People do some crazy things with money. But no one is crazy.
Studying history makes you feel like you understand something. But until you’ve lived through it and personally felt its consequences, you may not understand it enough to change your behavior.
As investor Michael Batnick says, “some lessons have to be experienced before they can be understood.” We are all victims, in different ways, to that truth.
In theory people should make investment decisions based on their goals and the characteristics of the investment options available to them at the time. But that’s not what people do. The economists found that people’s lifetime investment decisions are heavily anchored to the experiences those investors had in their own generation— especially experiences early in their adult life.
The financial decisions we make most times tends to define how our life turns out to be. However, we can't be determinants of our financial success some times. The economy hits everyone differently but there's always diverse impact that economic recession would have on an individual who had made a wise financial decisions than an individual who has not.
The economists wrote: “Our findings suggest that individual investors’ willingness to bear risk depends on personal history.”
Every decision people make with money is justified by taking the information they have at the moment and plugging it into their unique mental model of how the world works.
Few people make financial decisions purely with a spreadsheet. They make them at the dinner table, or in a company meeting. Places where personal history, your own unique view of the world, ego, pride, marketing, and odd incentives are scrambled together into a narrative that works for you. Your experiences often influence your perspective and decision with money .
Everyone talks about retirement, but apparently very few do anything about it. It should surprise no one that many of us are bad at saving and investing for retirement. We’re not crazy. We’re all just newbies.
We all do crazy stuff with money, because we’re all relatively new to this game and what looks crazy to you might make sense to me. But no one is crazy—we all make decisions based on our own unique experiences that seem to make sense to us in a given moment.
People's experiences, influence and impact their view on money. And when that’s the case, a view about money that one group of people thinks is outrageous can make perfect sense to another. Therefore , it's wise to respect people's opinion about their personal financial decisions.
No comments:
Post a Comment