Speaker A
Well, good morning. It's a great honor to be here today and talk to you about money, behavior, and your life. But I can't do this alone, so I need your help. So let's start by answering a couple of my questions, okay?
Michiel van Vugt explores how impulsive behavior affects money decisions and emphasizes planning for a fulfilling financial life.
Key Takeaways
- Impulsive decisions often lead to poor financial outcomes due to evolutionary brain wiring.
- Relative income and social comparison influence happiness more than absolute income.
- Behavioral finance education is lacking but essential for better money management.
- Planning and delayed gratification are key to achieving financial goals and a fulfilling life.
- Living true to oneself is more important than material wealth for long-term happiness.
Summary
- Michiel van Vugt discusses the impact of impulsive decision-making on financial behavior, linking it to our evolutionary brain.
- He illustrates how fast, gut-based decisions can lead to poor money choices, such as buying or selling investments impulsively.
- Van Vugt uses examples like choosing where to live to show how relative income affects happiness more than absolute income.
- He highlights the lack of behavioral finance education as a key reason why people struggle with money decisions.
- Money-related stress affects a significant portion of people, with 33% losing sleep over financial worries.
- Life is a live show with limited time, and making smart money choices is crucial to living a fulfilling life.
- Van Vugt references Bronnie Ware’s work on regrets of the dying, emphasizing the importance of living true to oneself.
- He explains the brain’s preference for instant rewards over future gains, which complicates financial planning.
- Planning is essential to turn dreams into achievable goals, requiring clarity on what you want and how to get there.
- The talk encourages awareness of behavioral biases and the need to balance impulsiveness with thoughtful financial decisions.
Full Transcript — Download SRT & Markdown
Speaker A
And let's start simple again. Can you please raise your hand again if you're from Crowder? All right, thank you. Can you raise your hand if you're a woman? Nice. Can you raise your hand if you are over 40 years old? All right, okay. Yeah, can you
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raise your hand if you will never raise your hand no matter what they ask you? Fair. Smart group, yes. Thank you. Last question: can you raise your hand if you think money makes you happy? Well, thank you. My conclusion: we are in Crowder,
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enough women, many people over 40. So I think it's safe to assume I have a very intelligent group of people right here in front of me, right? And this could cause a problem for my next question because this is a very simple question,
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maybe even too simple for you smart people. But let's do it anyway because I brought my book and I'm going to spice this question a little bit. So the one who gives me the correct answer will win a copy of this book, all right? Are you
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ready for a very simple question? Please be loud and clear. Ready? How many squares do you see? Sixteen, seventeen, twenty-one, twenty-nine, twenty-five, seventeen, twenty-eight, thirty-six, thirty-two, thirty. Who's at 13? Oh yeah, a license. Well, this wasn't so
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easy, and I am to blame because I used a couple of dirty tricks, to be honest. First of all, I said a couple of times you are smart people, and of course you are, but I put you in this smart people
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state of mind. Then I told you it's going to be a very simple question. You thought, "I'm smart, simple question, I can do this," and then I spiced it up a little bit with the book. So you
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decided to answer as fast as you can, and there we go: many wrong answers, even though the 30 squares are right there in front of you. So you just experienced how easy it is to make an impulsive decision. We call this
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our fast system. It's very active all of the time, and this has a lot to do with the way our brains developed back when we were living in the African plains, climbing our leopard skin. We need a decision to survive.
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Imagine you are there on the floor of the African plains looking for food when suddenly one of your friends runs away. What would you do there, crawling around in the yellow grass? Would you wait and determine what is going on, whether your
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friend is running away from a lion? No. You would run as fast as you can. You wouldn't think about it. However, we left those flying plains behind a long time ago, so we may not need to rely on this
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impulsive decision-making as much anymore. And impulsiveness is probably not the best strategy when it comes down to financial decision-making. You need it. You really need to know what the consequences are of your deeds. But our ancient reptilian brain makes us buy
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bitcoins when everyone else does, makes us sell our investments when the stock market plunges, and lets us do all kinds of crazy stuff with our money. Let me give you another example of how we make decisions. Suppose you're free to
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choose where you prefer to live. You can either choose to live in Chapel Street, and in Chapel Street you will make one hundred and twenty thousand euros a year, while all of your neighbors will make one fifty. You could also move to Market
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Street, and here you make a solid 80 thousand euros, and the rest of them make 60. So where are you going to live? Chapel Street or Market Street? Or you smart people would say, "Oh, this is a no-brainer. I won't even choose Chapel Street because I
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make forty thousand euros more," right? Think again. Well, choosing Chapel Street would be the failure of the street. You would live in a smaller house, and you wouldn't go on holiday as often as your neighbors, whereas in Market Street
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you'll be the king or the queen of the road. You know, the biggest house, the biggest car, you would go on holiday quite often. You feel better in Market Street. That sounds illogical, right? But research shows this is indeed how we seem to
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reason. So we tend to use a gut feeling quite often, and this is not always a bad thing because it got us where we are now. However, it also messes up today's decisions. I've been working in personal finance for over 15 years, and I've
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learned it's very hard to make good financial decisions. And why is this? Well, I believe it's because money is not a proper part of our education, at least not any behavioral side of it. True, we learn a lot about the economy,
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investments, insurances, but this original and most financial decisions are internal at all. So we need to learn how we behave in order to make better decisions. And I think this is important because money causes a lot of stress. Did you
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know that 33% of people stay awake at night because they worry about their money? And worrying, well, it doesn't bring us a lot of joy, now does it? And this is a shame because I believe life is not a
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rehearsal. It's not a dry run before the real show opens. There's no editor to set things straight before light comes on. Your life is a live show. You've got one chance. Do it right or wrong, so you do better, do
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it right and do it fast because time is slipping away. I'll show you what a metaphor I brought: a measuring tape, and this particular piece of tape is 81.5 centimeters long. The reason for this 81.5 happens to be the average lifespan
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of people in Europe. Earlier we saw that many of you are over 40, which means half of your life is in the past. Well, I hope you'll learn a little bit. Sure thing, you hope you enjoyed it, and good news is it
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seems you have 40 years left, or whatever. This is really the case because if you really, really want to do and make the best of your lives, probably the last 10 years of your life you won't do this
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anymore because when you're over 70, you tend to settle down. You want peace of mind and security. So if I do the math here, you only have 30 years left to make the most of it. What is making the most
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of it? What is making the best of it? Well, I'm not sure if we do know now. If we do, know that, but we do know what we don't want because an Australian nurse named Bronnie Ware wrote a book about her
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regrets she recorded from dying patients. She had been nursing patients during the last 12 weeks of their lives. The number one regret: "I wish I would have had the courage to live a life true to myself, not the life that others expected of me."
