Why Behavioral Finance?
Financial education, in general, has an Achilles heel. In various financial literacy seminars you may have attended, you will learn some financial concepts to get you started. But some will ignore or even dispute this particular shortcoming—one that has been responsible for so many mistakes we’ve made in our lives. It is the assumption that we’re rational.
People can be rational 30% o of the time. And we’re not even consistent with that 30%! That percentage fluctuates. An alcoholic, if we're truly rational, will stop buying alcohol by not passing by the alcoholic beverage store that tempts him to buy a beer every time. An obese smoker, if he suddenly becomes utterly rational, would go on a diet ASAP and give up smoking, because he knows that cigarettes are detrimental to his health. And if you and I are rational, we would not be enticed by that buy-one-get-one-for-free poster on the shop window in the mall.
Economic and investment concepts you learn from standard financial literacy seminars hinge on the notion that people have limitless capacity for rationality, willpower, and selfishness.
But we’re not. In the real world, we’re just humans prone to emotions—to excitement, fear, love, jealousy, grief—which can make us act irrationally.
Because we’re irrational, we are controlled by our urges. We procrastinate. We avoid pain. We can be emotionally manipulated. We all have shortcomings and failures in meeting our financial goals, and that’s OK.
Don’t feel bad if you think you’re falling behind expectations.
Throughout the years I’ve been building research materials and original content for i-TeachOptions, my gut instinct has been telling me to focus on behavior and mind-setting. They are the very things working behind the curtain of our financial success.
So, I believe there is one best option after all—it is to approach financial literacy through behavioral finance.
Behavioral finance investigates why and how people act irrationally. It is among the newest and most fascinating areas of academic study, combining psychology and economics.
Join me now as we embark on a new mission on financial literacy—one focused on understanding our behavior when it comes to money.
What we can offer is provide insights and hopefully could lead to practical applications you can use for some behavioral corrections, which can lead to a better, more rational, financial decision.
My aim is to understand the psychology behind financial behaviors of Filipinos in general
To back my studies with empirical research, I’m posting survey questionnaires on this blog. Feel free to participate. If you do, I thank you in advance for contributing a great deal to our behavioral studies.
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