Tuesday 23rd July 2024

Have you given up your New Year’s money resolutions yet?

It’s not just you: hidden habits we all fall into cause New Year’s resolutions to come unstuck. Here’s how to spot and avoid them, says behavioural economics expert and director of behavioural insight at Be-IQ Neil Bage

We are all creatures of habit. We love routines, familiarity, and certainty. We hate the opposite; the unusual, the unfamiliar, the uncertain.

It why every December we load up our Christmas playlists featuring the same age-old tunes, watch the same movies (no, Die Hard isn’t a Christmas movie :-)), and munch down on the same Christmas Day food items. Why else do sprouts exist, right?

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We do this because it makes Christmas feel familiar, and this familiarity provides us all a great deal of comfort.

In talks I’ve delivered on human behaviour, I often liken familiarity to a big friendly hug, wrapping us in its arms and telling us that “everything is OK. You’re safe here!”.

So, it shouldn’t come as surprise that moving from a state of familiar or routine to something that is unfamiliar or unusual is really challenging. We tend to avoid it as much as we possibly can.

And yet each year, millions of us voluntarily abandon the safe hug of certainty and jump head-first into the world of uncertainty when we make New Year’s resolutions. 

Habit breaking by another name

It shouldn’t come as a surprise that from a behavioural perspective, New Year’s resolutions have been heavily researched.

They are the subject of many longitudinal studies — where the same participants are tracked over a long period of time — to understand the long-term impacts of well (and poorly) executed goals, including those dressed up as New Year’s resolutions.

Most resolutions are aimed at changing lifestyle; getting fit, losing weight, eating healthier, stopping smoking, or drinking less.

Others are aimed at money: saving more, spending less. In other words, and this is where words are important, most resolutions are aimed at changing an underlying habit.

And therein lies the problem and why most New Year’s resolutions are abandoned by the 19th January1.

Habits are notoriously difficult to change quickly, especially when the habit is well established or provides an immediate, perceived benefit – such as eating junk food or spending money on the latest fashion accessory.

On top of this, we also suffer from deep-rooted unconscious behavioural biases that influence the success or failure of our resolutions, even when our conscious intention is focussed on not letting them fail.

Two dominant biases in relation to New Year’s resolutions are Present Bias and Optimism Bias.

Present Bias

Present Bias is our tendency to place too much value on immediate rewards at the expense of our longer-term plans. It centres around instant gratification; needing or wanting something now instead of waiting!

It’s what makes us buy trinkets we don’t need, now, instead of saving money for something better later on. It’s why the boredom of exercising on a cross-trainer loses out to sitting on the couch watching the latest Netflix series whilst munching on a tub of Pringles.  

Present bias and money are intrinsically linked. When you save or even invest your money, present bias drives a desire to focus on short-term rewards over long term gains. It is the key driver in our behaviours around saving more for retirement – the ultimate long-term objective.

What this means is our present and future wellbeing is reliant on us having good control of these instant gratification points in life. The more we choose today over tomorrow, the more our long-term wellbeing may suffer; financially, physically, and mentally.

Optimism Bias

When we set ourselves New Year’s resolutions, we often over-estimate how achievable they are. We don’t make SMART2 resolutions.

We often start with some big, grandiose plan such as “I want to save £5,000 by April”, even though the last time you saved more than £500 you were living rent-free with your parents!

Worse still, even though we know that most people’s resolutions fail soon after they are set, we enter the New Year believing we won’t fail.

However, if we want to give ourselves the best chance at success, we need to first address our natural tendency to be overly optimistic. We also need to challenge our beliefs on how long achieving our goals may take, as well as recognising the road ahead will be an emotional one.

Self-awareness is key

Ultimately, we all make New Year’s resolutions with honourable intent.

We all want to be the best version of ourselves, and I believe this is absolutely achievable. However, it does mean setting SMART goals as well as understanding how our unconscious behaviours impact our lives and our decisions.

For example, if we want to save more, we shouldn’t start by putting away big sums of money that we know we’ll miss. It’s about taking baby-steps. A small amount you won’t miss, and gradually build it up over time.

These approach makes it easier to form the right habit and will get you in the right frame of mind to change something important in your life, and not allow our unconscious biases (such as present bias) to get in the way of our best intentions.

If we couple a genuine desire to change for the better with a deeper understanding of how our unconscious behaviours can impact that desire, the world becomes your oyster. New Year’s resolutions will be successful, and our future-self will be nothing short of grateful. Good luck, and Happy New Year.

1. Research by fitness app Strava, analysing the data from over 93 million user-logged activities, suggests “Quitter’s Day”, the day most people are likely to give up on their New Year’s Resolution as January 19. https://www.strava.com/clubs/231407/posts/7881647

2. https://en.wikipedia.org/wiki/SMART_criteria

Photo by Polina Kovaleva from Pexels

Neil Bage

Mouthy Blogger

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.

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