In a world where financial success is often equated with personal happiness and social status, understanding the psychology of money becomes increasingly crucial.
Recently, experts shed light on the detrimental effects of envy, comparison and mental health on financial decision-making, highlighting the need for self-awareness and the adoption of proactive strategies to achieve financial security and personal fulfilment.
Mariska Oosthuizen, chief marketing officer at Sanlam, a leading financial services group, warns that envy and comparing oneself to others can lead to overspending and indebtedness.
Although money should be viewed as an asset, South Africans often succumb to short-term desires, prioritising immediate gratification over long-term financial success.
The pattern is said to have contributed to the alarming levels of debt experienced in the country, making South Africa one of the most indebted nations globally.
“Our research tells us that 54% of South Africans would advise their younger self to think of money as an asset to grow, not a luxury to spend.
“However, despite knowing what to do to thrive financially, our inherent presence bias leads us to focus on our short-term desires, leading to overspending and debt, rather than making financial decisions based on long-term success,” said Oosthuizen.
Lee Hancox, head of Channel and Segment Marketing at Sanlam, places emphasis on the extent social comparison has on spending habits and financial decisions. Hancox says social media influencers, with their carefully curated content portraying extravagant lifestyles, seek to create a sense of obligation to members of communities “to keep up”.
However, she says it is crucial to remember that what is seen on their feeds is only a fraction of reality. Hancox warns that succumbing to these pressures without considering long-term implications can jeopardise important future goals, such as retirement or home ownership.
“We are tempted to keep up without understanding the short and long-term impact of financial decisions we make. In the short term, it may mean cutting back on groceries or going out, but in the long term it may impact on the ability to retire at a specific age, or have a deposit for your first house, among others.
“It is about taking a long hard look at your future goals and what you need to do today to achieve them. Is it worth the latest handbag or outfit?”
The link between mental health and financial decision-making is another crucial aspect to consider.
According to Hancox, depression and overwhelming financial difficulties can create a vicious cycle of escalating debt, impairing an individual’s ability to make rational choices.
She contends that when individuals are in a positive mental state and manage expenses within their budget, they tend to make sound financial decisions and prepare for the future. Conversely, feeling overwhelmed by financial challenges can lead to panic and impulsive decision-making, perpetuating a cycle of escalating debt.
Oosthuizen and Hancox provide practical recommendations for individuals seeking to change negative attitudes and behaviour towards money.
Strategies for changing negative attitudes and behaviours towards money:
• Increase self-awareness and understand your financial situation and goals. Develop a plan and stick to it.
• Identify your money biases and underlying reasons for financial decisions.
• Begin by changing one financial habit at a time, starting with small expenses, and gradually moving on to bigger changes.
• Seek guidance from a financial adviser to help you address negative attitudes and behaviour towards money.
Balancing financial security with personal fulfilment and avoiding the comparison trap:
• Take a long-term view and focus on your own situation and goals.
• Avoid comparing yourself to others and identify your own values and priorities.
• Define what financial security means to you and develop an achievable plan for short, medium and long-term goals.
• Set check-in points and rewards for yourself along the way.
• Clean up your social media feed and follow only those who support your personal goals.
• Consider consulting with a trustworthy financial adviser to help you achieve your financial goals.
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