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We think we're richer than we actually are

We see people walking with shopping bags heavy with new and luxurious goods.  Our friends buy cars, a new house or go out for very expensive dinners.  We do the same.  But the truth is, can we really afford it all.  Do we honestly need that new pair of jeans, do we need to change from the 10 year old sedan to a gas-guzzling 4 x 4, and are we spending all the money we need for our future.

Research shows that we are not all sensible and we very often make decisions about money that are impulsive.  We do not weigh up the pros and cons of owning something and we think of the now rather than the future.

Psychologist and behavioural scientists have discovered that there are gaps between people’s intentions and their behaviour.  We think we will save but then something ‘happens’, we are impulsive and we shop.  WE make systematic errors in thinking and these errors affect our judgements.  It’s about self control and myopic behaviour - we look inwards rather than outwards.  We don’t think of the problems our debt may cause in the future.

Let’s look at shopping. You may see a 2-shirt for 25 euros and one for 30 euros.  Of course you should buy the less expensive one; and you have the 25 euros in your pocket.  But something in your brain tells you the more expensive one is better, will look better, will make you feel better.  You get into debt because of a systematic error - you do not think clearly and you do not process.

If the world was slower, it may be easier to think slowly and to process things.  And maybe that is what we all need to learn.  Slow down and think things through before you get into trouble.

We think we're richer than we actually are We think we're richer than we actually are Reviewed by Tim on January 16, 2019 Rating: 5

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