How Does Time Perception Influence Your Money Decisions?

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Knowledge is power, unless your perspective on time is creating a mental block toward strong financial health. Understanding mathematical skills and key financial concepts is critical for financial literacy, but knowledge alone fails to compensate for shortcomings caused by our personal behavior.

A high degree of financial acumen is not a strong predictor of financial health. In fact, your approach to the past, present, and future provides more meaningful correlations, according to new research from Magnify Money and Philip Zimbardo, professor emeritus of psychology at Stanford University. Subjects who perceive themselves as financially literate also fail to show a higher degree of financial health. For example, millennials think they are less financially literate, but actually demonstrate better financial health than baby boomers.

The study involved more than 3,000 people in six different countries. The United Kingdom had the highest percentage of financially healthy individuals, with 51.9 percent of individuals posting high scores, followed by Germany (40.9 percent), the United States (33.2 percent), Italy (18.1 percent), and Hong Kong (17 percent). Brazil came in last place, with only 14.1 percent.

Someone who is considered financially sick would be: highly likely to borrow money from payday lenders, likely to have filed bankruptcy or experience foreclosure, likely to carry a balance on credit cards, and unlikely to even know the interest rate on his or her debt.

People who are past-oriented are more likely to be financially healthy. They tend to be more conservative and take less risk. If you lost money in the past, you are less likely to take risk in the future and more likely to avoid financial ruin. However, not taking enough risk can be harmful in the long run, as you could miss out on financial upside, such as one of the longest stock rallies in history. Furthermore, people obsessively tied to positive memories of the past may refuse to recognize the benefits of new technologies or ideas.

Living in the present may be fun, but you are more likely to be financially sick. Impulsive people are those who add to their shopping cart while waiting in the checkout line or decide to suddenly purchase a shiny new car they see while driving down the highway, even if they can’t really afford it. They are willing to gamble their life savings, spend money they don’t have, and ignore the consequences of poor financial decisions. All problems seem solvable with the right lottery ticket.

People focused on the future have a high self-perception of financial literacy, but not necessarily a higher degree of financial health. These people tend to sacrifice pleasure today for success tomorrow. They are focused on their careers and often neglect spending time with friends and family. They may even purchase excessive insurance in the wake of over-preparing for the future. It’s good to think about the future, but don’t forget what Ferris Bueller taught us: “Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it.”

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