Our Emotions, and How They Impact Us.
Think about the best or worst investment you ever made. Was it the result of a deliberate cost-benefit analysis or more of an impulse decision? Was it sparked by a newsletter you read recently? Did you think back to the message in that newsletter when you made the investment e or were you driven to it by invisible forces? Did your emotions get the better of you?
It’s no secret that emotions are central to savings, investments and health. They’re at the heart of the relationship we have with ourselves. They drive our nonconscious decisions and play a major role in our conscious decisions, too.
The finance industry has a long history of measurement solutions based on returns, risk tolerance, investment portfolio, retirement needs, etc. because those metrics are relatively easy to capture and interpret. Those are important measures in their own right, but they're poor surrogates for measuring the emotional connection that an individual is capable of making about their own well-being.
That’s where recent advances in neuroscience and behavioral finance come into play: they’re making it possible to dig deeper into how emotions affect our decisions. Soon, we will be able to measure neurological and behavioral tendencies (spending, saving, investments and personal development) with great precision and tie those reactions to the eventual success of a person's financial well-being. Those techniques have found a home in some early studies and the returns can be impressive: Lots of employers now offer contribution auto-increases. Each year, the auto-increase will automatically raise your contribution percentage by a specified amount – often by 1% to 5%. Most employers and industry experts encourage auto-increase enrollment because it removes the EMOTION.
Emotions remain one of the most trustworthy indicators for future success in both personal and financial affairs. So the next time you are about the make an important decision about life or money take the emotion out of it!