What is... | July 16, 2014

What is procrastination in personal finance?

The great author Charles Dickens wrote: “Never do tomorrow what you can do today." More than 160 years on the words are still relevant, particularly in personal finance.

British novelist Charles Dickens named procrastination “the thief of time” in his 1850 novel David Copperfield. Procrastination could be termed the “thief of money” when it comes to saving and investing. This is because for retirement savings – and other financial goals – getting started early is important.

After all, time is a large factor in harnessing the power of compound interest and other powerful financial tools. Overcoming the temptation to “do nothing” and reducing complexity to make money decisions easier and less daunting can be key.

I’ll do it later…
Procrastination is when people put off tasks they need to complete, possibly forever. People tend to like instant gratification – and procrastination gives the instant gratification of doing what we want at that moment (such as watching a favourite TV show rather than reviewing the household budget). Some argue that financial decisions are particularly prone to procrastination because they can be complex and daunting.

Also, there is a theory that people tend to pay less attention to their decisions if the consequences fall many years in the future, making it easy to put off retirement planning without paying heed in the current moment to the financial toll that will be felt in the distant future. But experts warn your “future self” may well regret that choice.

Another common example is putting off buying life insurance despite a life-changing event (such as having children or getting a mortgage) mean it might make sense. Procrastination can be so bad for personal finances that the United Kingdom financial regulator – then known as the Financial Services Authority – wrote about it in a 2008 paper on financial capability and behavioural economics.

Hello “productive procrastination”
Not all inactivity is negative, however. Famous research shows that football goalkeepers often dive to the left or right during penalty kicks but the “optimal strategy” in an analysis would have been to stay in the goal’s centre. Economist and writer Chris Dillow writes, in an eZonomics column, that this has parallels for managing money. He noted how the most active share market investors have been found to earn lower returns on average than more passive ones. "Active" share market investors are like the football goalkeeper who dives left or right, working hard yet still missing the ball. The passive investor is more like the goalkeeper who stands his or her ground.

On the other hand, eZonomics lists five ways “doing nothing” can actually help, using inertia to cultivate helpful habits such as regular saving or charity donations. Italian research uses the term “productive procrastination” for instances such as when people who procrastinate use that time for other “useful or more satisfying activities”.

Tips to cut procrastination
Intelligent design – such as making workplace retirement savings schemes defaulted to “opt out” rather than “opt in” – is a way to cut procrastination on a large scale. But there are many steps we can take ourselves.

  • Putting a date in the diary to analyse saving and spending, assess progress towards retirement goals and other personal finance tasks can cut procrastination. It effectively sets a deadline. Putting your monthly spending review in an electronic diary may even help harness the power of reminders, as recurring appointments that are “dismissed” come back again month after month.
  • Making an agreement with a friend or loved one that you will do a task by a certain date is also a good idea. After all, they can then weigh in if you don’t meet the promise. This is known as a commitment contract.
  • Breaking complex tasks into smaller steps is a way to cut procrastination by simplifying tasks, making them seem less daunting and more achievable. Instead of being overwhelmed by unorganised personal finances needing a total overhaul, prioritise into manageable steps (such as creating a budget within two weeks, reviewing insurances within a month and so on).

Did you hear the one about the lawyer without a will?
The Dickens novel carries another warning about people who procrastinate that shows even experts are not immune. The book tells how the father of David Copperfield’s fiancé Dora Spenlow died without leaving a will. The twist? Mr Spenlow's whole career as a lawyer was built on wills, yet, he did not leave one himself. It’s a reminder that in life we often need to act before it’s too late.

Personal financeBehaviourProcrastination

eZonomics team
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