Yes, Numbers Matter in Money Decisions, but So Do Emotions

There’s not a lot of patience in this world for things that don’t fit into a calculator. Even just mentioning “feelings” or “intuition” makes me feel that I should be sitting in a drum circle with people reeking of patchouli. That is how strong a stereotype we’ve created around these things we all experience. Unfortunately, it’s a stereotype with negative connotations. How did we get to this spot?

Money Equals Feelings

The Sketch Guy, on letting the numbers dominate too much of the money conversation.

Early work in the field of economics made some assumptions, out of a desire to make things fit in a spreadsheet, about how people act (or react). The assumption was that the typical person is a rational being who makes informed, measurable decisions based on things we can quantify and calculate. It was also assumed that people would always act in their own best interests (which, by the way, is to make more money).

But that assumption — which turns out to be the foundation of most modern economic theory — is wrong. Plenty of research over the years has pointed out this problem. The latest example is a study that Michael Kitces highlighted in a recent blog post. This study found that “having readily accessible sources of cash is of unique importance to life satisfaction, above and beyond raw earnings, investments or indebtedness.”

Raise your hand if those findings surprise you. This is not rocket science, people. We all know that we do irrational things. That’s because we aren’t numbers — we’re humans. It makes no sense for you to have cash on hand when you could be investing it instead. At least, if Numbers were in charge, that would be true.

But Numbers isn’t in charge. My experience, plus the study above and many other examples of how people…

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