COMPANY / The three key behaviors to achieve financial well-being explained by psychology

The three key behaviors to achieve financial well-being explained by psychology

N26 online bank partners with Professor Mira Fauth-Bühler, Ph.D., Neuroscientist and Professor of Economic Psychology and Neuroeconomics at FOM University Stuttgart, to identify habits that help people improve their relationship with money

Avoiding compulsive purchases, saving without pressure and setting realistic goals are some of the keys to enjoying a healthier financial state

Setting realistic goals, not putting too much pressure on yourself or subjecting yourself to very strict goals are three of the keys to improving financial health and, with it, emotional well-being, says the online bank N26. On the occasion of the Mental Health Awareness Month, celebrated in May, the entity has collaborated with the professor and doctor Mira Fauth-Bühler, neuroscientist and professor of economic psychology and neuroeconomics at the FOM University of Stuttgart, to define the habits that They help improve people’s relationship with money. Although an important part of the causes that generate anxiety regarding personal finances are not controllable, it is possible to develop habits that affect economic decision-making by making them more aware.

1. Avoid compulsive purchases

Stress and bad mood are often behind impulse purchases that often end in regret, says Fauth-Bühler. Emotional distress causes the control region of the human brain to “shut down.” This is problematic since this area is responsible for managing long-term goals, delaying gratification, and resisting impulses and temptations. Instead, the reward system takes over, demanding instant gratification to feel better. Likewise, time and time pressure are the main enemies of rational thought. “If you don’t have the time to reflect on the behavior, possible alternatives and consequences, the reward system takes over,” says Fauth-Bühler.

Both scenarios often end in those impulse purchases and questionable financial decisions. Therefore, a crucial first step towards more conscious spending behavior is being able to identify our consumption patterns. From N26 they recommend identifying the factors (the start of the sales, for example) and the situations (going shopping after a bad day) that encourage compulsive spending to avoid it.

2. Save without pressure

According to the analysis carried out by Fauth-Bühler, “the human brain is not made to save or make intelligent financial decisions.” On the contrary, the human being is “programmed to seek instant gratification and the brain rejects waiting or long-term rewards. Therefore, spending is much easier than saving or investing.”

To alleviate the pressure of the control system when making conscious savings decisions, N26 suggests defining long-term objectives and making use of tools that allow the process to be automated to avoid having to make active decisions. Digital tools are a good alternative, as they simplify and automate the saving process. For example, N26 allows you to set automatic rules for your slots (subaccounts) that regularly transfer a preset amount. Another function that the user can choose to automate is the “Rounding”, which, as its name suggests, rounds purchases to the nearest euro and moves the surplus to a saving space designated by the customer. It should be noted that in the first year after its launch, this tool allowed N26 customers to save more than 12 million euros.

These are examples of how to establish a saving behavior based on habit, which is guided by the “reward system” and, due to its automation, requires less effort and energy, freeing the user from the pressure or rejection that often involve active saving decisions.

3. Set realistic goals

Responsible money management habits aren’t established overnight, and setting too many or unrealistic financial goals can even backfire, as “trying to control too many impulses at once increases the risk of failure,” says Fauth- Buhler.

Instead, Online Banking recommends breaking down savings goals into smaller milestones and formulating them as specifically as possible. “Meeting goals brings an instant sense of gratification, and because of a positive reinforcement process (reflected neurobiologically in a burst of dopamine), the person is more likely to repeat the behavior that led to that success.” Ultimately, this will promote financial well-being and improve the relationship with money, as the joyful emotions of success and achievement will be associated with saving.

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