“You must gain control over your money or the lack of it will forever control you.” Dave Ramsay
Reading Nudge by Richard Thaler, I could not help but be inspired to share a message that looks very simple at face value; but could be a life changing moment for many.
A significant number of us, young and old are very lazy to critically evaluate our bank statements. Perhaps the reality of how it actually looks scares most of us- the ridiculously high and negative operating balance, the many unpaid debit orders or the peanuts we claim to get paid every month. So to avoid dealing with our negative feelings in terms of our bank accounts and the story our statements tell us, we choose to ignore them; which is often to our detriment.
According to Thaler (2008), people use ” Rules of thumb” or short cuts when making decisions due to the busyness of the lives we lead. We cannot and “do not ” have a lot of time to spend thinking and analyzing everything, so using “rules of thumb” is easier and quicker (Thaler, 2008). The use of “rules of thumb” or short cuts can be good, but often leads to systematic biases (anchoring, availability and representativeness) and associated biases as discovered by two great psychologists- Tversky and Kahneman. For purposes of simplifying the message, I will focus solely on the “status quo” bias. The “status quo” bias says that we are comfortable with what we know for example, do you remember sitting at the same desk for every lecture? Or perhaps you always park at the same spot at work? ( Thaler, 2008). Comfortable with the same thing?
Generally, we are lazy to take action that will change the status quo, even if it’s to our benefit! Many of us do not pay attention to a number of things such as how much bank charges we are paying every month, if there are any unauthorized transactions going through our bank accounts or if we could reduce the amount of fees we pay monthly should we change our behavior.
We have what is called the “yeah, whatever ” heuristic (rule of thumb). We have no interest in knowing the status of our bank statements because we are scared of what we will find and choose to continue as if they do not exist month on month. We convince ourselves that the bank charges won’t change (they are high anyway), we convince ourselves that things are really bad and everyone has the same problem (it’s not just me). As a result, we procrastinate and do nothing… an attitude of “yeah, whatever”. But what if we decide to start monitoring our bank statements today? What if we decide to spend 15 minutes studying our spending habits and how we used our money over the last 30 days, instead of going through our Instagram or Facebook feed?
15 Minutes… What could we discover?
Wouldn’t it be great to know how much we are ACTUALLY spending in bank charges every month? Suppose we discover that we are paying too much banking fees. Wouldn’t this help us have a meaningful discussion with our banker on how to reduce the charges? Perhaps the account type we have isn’t suitable to our banking needs and might need to change the product. Perhaps we are using the account incorrectly, resulting and attracting higher fees. Wouldn’t knowing this information reduce your frustrations with the bank and give you better control over your money?
What if the pricing structure isn’t right for us- do we know about bundled pricing or pay as you transact pricing options? Perhaps if we change our behavior in how we use our bank accounts – withdrawing once a week instead of everyday week , minimizing withdrawals from ATMs of banks we do not bank with or swiping instead of withdrawing cash for every transaction. Could this help reduce our fees?
What if we discover that there are unauthorized debits going through our accounts every month? Someone taking our money without our knowledge- perhaps you’ve signed an instruction to debit your account years ago that you don’t remember. Wouldn’t it be great to cancel or stop the debit and save money we’ve been losing unaware? What about the interest we maybe paying on the overdraft facility? Wouldn’t knowing how much interest we are paying help us better budget and avoid unpaids on our accounts? Or help us provide for this before withdrawing al the funds?
There is a lot of information you can get from your bank statement. I challenge you to download your monthly statement and assess it, see if you can identify every transaction on the statement. I challenge you to question, to ask and to learn what your bank account can and cannot do for you in relation to it’s features. Financial freedom is our responsibility and it starts with thi us taking control over our finances.
