FINANCIAL SELF-CONTROL

July 5, 2018
Posted in Blog
July 5, 2018 Mduduzi Luthuli

Self-control is essential to success, in relation to your daily habits, your character, your attitude, your emotions, and your actions. Some people can control themselves to do what needs to be done, while others have a lack of self-control over themselves. What life teaches is that if you learn self-control, you can master anything. Including creating wealth. So why are we so bad fostering self-control?

People, even when they know what is best, sometimes fail to choose it for self-control reasons. Most of us at some point have eaten, drank, or spent too much, and exercised, saved, or worked too little. Such is human nature. Though people have these self-control problems, they are at least somewhat aware of them: they join diet plans and buy cigarettes by the pack (because having an entire carton around is too tempting).

This lack of self-control can also explain the phenomenon of under-saving for retirement. Even though individuals may be bombarded with information about the importance of saving for retirement, it would mean that consumption spending out of their current income would have to be somewhat less to enable savings to be put into a retirement plan. Spend less now, save more now, benefit much more later. This would be the ‘rational choice’ – but individuals are not exercising self-control in terms of current consumption, and hence under-saving.

We see this year after year in the stats. Currently only 6% of working South Africans are on course to retire with enough capital to sustain their standard of living post-retirement. Households Debt-To-Income in South Africa averaged 57.58% from 1969 until 2017, reaching an all-time high of 86.40% in 2008 (the global financial crisis). Households Debt-To-Income in South Africa sat at 71.90% of gross income in 2017. Absolute madness!

Why are we failing so horribly to manage this crisis?

Behavioural psychologists Ted O’Donoghue and Matthew Rabin (1999) argued that individuals are much more impatient when confronted with a short-term decision (about consumption) and may take the ‘I must have it now’ option, compared with long term decisions (about saving), where individuals are much more patient, and take a ‘I’ll start saving for my retirement next year’ attitude, and hence procrastination prevents a rational decision being made. Again, the fear of losing a certain amount of short term consumption may be much greater than the expected benefit of increased consumption in the future, through savings today.

When presented with a possible problem that may occur sometime in the distant future, we simply tell ourselves, we’ll deal with this later when it’s more urgent and requires our full attention. When that time comes, we are slapped with the reality that we simply don’t have enough time to solve that problem and thus our efforts are deemed futile. Ladies and gentlemen, I present to you the Paradox of the Post-Retirement Crisis.

In our culture we’re encouraged to “have it now!” with easy monthly payments, but that kind of thinking is what keeps you stressed, depressed, and enslaved to your debt. That mentality cultivates a cycle of living month to month and payment to payment that never ends unless you develop the discipline to escape that life and be different.

Developing Will-Power and Self-Control

I believe the best first step to changing your financial life is to get mad! You must get so mad at your situation that you have to do something about it, no matter what stands in your way.  Getting your emotions involved helps keep you engaged in the process.  If you kinda sorta want to change, you probably won’t.

Once you’re mad, it’s imperative to understand money if you want to have financial discipline.  Read books, blogs, and take courses about personal finance, getting out of debt, investing, etc. so you’ll know what financial habits you need to establish.  You don’t have to know everything about money, just learning the basics and sticking to them is 80% of the battle.

Your wealth and investment manager can assist in creating a plan, and in sticking to it, but unless you care, it’s all just a futile attempt.