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Decisions Not Math

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Hello 49er family. This installment of The Money Talk is all about decisions. I once read somewhere that the average person makes about 25,000 decisions from the time they wake up until they go to bed. Now some of these we just make instinctually and without even considering any other course of action. But others we agonize over and hope we make the right choice. When I teach or work with students individually, I often ask them what they think is the most crucial factor in living a life of financial security. More often than not, I get reasonable answers like “Don’t go into debt” or “Be sure to save money.”  Sometimes I get a response about compound interest or time value of money, which makes me happy.  However, students are often surprised when I tell them that those are great answers but not entirely correct.

You see, when we distill down what it takes to live a life of financial well-being and security, we discover that it is not necessarily knowing how to budget, or how much to save, or how to calculate interest payments.  Being able to live a life feeling financially secure is, at its core, about decision-making.  I can teach you how to budget or show you how dollar-cost averaging can build your nest egg, but until the decision is made that these things are important enough to act on, that knowledge just sits there dormant in your mind. This happens to almost all of us. We make decisions all the time that we know are not in our best interest financially. We just hope that these ill-advised decisions don’t lead to financial trouble.

For our students, the financial decision-making process is even more crucial to consider. Not only for the immediate needs that every college student faces but also for long-term success. For many of our students, the years here on our campus will form the foundation for a lifetime of financial decision-making. This foundation needs to be solid. A close friend and colleague told me once that a person will never be able to out-earn bad habits – this has always stuck with me. A crucial part of what the Financial Literacy Office does is working with our students to better understand their decision-making and how it drives their success.

Students are faced with countless financial decisions during their academic careers. Should I go out this weekend and use my credit card?  Can I afford that TV for my apartment? Is the 30-dollar Uber worth it right now? Do I really need a $2500 refund?   If these decisions were just about math, the choices would be easy. Unfortunately, life is not that simple. The wants and desires of a young person living on their own for the first time are a powerful force. Peer pressure and status can easily cloud an otherwise rational mind. The mental accounting of having that refund now and not paying it back for four years seems reasonable at this moment. Decisions.

The reason so many college graduates struggle financially once they enter the workforce isn’t because they don’t know what to do; that’s easy to figure out. They fail to succeed financially because their decision-making fails them when they need it most.  For many of us, financial success is deciding to give up what we want now for what we want most, which is hard to do.

 

Until next time,

Dr. Brad Yeckley, MBA