Personal Finance is combination of maths and psychology. Just 1-10 % maths, 90-99% psychology, to my mind.

Economist has an insightful article on how irrational buying offers an opportunity for smart selling and advertising by brands/ companies.

Excerpts:

• “You would be amazed to find how often we mislead ourselves, regardless of how smart we think we are, when we attempt to explain why we are behaving the way we do,” Dichter observed in 1960, in his book “The Strategy of Desire”.
• He held that marketplace decisions are driven by emotions and subconscious whims and fears, and often have little to do with the product itself.
• Trained as a psychoanalyst, Dichter saw human motivation as an “iceberg”, with two-thirds hidden from view, even to the decision-maker. “What people actually spend their money on in most instances are psychological differences, illusory brand images,” he explained.
• Sigmund Freud argued that people are governed by irrational, unconscious urges over a century ago.

You may also read my Iceberg theory of money management.

What do you think? Are you aware of your own financial behavior?

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Sehwag’s 219 in 149 balls has once again compelled comparisons with the incomparable Sachin. I don’t believe in making comparisons as apples and oranges can’t be compared. This post is about the difference (or lack of difference!) between having technical competence and the lack of it.

Sehwag has been accused of having little technical competence and relies on his eye hand coordination. And how damn effective he is!!

This also blurs the lines between having great technical competence and not having one. If lack of tecnique/knowledge is filled up with common sense and a keen interest in hitting the ball, there’s hardly any difference.

Lack of knowledge of financial jargons will have no impact on your financial management if you have a keen eye on handling your finances on your own.

And the eye hand coordination is to be managed by your mind. The power of mind is all you need!

You decide. You want to be Sachin or Sehwag

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Obviously there’s no problem with quality information and analysis. But over the years nothing much has changed despite quality information and analysis, atleast in the investors understanding and knowledge. Here are some points where I have a problem with the impact of quality information and analysis.

1. Quality information and analysis is already there. There are so many great efforts on educating people on investing. The Intelligent Investor by Bejamin Graham was written in 1970s, that is 40 years ago. Warren Buffett’s letters and books on his style of investment are there aplenty. In India, Moneycontrol, MyIris and other prominent Indian dailies have written indepth analysis and have shared quality information. The internet is full of resources on tap. Whoever wants information and analysis has access.
2. However has this quality information and analysis impacted the users in a big way? In fact there has been research that instead of better decisions, there’s a paralysis by analysis. Past experience or what is working subconsciously in your mind is coloring your thoughts and the information and analysis is not really working.
3. By saying that the queries of users show the need of quality information and analysis, what is also being said is that the Investors/Questions are stupid. It is another way of saying that people’s queries are dumb when it comes to financial awareness and this is evident from their queries.
4. I think that it is wrong to be preachy, sound like an expert and call people stupid. I mean it is wrong to judge a fish on her ability to climb a mountain. These investors/ questioners are experts in their own areas. They are Doctors, Engineers and Professionals who know their subject very well.
5. I am amused at articles writing extensively on the Do’s and Don’ts of the financial planning. Even though many of the writers would not follow their own advice. For example, how many of the financial planners do budgeting? Or are the Insurance agents adequately insured?
6. More than information and analysis, there’s a need to be aware of our psychology of money. I mean some of us are hard wired to be savers and others will be spenders and savvy investors. You can’t really change one into another. Moreover, we should not even try.
7. I would prefer creating tools and then getting out of the way to let the users decide for themselves.

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I enjoy reading this blog on a look at Psychology and Finance called the Psy-Fi Blog. Check out this post on the secret of a healthy, wealthy life

Excerpts:

…People, we know, generally aren’t very good with money. …. Yet what’s interesting is that there is a small, but significant, group of people who overcome these problems with apparent ease.

What’s even more interesting is that there’s a simple way of picking out these people from the age of four: and all you need is a couple of marshmallows.

The marshmallow test is a test of self-control: a four year old is offered the option of a marshmallow now or two later. To gain the extra sweetie they have to wait an indefinite period of time – usually fifteen or twenty minutes in actuality – and unsurprisingly most can’t manage this.

However, nearly a third of children do manage to wait long enough for the additional treat and this effortful exercise in self-control turns out to be amazingly predictive of future life chances.

Related post: Money grows as a tree, not on it

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Want to share this post with you about how emotional ads are processed quite differently by the brain than those that appeal to logic. Link to the full post.

Excerpts:
Researchers had subjects view different ads, some that used logical persuasion to sell, and others that used what they called “non-rational influence” ads. The latter used mostly images, often of attractive people.

When the experimenters monitored the subjects’ brain activity using a form of EEG called low-resolution brain electromagnetic tomography, they found that the information-laden logical ads did light up more of the brain, including both areas associated with decision making and emotions.

While the higher levels of brain activation sounds like good news for ads that persuade with logic, lead researcher Dr. Ian Cook concluded that the emotional ads were more impactful:

Because the results showed that in response to non-rational sensory inputs, activity was lower in areas of the brain that help us inhibit responses to stimuli.

The findings support the conjecture that some advertisers wish to seduce, rather than persuade, consumers to buy their products.

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