Rationalization How we trick ourselves into making bad financial choices.

Lilian Yoffe

Financial problems we face on a daily basis are multifaceted and do not stem from simply one bad habit or just a lack of knowledge in the financial realm of things. However, one commonality among all is the mere fact that we can be our own biggest enemy when it comes to money behaviour. Poor judgement and lack of acknowledgement tend to be the leading reasons as to why debts become uncontrollable. They stem from our human nature – wanting to rationalize our behaviour in order to indulge in short term satisfaction with the things you like and enjoy without consideration of the long-term problems that it may cause.

Humans are good at thinking of ways to rationalize our spending. We make anything an excuse to spend more, whether it be through celebrating a special occasion or convincing that it is a good deal, overspending is not hard to achieve. Psychologically, this type of behaviour attempts to logically justify behaviour that is usually immoral or deviant.¹Fraud describes this behaviour as part of a self-defence mechanism which is an unconscious attempt to disregard the real reason for this unreasonable behaviour. This explains many irrational and immoral financial behaviours, such as overspending, avoidance, and infidelity. These rationalizations can be about ourselves or can be about others, just anything it takes to allow us to receive that brief gratification.

As described above, rationalization is not completely malicious – it can be used as a tool to avoid unwanted emotional trauma. However, continuous self-deception can lead to many problems, financially and psychologically. Unlike healthy financial habits where money decisions are based on logical thought and reflection of reality, rationalization validates our behaviour that is not in line with our values and beliefs. We convince ourselves that our wants are needs that need to be fulfilled. Especially after a year of isolation and fear, the list of events and celebrations that are due may exceed our ability to maintain financial stability. Whether it be going out to a restaurant with friends, planning a wedding with family, or moving houses, the list keeps going. The danger of rationalization spread far beyond overspending and financial inconsistency. It can be distressing psychologically as it can be used to mask our real issues that are deeper than the rationale but never address it. Labelling these core problems require a change in our mentality and habits, which is no easy task. This can also be attributed as one of the factors as to why we lie to ourselves financially.

Now you must be wondering, why can’t we just start over and never lie to ourselves again to be in a good place financially? While it is ideal, an American financial advisor and entrepreneur Ramit Sethi wirtes, “even if we tried to rationally critique our own spending, we would encounter an almost insurmountable number of psychological barriers that prevent us from honest self-examination.”²Perfection is not something we should strive for, as it could be more damaging than we think. However, associating guilt, shame, and negative emotions with financial decisions is emotionally draining, leading to vicious cycles of lying and instability.

In order to avoid this dreadful cycle, honestly regarding one’s financial status and emotional wellbeing is an integral part of it.

Know your spendings and savings without sugar coating it
Acknowledge how spending makes you feel

It is quite impossible for us to strictly stick to a budget constantly; however, being truthful to ourselves can help us escape from the trap of self-deception that can transform into being deceived by the power and danger of money.

Rationalization. GoodTherapy.org Therapy Blog. (n.d.). https://www.goodtherapy.org/blog/psychpedia/rationalization.
Melissa. (2012, October 26). How and Why We Rationalize Spending. Free From Broke. https://freefrombroke.com/how-and-why-we-rationalize-spending/.

Your Financial Identity

Finance and LGBTQ2+

A survey conducted by SAGE reported that 42% of LGBTQ individuals between 45 and 75 years old were “very” or “extremely” worried that their savings will run out, in contrast to the 25% of non-LGBTQ individuals.¹ Additionally, an LGBTQ Financial Security Study by MassMutual reported that 40% of the LGBTQ community worries about money/household finance on a daily or multiple times a week, compared to the 29% for the general population.² What does this tell us? The societal and institutional prejudice against the LGBTQ2+ community that still continues to persist impacts the financial health of those that are part of the community.

For example, there are 29 countries worldwide that legalized same-sex marriage. This means that in these nations, same-sex couples can plan their financial futures together, finally have their rights recognized under the law. This helps to alleviate a portion of the emotional damage that stems from the lack of legal support when dealing with finances. While it is a significant improvement compared to a time not so long ago, this also serves as a striking reminder that more work needs to be done in order for this to be recognized worldwide.

Additionally, the transgender population’s unemployment is three times higher than the public.³ In a society where some have to choose between securing their income while masking their identity, or embracing their identity while risking their financial status, it creates a great financial barrier that others do not experience nor will understand.

The podcast Nancy, hosted by Tobin Low and Kathy Tu describes the current economy being structured for cisgender and heterosexual individuals, rather than encompassing and fostering diversity among all. A case where a transgender woman was blocked out of her bank account because the phone operator thought she sounded like a man is one of many incidents that highlight the systematic discrimination when dealing with money. David Rae wrote, “It is a bit of a heteronormative attitude to think financial planning is the same regardless of sexual orientation.” Ignoring the differences and variability in needs will lead to a system that only helps the majority while creating a more polarized community as denial of one’s own identity by others or the lack of support simply due to one’s sexual orientation can cause emotional trauma.

As allies, it is crucial to stand behind and with those who are part of the LGBTQ2+ community and listen to their needs. By aiming and working towards creating a society where financial and moreover, human rights are applied to everyone regardless of sex, gender, sexual orientation, and all other factors, we can help the minority groups financially and emotionally.

The stereotypes and prejudice ingrained in society need to be addressed in all domains, including the financial field as it is an essential part of everyone’s lives.

No one should have to hide their own identity to claim their own rights.

SAGE, “Out and Visible: The Experiences and Attitudes of Lesbian, Gay, Bisexual, and Transgender (LGBT) Older Adults, Ages 45-75”, 2014. https://www.sageusa.org/wp-content/uploads/2018/05/sageusa-out-visible-lgbt-market-research-full-report.pdf.

Greenwald & Associates, “MassMutual LGBTQ Financial Security Study”, 2017.

Out & Equal, “2017 Workplace Equality Fact Sheet”, 2017.

https://www.wnycstudios.org/podcasts/nancy/moneypage