Are You Using Logic or Emotion in Your Decision Making?
My newsletter earlier this month (you can subscribe here) talked about aligning our values with our goals, financially. Then later in the month, I listened to two thought-provoking podcasts that tie into the idea of living out our values. And I was also blessed to spend time with some of our pre-school aged grandchildren this month. It all actually ties together and got me thinking.
I know, the concept of aligning your financial goals with your values sounds like one of those “blah blah blah” topics we have all heard about, shook our heads in agreement, and then went on our merry way. I always provide tools to help implement whatever my message is but again, we often read and go on our merry way, no action.
Emotional Trigger
Human behavior change often needs an emotional trigger to bring us to action. But we are often cautioned NOT to go with our gut, NOT to just rely on our initial feeling, and TO avoid emotional decisions. But the two podcasts I listened to this month made some great clarifying points on the value of emotions.
Heart and Numbers
The first podcast was directly related to money decisions: Do People Make Better Money Decisions with Emotion or Logic? I think the good news out of the discussion is that both have value, and the best decision is made considering both. As the podcast host, Tony Steuer, concluded, the best decisions combine heart and numbers.
He also polled colleagues in the financial industry on LinkedIn after the podcast and confirmed that the majority of Certified Financial Planners who responded also agreed that both emotion and logic not only help in decision making but also with prompting someone to take action on those decisions.
Smarter with Feelings
The second podcast was more about life in general, not just money decision making: How Feelings Make Us Smarter. Similar to the research shared in that podcast, I agree that emotions give context to a decision which helps immensely in both deciding and taking action.
Grandchildren
So where do the pre-school-aged grandchildren fit into this emotion vs logic decision making? While visiting them recently, they were encouraged to use the word “stop!” (instead of emotionally responding to a situation by whining or screaming) and then use their words, like “don’t take that away” or “it’s my turn” or “that hurt!” or “I had this first” or “I don’t like that!” Emotion triggered “Stop!” and then logic verbalized why they were upset as part of the decision of what to do next.
The Answer is Both
Just like the podcasts discussed for adults, emotion was part of these young grandchildren’s decision process. So perhaps the best answer to my question in the title of this article is both… logic and emotion. I’m glad to see that this discussion has made it to the financial industry. Too often, we are trained to think that financial decision making is all about the numbers.
I can think of examples when the best financial decision mathematically was not the best fit for the family involved based on their experience and priorities: Paying off a low interest mortgage with life insurance proceeds. Stock sales that trigger a large tax consequence for gifting purposes. Leaving a large percentage of resources in low interest bank options.
Leading a Horse
Emotions and relationships can matter more to a person than the numbers. That’s when I remind myself (and the clients) that this is their life, not mine. My job is to present the options along with a recommendation as their advocate and guide, but they must choose the action to be taken in their life. It can feel like the old cliché, you can lead a horse to water but you can’t make him drink.
Sleep on It
It is when we only make financial decisions based on emotions that we can run into money troubles. Emotions should be considered in order to give context to decisions but not drive them exclusively. I’m a big fan of the “sleep on it” strategy. We may find ourselves in a purchase decision, for example, and the power of marketing has hooked our emotional brain. But if we sleep on it, walk away to let our logical brain engage with the emotional side instead of just being stuck in the emotional side alone, we may come to a different decision the next day when logic is part of the decision.
The next several times you are making financial decisions, check in with yourself. Are you using both emotions and logic to come to a final answer on what to do next?
Your Turn:
Can you think of a time when you made a strictly emotional financial decision? Or a time when the emotion of the decision helped you make the best financial decision for you? Does the “sleep on it” or another strategy help you to consider both emotion and logic? Let’s have a discussion.
