Neil Bage, chief behavioural officer at Murphy Wealth, ponders what motivates us to care about money, and why those motivations should be as boring as possible
Why do we do what we do? Why do we make the decisions we make? Why do some of us save on a regular basis while others speculate by putting their hard-earned cash into a risky, but trendy stock?
More to the point, what drives decisions like these? Do we make choices with full independence, or are outside influences just too powerful? Or is it a mixture of both?
Whilst the answer to this, from a behavioural perspective is complex and deep, part of the answer lies in what is known as self-determination theory.
Put simply, self-determination theory suggests that humans make their choices based on two types of motivation: internal and external (or intrinsic and extrinsic if we want to be proper about this!).
As the names suggest, intrinsic motivation comes from within; extrinsic motivation comes from outside.
So, if I absolutely love doing something (for me it’s video editing), then my motivation to sit and edit for hours on end comes from within. It’s fun and deeply enjoyable. I never look at the time spent editing nor do I see it as a chore.
On the other hand, I may do something that I don’t really enjoy, but know that in exchange for doing it, I’ll get some kind of reward (or avoid punishment). That reward may be money, or it may be something as simple as a pat on the back for a job well done.
But enough of the psychology lesson. Let’s get to the point of this article and explore the power that extrinsic motivations can have on your personal finances.
I’m talking about the “mother of all extrinsic motivations”, FOMO – the Fear Of Missing Out.
The Fear Of Missing Out
The most important word in the FOMO acronym is the first word – FEAR. This is the aspect of FOMO that drives our anxieties and worries. Anxiety that we’re missing out on something big, exciting, or important while everyone else is already at the party.
The problem with fear is that it can have a significant impact on how you make a decision in the first place.
A quick biology lesson. When we sense fear, our body enters fight or flight mode. When it does this, certain body functions are shut-down, including the prefrontal cortex, the part of the brain we need to be able to make decisions. So, when we are suffering with anxiety, fear, stress, or even worry, we aren’t biologically wired to make good decisions.
A good example of FOMO in action was the recent GameStop situation, where thousands of amateur investors followed the crowd and bought stocks in the struggling US video game retailer, which sent its share price soaring.
Those who bought GameStop shares as the price was being artificially pushed up, only to see it crash down to earth a few days later, may have satisfied their FOMO craving, but at what cost? £1,000? £25,000?
The point is this. When social media is rammed full of people saying “come on this ride with us and you’ll get rich!”, the fear of missing out on that is a stupidly powerful extrinsic motivation.
Even though it may go against every principle and value you have, could you accept the fact if others made mega-bucks whilst you made nothing?
Well, to put your mind at ease on this point, and whilst the figure is still a little bit sketchy, it’s estimated that the collective FOMO cost to individuals could be in the billions.
That’s ordinary people who jumped on the GameStop bandwagon and are now nursing significant losses to their personal wealth.
And what about your future self?
The problem with FOMO in these situations is that whilst you may very well quench your FOMO thirst in the short term, your future-self ends up being the one who really suffers.
The decisions you make today will have an impact on the you of tomorrow. If today you feel that gambling £10,000 of your money on a stock that you’ve never heard of, let alone researched, just because of a FOMO, then (and I’m trying to be polite here) you really are asking for trouble.
To help solve this problem, let me introduce you to a simple truth that can be summed up through a new and terrible acronym of SMIB.
Saving Money Is Boring
There is absolutely nothing exciting about putting money into a savings or investment account on a regular basis, especially when you want to buy the latest gadget or a new pair of boots.
Don’t get me wrong, I fully understand the pull of immediate gratification and I get the rush you feel from investing in a stock, or a cryptocurrency and making money. There is a whole other conversation we could have around this. But the risk of you losing money when you ‘take a punt’ is very real, and the losses can soon mount up.
The situation isn’t helped of course by the constant press and social media coverage of such events. This in itself can trigger a FOMO moment.
We can easily find examples in the news reporting on a person who has made thousands betting their life savings on a stock like GameStop. But we will never find a report about the person who worked hard, saved into their pension from the age of 25, and is living a very happy and financially stable retirement.
So the next time (and there will be a next time) you see a social media post that suggests you invest in stock XYZ because everyone is, please pause.
Don’t let FOMO guide your decision.
Don’t convince yourself that you could become a millionaire overnight – a phrase often irresponsibly suggested by someone who is already a millionaire and can afford to take the risk.
Don’t ask yourself what you could potentially gain. Ask yourself what you could potentially lose.
Don’t ask yourself: “What difference could this make to me today if it went well?” Ask yourself: “What difference would this make to my future if it all went horribly wrong?”
Questioning yourself like this will ensure the decision you end up making will be more objectively thought-through. It will be more rounded, considering the positives and the negatives.
Saving and investing money is boring. Sometimes the extrinsic motivation to take a more exciting journey will seemingly outweigh your intrinsic motivation to have a financially secure life.
Don’t let the noise from outside drown out your inner voice. You and the life you want to live is too important to allow that to happen.
Neil Bage is the chief behavioural officer at Murphy Wealth and the founder of behavioural insight’s fintech company Be-IQ. He is a specialist on the sub-conscious behaviours that drive our decisions, and has a reputation for bridging complex scientific theory with real-world understanding and application. As well as being a keynote speaker, Neil is also the creator and host of the Bitesize Behaviour Podcast.