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And such people who are about to die recognize they lost their chances at fulfilling their dreams. So making the best of it is probably not about buying bigger cars or fancier clothes or, you know, saving a bigger boat around the world.
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No, it's much more than that. It's being true to yourself. I think the good thing is we have the freedom to do so, and I feel we may well have the duty to as well. So why is it so hard to do this,
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actually to live a better life? What is holding us back? I think it's understandable. Here's a perfect example of how we make decisions. Suppose you can choose again between 100 euros now or 110 euros in a month. What
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would you choose? Research shows again that many people favor their 100 euros now over the 110 in a month, which is weird to me because you make 10 euros more, which is a 10% return in a month. But our brain is hardwired to go for the
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instant reward instead of thinking about the future. And this is what you have to do if you want a more fulfilling life and chase your dreams. You have to plan because a dream without a plan is just a
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wish. However, with a proper plan, it becomes a goal, and these may be achieved. So start planning, and it basically means knowing what you want, when you want this, and how to get there. And if you do this, you will find out you
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need some money, and you will also find out there's this money paradox because on the one hand, I don't believe money makes us happy. On the other hand, money, we can use money to do the things that make us happy, right? So
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instead of working long hours in jobs we don't really like, we should use money to change the dreams we...
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advisor or someone else you trust who sees money as a tool instead of a goal and with financial planning basically means is giving you peace of mind regarding your money it means no more worries about a broken car or an unexpected bill did you
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know that 40% of people don't have enough money to pay for unexpected bills can you imagine the anxiety this causes but financial planning also means actually save and create enough savings for your kids college money or to accumulate enough wealth to retire early
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it basically means having enough for who knows what and sadly in my day-to-day life as a financial planner I come across a lot of people who don't really appreciate their lives as it is they sometimes complain about jobs and lack
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of money even though we could so could do so much better in our part of the world but this summer I was with my wife and two little boys we were in our hotel room we had a great holiday at a
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beautiful island with white beaches and palm trees and very friendly local people it was perfect until the earth started to shake and not like a big truck driving by but more or less like a big giant shaking our little holiday
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house so we ran outside and saw quite a few people panic of course we were in Lombok Indonesia we came out unharmed we were lucky but it dawned on me that many people in the Western world are lucky all of the time we live privileged
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lives with solid houses sufficient in comes a sound social security system we have education health care and freedom my friend always says freedom is knowing what you want and having the means to do so so I think I believe if you start
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making smart decisions we could actually improve our lives a little bit so bear with me here again please can you think back one and a half year ago so spring of last year think back to the moment you bought your new clothes for the
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summer jeans or pair of jeans or you know new jacket can you think of that moment how does this make you feel I keep this in mind keep this feeling in mind if you will nothing back to another moment
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could be even longer away think back at the moment you spend with someone you really care about your kids your parents your friends your partner maybe at a special occasion by playing with your kids at the beach or having a great
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dinner where's your partner somewhere how does this make you feel if you probably if you're honest to yourself thinking back to this moment with your friend or partner kids gives you a bigger sense of happiness and this is
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what we also see if he if you look into your brain there's much more brain activity in the happiness area if you think back to those memories these are long or lasting and give you a bigger sense of happiness and still we
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fell prey to our own behavior all the time and by all these things we don't really need even though deep down we know we favor experiences over possessions so I think if we can use our money in a smarter way and behave a
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little bit better with our money we could actually improve our lives and the end of my talk is nearside let me allow me allow me to recap a little bit I hope you just experience a little bit how
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hard it is to make proper decisions regarding your finances we are impulsive it's hard to think about your future and this causes a lot of stress regarding money I think if you have an advice or someone you can trust you can
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actually improve your life it will give you peace of mind regarding your finances and you can live a better life and this leaves me leaves me with my final question what are you going to do what are you going to change your life
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will be a little bit better tomorrow than it is today thank you very much you
Topics:financial behaviormoney decisionsimpulsive decision-makingbehavioral financefinancial planningmoney stresspersonal financedelayed gratificationlife fulfillmentTEDx
