Is Spock or Homer Simpson in Charge of Your Financial Plan?

We are what we repeatedly do.  Excellence, then, is not an act, but a habit. – Aristotle, ancient Greek Philosopher –

If we consistently make good choices it will lead to good habits.  I recently read two books that examine some of the factors that influence our choices and behaviors.  An understanding of these factors can help us make better choices and develop positive financial habits.

The two books were Nudge: Improving Decisions About Health, Wealth, and Happiness by Richard H. Thaler and Cass R. Sunstein; and Change Anything: The New Science of Personal Success by Kerry Patterson, Joseph Grenny, David Maxfield, Ron McMillan, and Al Switzler.  Both books are based on the premise that our behavior is influenced far more than we realize by our environment, and that modifying environmental factors can lead to changes in behavior.

Nudge   

The audience for Nudge is “choice architects”, or people who are in positions to influence the choices others make, whether in private enterprise or government.  The book explains that each of us has an inner Spock (the logical, analytical part of our brain) and an inner Homer Simpson (the spontaneous, impetuous side of our brain).  The authors believe that choice architects should present choices so that even Homer will have a good chance of making the “right” choice, while at the same time preserving the individual freedom to choose differently if desired.    

Examples of nudging tactics include changing the “default option” (what will happen if no choice is made), changing the order in which the choices are presented, and changing the types of information disclosed.  For example, providing information that most other people are making a particular choice is a powerful “nudge” in the decision making process. 

In the area of personal finance the authors advocate nudging people towards enrolling in 401k plans by making enrollment the default option.  In companies where this has been tried initial enrollment increased from 20 percent to 90 percent of new employees.  Apparently Homer is reluctant to voluntarily save part of his money for future use, but he is too lazy to do anything about it if this choice is made for him.  The Save More Tomorrow plan, which was developed by one of the authors, is also presented as a good example of how choice architects can influence positive behavior.

While I do not object to most of the authors’ specific examples of how to nudge people to make better decisions, the fact that people are so easily influenced by subtle changes in the way choices are presented is a little creepy in a 1984, Big Brother type of way.  Advertisers are already using these methods to influence us to behave in ways that benefit them, not us, so the potential for abuse is great. We need to be more aware of the factors that influence our behavior and make sure that Spock, not Homer, is making our important decisions.

Change Anything

Nudge invokes the image of our behavior being controlled by mad scientists manipulating us in ways we are not even aware of.  In contrast, the empowering message of Change Anything is that we can be both “the scientist and the subject.”  In other words, we can instruct our inner Spock to devise a plan to keep our inner Homer under control.    

Successful changers develop a plan that is unique to them.  While they learn from experts they do not blindly follow someone else’s plan.  They study the people and environmental factors that influence their behavior and then devise a plan to get these influences working for them instead of against them.  They realize that change is not simply a question of willpower, but of developing the skills and changing their environment in ways that make change more likely.

They also realize that change does not come easily or quickly, and there will be setbacks.  Homer, being Homer, will act up at times.  When this happens successful changers “turn bad days into good data.”  In other words, they analyze why they slipped up, and then use this data to modify their plan.  Over time they come up with a plan that keeps Homer under control. 

Change Anything is a great book for anyone trying to grow and improve (hopefully all of us).  The first half of the book teaches “The New Science of Personal Success” and the second half applies the concepts to common areas where people desire improvement.  One chapter specifically addresses personal finance.  Others are about improving performance at work, health and fitness, relationships, and addictions.  The concepts taught in this book will be invaluable as you strive to improve your financial behavior.  My goal is to provide you with the financial knowledge, skills, and motivation you will need as you develop and modify your own unique financial plan.              

6 comments for “Is Spock or Homer Simpson in Charge of Your Financial Plan?

  1. October 4, 2013 at 7:21 am

    Using Spock to control Homer sounds good, except that Spock (the conscious logical mind) lacks the raw power and creativity of Homer (the sub conscious mind). If you want Homer to behave then you need to direct him by surrounding him with what Spock wants so he can use his power and creativity to help you get it.

    • Brent Esplin
      October 8, 2013 at 4:55 pm

      Thanks for the comment. That is basically the message of the book Change Anything. We need to change our environment to make positive change more likely. If we create the right environment, then our subconscious mind can use its power and creativity in ways that benefit us instead of sabotaging us.

  2. gpamerritt
    March 11, 2014 at 10:56 am

    Sounds like two great books, I might want to read them. “they analyze why they slipped up, and then use this data to modify their plan”. I’ve been dieting lately, since Jan 1. I found myself hitting the work vending machines to buy a candy bar a couple of times a day. So I analyzed this, and removed the temptation by purposely emptying my wallet of cash, so I could not buy anything from the vending machines. I think it’s been 6 weeks or so with no cash in my wallet. End result? Down 18 pounds since Jan 1, 2014 so far.

    • gpamerritt
      March 11, 2014 at 10:59 am

      Oh, and maybe it is your site that had a good article on how to figure your savings rate, and in a bad month, it is 67.9% right now (assumes I save nothing except what is on automatic pilot). So I guess I have nudged myself in the right direction financially speaking a few years ago (I used to be horrible financially). 660 days until I retire.

      • Brent Esplin
        March 11, 2014 at 3:58 pm

        Yea. I wrote a post about how to calculate your savings rate a while ago. 68% is a pretty impressive savings rate. Way to go! Would it be rude of me to ask how old you will be when you retire?

    • Brent Esplin
      March 11, 2014 at 3:56 pm

      That is exactly the kind of thing they teach you how to do in “Change Anything.” Little things like that can make a difference.

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