How Much is Your Money Bias Costing You?

On this episode, we’ll breakdown a CNBC article that analyzes a recent Morningstar study. The study found that most of us have at least one money bias, some of us more than one, and that those biases are very possibly costing us money in our checking, savings, investing and retirement accounts. Listen to see if you might be impacted by a specific money bias and for strategies to get it back under control.

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On this episode, we’ll breakdown a CNBC article that analyzes a recent Morningstar study. The study found that most of us have at least one money bias, some of us more than one, and that those biases are very possibly costing us money in our checking, savings, investing and retirement accounts. Listen to see if you might be impacted by a specific money bias and for strategies to get it back under control.

Everyone has different attitudes about money. A new behavioral finance study from Morningstar found that 98% of respondents exhibited one or more financial bias that’s likely costing them money.

Four main biases

Present Bias

Instant gratification and a tendency to go for immediate rewards over long-term goals.

Base rate neglect

Judging the probability of something happening based on new information while ignoring original assumptions. We tend to see this in investing with overselling or overbuying on the whims of bad and good news.

Overconfidence

Putting too much weight in your own abilities to make good financial decisions.

Loss aversion

People who are overly fearful of losing money relative to gains.

 

Low levels of money bias = better financial health

The research revealed that people who had low levels of present bias were three times as likely to spend less than their income. They were seven times more likely to plan ahead for the future.

In another example, high levels of base rate neglect and overconfidence had lower savings and checking balances. Those with loss aversion had lower 401(k) balances.

Listen to the full episode or use the timestamps below to find specific segments. 

2:45 – Key points of the article

4:14 – Four main biases

8:25 – Low bias, better financial health

10:07 – Solutions and priorities

13:27 – Biases we see

Thanks for checking out the Your Retirement Elevated Podcast. We’ll talk to you again on the next show.

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ABOUT YOUR HOST...

Scott Dougan founded Elevated Retirement Group in 2003 in order to fill a niche he felt was not being addressed properly in the retirement planning environment – helping retirees and pre-retirees in the Kansas City metro area find answers to issues that may affect the quality of life during their retirement.

Scott is a Registered Financial Consultant (RFC) and holds a Series 65 Investment Adviser Representative license, which holds him to the fiduciary standard. He also holds insurance licenses in Kansas, Missouri and other states.

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