Making financial decisions can be a daunting task, requiring a great deal of knowledge and skills. Healthy financial decisions require an ability to recognize the long-term consequences of current choices. Unfortunately, many people’s decisions related to personal finance are often suboptimal, leading to credit card debt and other financial problems.
Procrastination is often linked to impulsivity and reduced appreciation of the long-term consequences of current choices. This suggests that at least some unhealthy financial behaviors are an example of procrastination.
In a study conducted by Gamst-Klaussen et al. (2018), it was found that planning correlates negatively with procrastination. Hence, a lack of planning can lead to procrastination, resulting in irrational delays and poor financial decisions.
Does financial procrastination predict financial success?
The study conducted aimed to explore the links between procrastination, planning, and financial behavior. The researchers administered an internet-based survey measuring general planning habits, financial behavior, as well as procrastination.
The study found that procrastination was a significant predictor of financial success, while planning was not. This suggests that failing to plan does not independently explain financial problems, but procrastination does. Hence, lack of planning, at least according to the present data, does not separately explain why procrastinators demonstrate more financial problems compared to non-procrastinators.
What do the findings mean?
The study found that individuals with low self-control and those using credit cards to handle unforeseen expenses are more likely to carry credit card debt after the purchase period.
Furthermore, present-biased preference explains tax filing close to the deadline, which leads to last-minute mistakes and overpayments.
Lastly, the study suggested that procrastination is the outcome of present-biased preferences by demonstrating that procrastinators behave differently from non-procrastinators concerning important financial behaviors related to retirement planning, being less likely to participate in saving plans, initiate saving later, and less likely to save a fixed sum every month.
Implications for Financial Decision-Making
Given the prevalence of procrastination in the general population, it is essential to recognize the importance of planning and self-control when making financial decisions. Planning habits can be improved by implementing motivational techniques like goal setting, which reduces irrational delays. Self-control and deliberate thinking, such as making plans and analyzing problems, are important predictors of financial behavior.
By understanding the factors related to personal financial behaviors and decisions, individuals can make better financial decisions and ultimately improve their psychological health and well-being.
Here are some practical tips to improve your financial decision-making:
Set clear financial goals: Define your financial goals and break them down into smaller, achievable steps. This will help you stay focused and motivated.
Create a budget: A budget helps you keep track of your spending and identify areas where you can cut back. Make sure to include savings in your budget.
Automate your savings: Set up automatic payments to your savings account to ensure that you save a fixed amount every month.
Pay off credit card debt: Avoid carrying credit card debt after the purchase period. Pay off your credit card balance in full each month to avoid high-interest rates.
Seek financial advice: Consult a financial advisor to help you make informed financial decisions that align with your goals.
Why is financial decision-making important?
Making healthy financial decisions is crucial for personal and financial well-being. Studies have shown that healthy personal finances are positively related to psychological health and well-being and higher productivity. Healthy financial decisions require the ability to recognize the long-term consequences of current choices and the willingness to make sacrifices in the short-term to achieve long-term goals.
Financial decision-making also plays a significant role in retirement planning. Studies have shown that present-biased individuals are less likely to participate in saving plans, initiate saving later, and less likely to save a fixed sum every month. This leads to a lack of financial preparedness for retirement, which can have negative consequences on an individual’s financial well-being.
Practical tips for better financial decision-making
By implementing the following tips, individuals can make better financial decisions, reduce procrastination, and ultimately improve their financial well-being:
Set clear financial goals: Define your financial goals and break them down into smaller, achievable steps. This will help you stay focused and motivated.
Create a budget: A budget helps you keep track of your spending and identify areas where you can cut back. Make sure to include savings in your budget.
Automate your savings: Set up automatic payments to your savings account to ensure that you save a fixed amount every month.
Pay off credit card debt: Avoid carrying credit card debt after the purchase period. Pay off your credit card balance in full each month to avoid high-interest rates.
Seek financial advice: Consult a financial advisor to help you make informed financial decisions that align with your goals.
Educate yourself: Learn about personal finance and investing to make better-informed decisions.
Practice self-control: Make deliberate choices that align with your long-term financial goals.
By implementing these tips, individuals can make better financial decisions, reduce procrastination, and ultimately improve their financial well-being.
This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.