We all know we should spend less and save more, yet many of us struggle to do it and blame ourselves. It turns out, our environment is what we really need to change, and Kevin Murphy explains why.

Why we make bad financial choices — even when we know better

Always wear sunscreen, eat a balanced diet; a penny saved is a penny earned. 

You probably all learned these lessons as a kid, maybe from your parents, or if you grew up in the 80s on the public service announcements at the end of every episode of the GI Joe cartoons, but chances are despite knowing this, you still stepped outside without putting on sunscreen, devoured an entire bag of chips in one, go or spent way more of your paycheck than you anticipated. 

So why is that?  

A few years ago, Yale professors coined the term “GI Joe fallacy” to describe this very phenomenon, which is the mistaken idea that knowing is half the battle. But as it turns out, in most situations, just knowing something is not nearly enough for you to put it into practice. Information doesn’t always change behavior.

As a behavioral design enthusiast and founder of UIG a financial health organization; helping families make better financial decisions is our passion. I’ve seen people struggle to save money to cut back on their expenses, or to manage their debt, even after they’ve taken a financial literacy class. And the reality is that people fundamentally know what they need to do to improve their financial situation. 

We all do, the equation is simple. They need to save more and spend less. But the thing is, that’s just really hard to do. It’s easier said than done. And I’ve been in this boat as well.  So for example, I had a magazine subscription that I knew I should just cancel, I never read the magazine. And every month, money was coming out of my checking account. And every time I reviewed my account, I saw it, I knew I had to cancel it. But I did it. It took me two years to cancel that magazine subscription and I’m sure I’m not alone, you probably have some type of subscription that you know you should cancel. And so the critical piece in all of this is to get rid of this belief that financial security is just a problem that we can teach away. 

In the US. For example, we spend nearly $700 million every year on financial education programs. Yet a team of researchers have found that these programs explained only 0.1% of the variance in financial behaviors, not zero, but pretty close to it. Meanwhile, 20 states mandate financial literacy classes in high school. 

But studies have found that unless these programs are well implemented, they are unlikely to have any effect on a student’s future credit score, or their likelihood to invest. A more significant predictor of how well you manage your finances is your general ability to do math. From all of this, I’ve learned that behavior change is not an educational pursuit, it’s an environment one.   

If you’re struggling, it’s not because there’s something fundamentally wrong with you. It’s most likely because there’s something wrong with how your environment or system is set up. Look around you. The queues to spend money have gotten smarter, faster, and more efficient.  Targeted ads are becoming more personalized. Corporate content is becoming more engaging, and everything around you is focusing on spending. 

At UIG we want to help you change that, by helping you reshape and change your environment.  With a customized step-by-step plan, the right financial tools and resources designed to help you spend less and save more, so you can regain control of your finances today, not tomorrow. 

Your future self will thank you.