Willpower won't help you save money. Changing your environment can
MANOUSH ZOMORODI, HOST:
On the show today, resolved - ideas to shift our perspective and help us stick to those resolutions that we make. And now let's talk money.
WENDY DE LA ROSA: The No. 1 thing I think people want to feel is they want to feel control over their finances.
ZOMORODI: This is Wendy De La Rosa.
DE LA ROSA: I'm a behavioral scientist and an assistant professor at the Wharton School.
ZOMORODI: And Wendy researches financial decision-making, which she says can come with a lot of emotional baggage.
DE LA ROSA: In the U.S., we view financial prosperity as this fully individualized accomplishment. So if you're struggling in your finances, it feels like it's only due to your own personal behaviors, due to your own responsibility.
ZOMORODI: Your failures.
DE LA ROSA: Yeah. And the thing is that's just not true. It's not all about you. It's all about your environment.
ZOMORODI: So more about outside forces.
DE LA ROSA: Right. Every company is getting smarter, faster and better at helping you part with your money. Everything is being optimized to play with our psychological biases so that we spend as quickly as possible and as much as possible. In fact, online, we all know the experience of being haunted by the same ad over and over and over again. And so we're creating this environment where it becomes almost impossible to exert self-control and willpower. And then we blame ourselves for it. And I want to just, like, strip us away from that shame, one, because it's not a useful emotion - right? - it doesn't lead to behavior change - but also because financial decision-making, by and large, is not necessarily a problem that we can teach away.
ZOMORODI: What do you mean by that?
DE LA ROSA: So it's not about a knowledge gap.
ZOMORODI: OK.
DE LA ROSA: It's a behavioral gap. So, for example, there was this beautiful study that reviewed the entire literature looking at what's the impact of financial education on financial behaviors. So I get you in a room. I teach you how to save. I teach you how to budget. Ultimately, what happens to your financial behaviors? And it turns out that financial education accounts for just 0.1% of the variance...
ZOMORODI: No.
DE LA ROSA: ...In your financial behavior.
ZOMORODI: No.
DE LA ROSA: Yeah - so not zero but pretty freaking close to it. And it's just not the best tool in our toolkit.
ZOMORODI: So how are we going to do this, Wendy? If we've made this promise to ourselves that this is the year, how can we set ourselves up to succeed and not feel just more shame that we haven't actually done anything about our money situation?
DE LA ROSA: So this is what I call taking control and correcting our environment.
ZOMORODI: When we come back, behavioral scientist Wendy De La Rosa explains some very subtle tweaks we can make to our financial world. On the show today, resolved. I'm Manoush Zomorodi, and you're listening to the TED Radio Hour from NPR. Stay with us.
It's the TED Radio Hour from NPR. I'm Manoush Zomorodi. Today on the show, resolved - new perspectives on our most common resolutions. And we were just talking about getting a handle on our finances with behavioral scientist Wendy De La Rosa. Wendy says that to take back control, we need to think about redesigning our environment.
DE LA ROSA: So I'll give you sort of a quick example. Lots of people struggle with their credit card payments, but one of the reasons is because the due date is chosen randomly when you apply for your credit card. You know, your credit card is due the 25 of every month.
ZOMORODI: For no discernible reason. It just is.
DE LA ROSA: Right. And so if you get paid on the 15 and the 30, actually, the 25 is a terrible day because you've probably already spent the paycheck that you gained on the 15. What does that mean? Well, let's correct your environment. Call up your credit card company, and change your payment date to the 16. This way, you have the most resources, right? It's creating a self-control mechanism for yourself.
ZOMORODI: So then you actually - not only do you maybe automate it so you definitely pay it on time and you don't get any fees, but you also don't bounce any checks, and you have a good credit standing.
DE LA ROSA: Right. I'll give you another example when it comes to saving. Lots of people think that the best way for us to save is to set up automatic deposits once a month from checking to savings. And that's fine, but it's not optimized. Some months, you're going to get more money. You may have a tax refund. You may have a bonus. Or there's five Fridays, and you're going to get an extra paycheck. And then some months, you may not have any disposable income.
ZOMORODI: So what do you do?
DE LA ROSA: So what I ask people to do is to save the percentage of their income. And there are apps like Qapital with a Q or Chime, which is a no-fee online bank, that allow you to do this within minutes, right? You can set - any time I receive a deposit over $100, save 10%. And that's great because why? If I get paid more, I save a little bit more.
ZOMORODI: It sounds like you're saying instead of, like, making that New Year's resolution, saying to yourself, I'm going to stick to this all year long, I think, Wendy, you're advising that we just outsource it - we get an app or we change a bill due date or we do something that does the work for us...
DE LA ROSA: Right.
ZOMORODI: ...All year long.
DE LA ROSA: Yeah. And here's the thing. People fundamentally already know how to do this. They know what to do. The reason why we don't do it is because it's hard, because my children need my attention, because my boss is asking too much of me, because I don't have the time. And so if this is your resolution, here's what I want you to do. Take a financial health day. Love yourself enough to put yourself first. Find time on your calendar, and say, today, because I know what are the things that I need to do, I'm going to take a financial health day and knock some things off my list.
ZOMORODI: I love this because it's not dumbing down, but it's also a little bit of setting and forgetting it.
DE LA ROSA: Exactly, because the thing is, for most of us, thinking and ruminating about our financial situation creates a negative emotional state. So what I want people to do is to say, look. I'm going to take control. I'm going to change my environment. Whatever it is that you know you need to do to improve your own financial security, that's what you need to do on your financial health day.
ZOMORODI: That's Wendy De La Rosa. She's a behavioral scientist at the Wharton School of Business. Her TED video series is called "Your Money And Your Mind." You can find it at ted.com.
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