I recently had a financial wake-up call in the form of honesty. I viewed a presentation by Dan Airely entitled, Free Beer: The Truth About Honesty. Dan is a professor of psychology and behavioral economics at Duke University. He has studied human behavior, particularly how people who think of themselves as being honest can do dishonest things.
Airely suggests that in an era of modern financial conveniences – such as credit cards, debit cards and automatic payments – we distance ourselves from our spending. The psychological distance between our actions and our awareness allows us to be dishonest with ourselves, without seeing our actions as being dishonest.
Because of the psychological distance, it is possible that there is a disconnect between how well we perceive ourselves financially and what our finances actually say about us.
Here is an example of how we can be dishonest with ourselves when making a routine financial transaction, such as choosing to use a credit card for a purchase. I think we would all agree that if our credit card has a $12,000 credit line, we do not have $12,000. However, when making a purchase with that credit card, we say that $12,000 credit line is ours, and do not view this action negatively. Rather, we view our use of a credit card as a financial convenience; it allows us to get what we want when we want it. But, unless we have that same amount of money available at the time of the transaction in an account, or in cash, aren’t we in fact telling ourselves a lie – that we can afford whatever item we charged?
We can also find ways to rationalize dishonesty so that we can continue to view ourselves favorably. I’ll have that money by the time the credit card bill arrives. This can’t be dishonest if I pay the bill in full. When the bill is paid in full, that internal discrepancy is resolved, and we return to a state of financial honesty within ourselves.
However, habitual dishonesty through the use of a credit card can lead to debt. Debt denial can follow for those who want to continue to view themselves favorably. By not opening bills, or setting up automatic minimum payments, an individual can continue to consciously deny his or her debt, without questioning the honesty of his or her actions.
Here are a few ideas for how you might become more financially honest with yourself:
- Carry cash for discretionary spending. You can visually see how much you have.
- Put the credit cards away for a month, purchasing only what you have immediate funds for.
- Use a budgeting app, such as Learnvest. Use the app to view all of your accounts and debts daily.
- Limit your online shopping. It can be easy to get carried away when both the shopping and spending experiences are virtual.
How do you keep your finances honest? Please share your ideas in the comments section below.
Kate N., MS, CEAP, joined Empathia in 2005 as an EAP counselor, then became a performance specialist in 2012. Kate has a master’s degree in Educational Psychology. Kate is devoted to helping individuals determine how to make lasting changes. Prior to joining Empathia, she worked in the social work field as a case manager for Child Protective Services. Kate enjoys baking, yoga and escaping into the woods of Northern Wisconsin.