You Are Lying to Yourself About Your Money

by Mikey Rox on 21 February 2014 1 comment

In a recent survey, most Americans give the average American a failing grade when it comes to personal finance, while those same respondents give themselves an A or B.

It shows very clearly that there is a disconnect between how we perceive our own financial responsibilities and how we perceive those of the public at large.

We know somehow that there's a problem with the way we handle our money, yet we're completely unaware when we're engaging in the very practices that are causing the problem. As is so often the case, it's easy for us to see the fault in others, without being able to even begin to examine our own part in it. (See also: Small Mistakes That Can Ruin Your Finances)

So what are these problems? How are we deceiving ourselves when it comes to our own money?

Lies About Debt

Because of a general lack of knowledge about what's actually happening when we swipe (or even sign up for) a credit card, many people don't appreciate or understand the significance of what it means to "be in the red."

Here are few ways this lack of knowledge leads to lying to ourselves. (See also: Your Debt Is Killing You)

"My debt doesn't exist."

Finding its home amongst a list of what therapists call "money disorders," financial denial is essentially when someone experiences so much anxiety over money-related issues that they act as if the issues themselves don't exist.

It's not uncommon for people dealing with this problem to avoid opening credit card bills or to open them and only look at the minimum balance.

These people avoid the big picture almost entirely and have no real understanding of the scope of their problem or of the total debt they owe. It can even get to the point where they avoid conversations about their money with spouses and loved ones, ultimately isolating them when it comes to their problems.

It's perhaps the most blatant lie when it comes to debt, essentially saying that it doesn't exist.

"If I win the small battles, I'll win the war."

In an American Medical Association Journal about the psychology of debt management, researchers observed that subjects who had multiple sources of debt to be paid off would pay the smaller debts first, despite the fact that the larger debts had higher interest rates.

Most people believe that winning the smaller battles would help them win the war, despite the fact that they were avoiding the most crippling aspect of their debt. Instead of focusing on reducing interest payments, people choose to pay off smaller debt to achieve the feeling or illusion of progress. (See also: Which Debt Repayment Strategy Is right for You?)

"If I ignore the problem, it will go away."

What tends to happen as people engage in financial denial and unhelpful financial practices is that they assume the problem will go away if they simply ignore it. That means people end up with a lot of late credit card payments, accruing interest and credit card debt that takes years to pay off.

If we're to quit lying to ourselves about our money, we must begin to properly understand our use of credit and not treat it as instant money.

For that to happen, we need to have a better grasp on basic best practices when it comes to personal finance.

Lies About Our Financial Knowledge

There is a trend and a push in recent years to make personal finance classes a mandatory prerequisite for a high school diploma. This is because so many of us lack even basic financial understanding. (See also: 7 Places to Learn About Money)

We tend to have a high view of ourselves when it comes to basic financial principles. We get it. But again, there's little going on in most people's lives that show they're able to put what they get into practice.

For example: What would you guess if you were to take a stab at how many Americans actually prepare a monthly budget or employ a long term savings plan? The answer, according to Gallup, is just a shade over 30%.

Those are two very basic elements of financial housekeeping that two-thirds of Americans don't even bother with.

Here are a few more than might surprise you.

  • Half of Americans have less than one month's worth of their own income in savings.

  • Over 76% of Americans are living paycheck to paycheck.

  • Over half of Americans don't have any idea what their credit score is.

  • Average credit card debt among indebted households is $15,263.

These misunderstandings aren't simply the result of lack of education — they're the result of the financial lies we tell ourselves, daily.

How to Stop Lying to Yourself

Managing money is hard, and it doesn't come easy to even the most organized people, which means sometimes we won't do it well. Yet that shouldn't be an excuse to avoid it entirely, or to give ourselves a pass. (See also: Manage Your Money in 5 Minutes a Day)

Better education is definitely part of the answer. Today there are tons of resources that anyone with an Internet connection can take advantage of. In addition to the educational resources that the government provides schools, the Treasury Department maintains a personal finance education resource for adults, too: MyMoney.gov. So it's not just a trending idea for K through 12. Adults can take advantage of the personal finance knowledge bank as well.

Even after we've taken advantage of the educational resources available to us, I think that the solution is far more personal and simpler. We need to take responsibility for our money and get comfortable living within the confines of our earnings.

In short, we need to be interested and invested in the betterment of our personal financial situation.

If we can make that a reality in our lives, avoiding credit card debt, budgeting, and making long-term financial preparations will be commonplace.

How did you stop lying to yourself about your money?

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Paul

Thanks for this great article. I see the evidence when I talk with my friends. But I would also like to add one thing.

In my opinion it is very often the lack of interest and a no big enough reason why money should be important for them...