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.1 Fraud 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.”2 Perfection 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/.