Opinion Column: Behavioural Finance

How do you feel when you have money? … and how about when you are broke? Isn’t money emotional? Do with me this survey; who / what influences your buy and borrow decisions? You’ll be surprised to learn that it is your neighbours, friends and social media influencers.

Our environment makes us to develop likes and dislikes. So we spend on our likes. We appeal to our emotions when swiping credit cards, buying holiday tickets, taking loans and spending on luxuries. We are always more ambitious to earn more in less time, so we end up borrowing.

We are a society more than we are an economy. We live in social classes and have social statuses worn as jewelry on our foreheads. So when we spend, we do so like our neighbours. This is called neighborhood effect.  It influences our decisions on where to stay, the hotels to go to and what phones we buy.

If born in a poor family, your mindset takes time to adjust into a flashy lifestyle. Kinds born in affluent homes grow with a taste of affluent things and when they can’t earn enough to sustain their parents’ lifestyle, they remain dependent to them for a long time.

So how do you organize your personal finances in a cash led society? Start by assessing your true social status without extrapolating your income beyond its actual average. Then spend on budget, not on emotions or likes and dislikes. Lead a modest lifestyle and live below your means.

Column by Patrick Okinda

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