New Research on Decision Making Offers Hope for Struggling FamiliesNew research is helping families break the cycle of constant financial crises, and it doesn't cost much to do it. According to financial educator Syble Solomon, the key findings confirm that people make mistakes when they're under stress. She says this helps explain why they make the same errors over and over again - because each problem makes the next one hard to deal with. The good news, she says, is that if families on the edge can save something and get ahead even a little bit in terms of their finances, they can learn to be in better control.
Solomon says people at all income levels make financial decisions based on things such as status and the desire to be well liked - instead of, say, a budget. She says for families on the financial edge, it can be especially hard.
"When people are stressed about money, they make bad choices, and when people have very little money, they frequently feel they don't have any control. And therefore they make decisions that, in the long run, are not in their best interests."
The good news, she says, is that people can learn to make better decisions and don't need much to feel in control of their financial lives. She says simple mental tricks can help.
"H is hungry, A is angry, L is lonely, and T is tired. And when people are hungry, angry, lonely or tired, you want them to get into the habit of saying, 'Halt!'"
Solomon says behavioral economists are studying people's decision-making strategies using new information about how the brain works. And they're finding that if people are under enough pressure, their habits and emotions will tend to override their logic, she says.