Experts at the CNBC Financial Advisor Summit stated that the human brain is wired to hinder one's financial well-being. This includes a propensity to buy when the price is high and sell when the price is low, buy goods out of a desire to not miss out, or adhere to the opinion of the majority. Nevertheless, it is possible to counter these financial instincts.
At CNBC's Financial Advisor Summit, experts in psychology stressed that our brains and money don't coexist well. Brad Klontz of YMW Advisors and creator of the Financial Psychology Institute proclaimed, "We're all irrational with regards to money." He continued, "It's nothing short of extraordinary that someone could make sound financial decisions." Klontz, a certified financial planner and CNBC Financial Advisor Council representative, noted that our minds cause us to make irresponsible choices with our funds, such as purchasing high and selling low or following the herd mentality.
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The experts noted that certain deficiencies associated with money can be traced to evolutionary processes that occurred thousands of years ago, or on an individual level in early childhood. Furthermore, parents, culture and socioeconomic status can have a notable effect on a person's money beliefs when they are young. Additionally, shame associated with having too much or too little money is a common feeling that can be traced back to the habit of comparing oneself to members of their "tribe." As a result, some households may place an excessive emphasis on accumulating wealth, despite it not being a key factor to overall satisfaction.
According to Preston Cherry, founder and president of Concurrent Financial Planning in Green Bay, Wisconsin, and CFP and member of the CNBC Financial Advisor Council, a financial target must be exceptionally personal. “It’s like a thumbprint, in that it’s absolutely unique for each individual,” he noted.
Experts have noted that financial well-being is not solely about one's investments. Instead, the key is understanding how money can enable one's goals. A Charles Schwab survey found that most adults view overall well-being, not money, as the primary indication of wealth. To that end, Cherry recommends staying focused on one's plan and ignoring the "fear of missing out" from what others may be doing. He emphasized the importance of not comparing oneself with others.
Experts said that the prevalence of misinformation and bad financial advice on social media has made it more difficult to help kids develop good money habits.Moreover, digital cashless payments have made money into an increasingly abstract concept, which can make it hard for children to understand.In order to be good role models, parents can show their children how to save for something big, such as a vacation, by setting aside a certain portion of their paycheck over a period of time. This teaches the children the values of delayed gratification and saving for the future.On a more general level, money is still considered somewhat of a taboo topic to discuss with others, including family and friends, as well as when reflecting on our own lives, Cherry said.It is important to have open conversations about money to enable better financial outcomes, according to Cherry.
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