the choice between an immediate tropical vacation and putting money into an IRA. Someone committed to investing for the future may imagine the same tempting beach scene. What they do, however, is see it happening once a year or even every day in the future. They imagine themselves enjoying that beach as one of the rewards of saving for their financial independence.

It’s also possible to trick the limbic system with negative images. Another saver might vividly imagine herself as a bag lady, living out of garbage cans and sleeping on park benches if she doesn’t write that check to her IRA. This isn’t nearly as much fun as imagining situations that reward investing, but it has the same effect of adding emotional impact to a financial decision.

In either case, the goal is to create an emotional charge from imagining the IRA contribution that is stronger than the image of spending the money today. The scene with the greatest emotional impact wins.

This is one reason it’s important for us to spend some time defining our life aspirations. Having clear images of what we want in the future makes it easier to imagine ourselves there. It helps us link strong emotional rewards to mundane activities like writing a check to an IRA.

The human brain may be programmed for financial failure, but we have the ability to change that programming. With a little effort, we can rewire our brains for financial success.

• 10 Reasons Some People Don’t Achieve Financial Success
• The Truth About Rational Financial Behavior
• The Subtle Psychology of Credit Cards and Overspending
• The Emotions Behind Buying Stuff
• Are Your Emotions Making You Poor?

Reviewed March 2024

About the Author

Rick Kahler, MSFP, ChFC, CFP, is a fee-only financial planner and author. Find more information at KahlerFinancial.com. Contact him at Rick@KahlerFinancial.com or 343-1400, ext. 111.