Financial Progress Comes From Changing Our Behavior
May 03, 2013Wow! Sometimes words can’t adequately express just how awestruck (and not always in a good way) I am when I read about the financial choices that some people make. When that happens, all I can say is “Wow!” And this story definitely has me Wowing… 
This is a story about a guy who wanted to make his kids happy so he went to a carnival to try to win an Xbox video game system for them. And in the process, he lost $2,600, which was his entire life savings. He had initially lost $300 on a ball toss game and was out of money. So rather than call it quits at that time, he left the carnival, went home, grabbed an additional $2,300 (not just another $20 or so) and proceeded to lose every dollar of that on the game.
He is clearly very competitive, doesn’t like losing and is very determined. All of these can be good qualities. All have some downside too. I’m sure after stepping back from the situation, he realized he might have made better choices at several points along the way so I won’t make it worse for him by pointing them out. But what I do want to point out is that all of us (even financial planners!) make bad choices along the way. How we deal with decision making under duress, recover from those choices, and learn to make better ones in the future, can have huge consequences in our financial lives.
How do we recover from bad choices and make better ones in the future? Recently I had conversations with two separate couples who have some similarities. Both couples got into credit card debt by being undisciplined and were on the verge of bankruptcy.
After my conversations with each couple, they chose different paths. Couple #1 chose to contact a credit counseling company, get a debt management plan in place and work toward paying off their debt and living a credit-card-free life. It looks like they have learned a great lesson and at age 30, they have decades in front of them to build a very solid financial foundation. I’m very optimistic about their future.
Couple #2 chose bankruptcy and is in the process of working through that legal process right now. Before filing for bankruptcy though, they wanted to make sure that they had a nice stockpile of cash (not in banks or any traceable location) for some of the things they wanted to buy but ran out of room on their credit cards before purchasing. Their questions were more about how quickly one can re-establish a good enough credit score post-bankruptcy to qualify for new credit cards and new car loans. I left our conversation thinking that they had learned nothing and that they are only a few steps away from being right back where they are today. It’s as if they couldn’t connect the dots from their spending to their financial stress to see that the cycle is going to repeat until they change their pattern.
It was very frustrating for me as a person trying to help them improve their situation. I tried multiple ways to try to help them see the correlation between their behavior and their stress, their spending and their need to file bankruptcy. For everything, their simple answer was “we just aren’t very good with money and I don’t think we ever will be.” I asked if they’d like to change that and one day think of themselves in a different light, and they said that they had accepted who they are and how they like to live. I don’t know if I’ve ever been as deflated leaving a meeting as I was when that one was over. They didn’t want to change for themselves, for their kids, or for their future. They believe in living for today regardless of the consequences. I’m not so optimistic about their future.
Couple #1 is taking a negative event and turning it into a lifelong positive. Couple #2 is taking a negative and will undoubtedly turn it into a lifelong continuous negative unless they wake up one day with a willingness to change. One couple truly wanted to learn how to fix a problem, deal with it head-on and never let it happen again. They had a desire for knowledge and are willing to make some behavioral change in order to implement new thinking and make significant strides forward.
The second couple is completely unwilling to change their behavior. Was it Einstein who said that doing the same thing repeatedly and expecting different results is the definition of insanity? They didn’t want to change anything, but wanted to learn how best to navigate around the system to continue a lifestyle that isn’t sustainable.
What did I learn from these couples? I learned that desire to change can only come from within. I had two very similar (on paper) couples in front of me. They had gotten to the same place in their lives. We had similar conversations about how they got there, what they learned along the way, and what they could do differently in the future. But in the end, I only think that one of these couples will ultimately have a better financial life after our conversation.
The key to making financial progress often lies in behavioral change. But in order to make that change, the drive, the desire, the intensity of purpose must come from inside each of us. It can’t come from people in our lives telling us to change.
A fitness instructor I know always has his class scream “if it’s to be, it’s up to me” at the beginning of his class. Right now, I think that little bumper stickerish slogan has a lot of wisdom. Couple #1 is making positive changes and taking ownership of their financial decision making. Couple #2 understands that they can make meaningful change and knows the impact if they don’t, but somehow they are choosing not to change. One day, I hope that something changes so that they see that even small changes can make big impacts in their lives.