Why Do People Keep Making Bad Money Choices?

Print Friendly

The rich keep getting richer and the opposite is true as well.  At times it is easy to be frustrated watching those who struggle with finances continue to make poor financial decisions time after time, after time …  I wonder to myself, why do those who are poor money managers keep making bad money choices?

“The way of a fool seems right to him, but a wise man listens to advice.” (Proverbs 12:15, NIV)

I think we are all born with this innate sense of rightness.  This natural instinct says whatever I am doing, my approach, my ways, my decisions, are right.  For this reason people can look at a horrible financial opportunity and come away saying, ‘what a great deal.’  We latch on to one appealing component of a proposition and justify our decision.  Thus, we are often the reason the cycle of poor money managers continue.  As we recognize our weaknesses we can then develop the characteristics and the mindset necessary to become better stewards of our finances.

Photo by Olga_Dietrich

Psychology talks about the four windows or four views of ‘self’:

Things I know             Things I don’t know

              |                         |                        |
              |          1              |           2            |
              |                         |                        |
Things        |                         |                        |
others know   |        ARENA            |       BLIND SPOT       |
              |                         |                        |
              |                         |                        |
              |                         |                        |
              |           3             |           4            |
              |                         |                        |
Things        |                         |                        |
others        |         FACADE          |         UNKNOWN        |
don't know    |                         |                        |
              |                         |                        |

The chart above was copied from The Center for Rural Studies.

  1. Arena. These are things that you know about yourself and so does everyone else.
  2. Blind Spot. These are things others recognize about you, but you do not see that in yourself.
  3. Facade represents things you know about yourself, but you hide from others.
  4. Unknown. Things you do not see in yourself nor does anyone else.  These remain hidden.

How does this affect your personal finances?

Arena. There are many more people who will admit they are poor financial planners and who will actively do nothing about it.  I recently heard a statistic that something like 90% of smokers acknowledge it is a bad habit, but only 10% are actively pursuing a program to help them quit.  How similar is this to personal finances?  Do you know you should budget, but don’t?  Do you know you should get out of debt, but don’t?  Do you know that you should stop spending, but don’t?  Do you know you should tithe, but don’t?

If you are in this category you have likely developed certain mechanisms to help you cope with the recognition that you are poor at handling your finances.  You might do some of the following:

  • Rationalize that your debt is not worse than a friend’s or neighbor’s.
  • Use humor to talk about how bad things are.  This way you can avoid dealing with the seriousness of the issue.
  • Procrastinate by promising to deal with the issue later.
  • Ignore. Don’t answer the phone or read the bills.

Here is one (of many) possible solutions if this describes you.  Recognize that the solution is the same as the problem – you. You need to make a commitment.  You need to decide that enough is enough.  You don’t need any more education because knowledge is not your problem.  You need to increase your resolve and discipline.

Blind Spot. Oh, oh.  This is going to be a hard one for you.  The reason is because you think you are really good with money.  You are so smart because you reduced your credit card interest from 18% to 12% and you think you are winning with money.  The reality with the blind spot is that none of us know what it is.

Here are some things you might do if you have a financial blind spot:

  • Brag about your great investments, good money management, or great purchases.
  • Refuse to listen when people question you.
  • No one ever suggests ideas to you.  This means either you are perfect or people think you will not listen.  Which do you think is more likely?

One possible solution – ask someone for advice.

“Plans fail for lack of counsel, but with many advisers they succeed.” (Proverbs 15:22, NIV)

Find someone you think is good with the finances and ask them if they have any suggestions about how you could manage your money better.  There is only two rules with this question.  First, you must listen.  Second, you cannot talk back or defend yourself.

Facade. This is another dangerous one.  Your personal finances are a mess.  You know it.  The bill collectors are calling.  You can’t make the payment on your house or car.  Nevertheless, you insist on buying and wearing brand name clothing to give the appearance that you are wealthy.

Here are some signs that you are just putting up a facade:

  • In public you falsely represent your financial situation.
  • You insist on paying for meals and other public things for others even though you really cannot afford it.
  • You care more about appearing wealthy than being wealthy.
  • You crave positive comments about your stuff.

One possible solution is to be honest with yourself. That you are an important and valuable person aside from what you own.  Recognize your value in God’s eyes.  Confide in a close friend.  Ask them to hold you accountable.  Educate yourself about finances.  Pray that God will teach you to be content regardless if you have nothing or plenty (Phil. 4:11)

“Your beauty should not come from outward adornment, such as braided hair and the wearing of gold jewelry and fine clothes. Instead, it should be that of your inner self, the unfading beauty of a gentle and quiet spirit, which is of great worth in God’s sight.” (1 Peter 3:3-4, NIV)

Once you address the issues that are causing your poor money management decisions you will be in a place to become a better money steward.  And perhaps then you can break the cycle where the poor keep becoming poorer.


  1. says

    Great post! I agree with you that in many cases we must just plain accept responsibility for where we are financially and then decide to do something about it. Understanding our weaknesses and our “money personality” is a good step to helping us determine which are the appropriate steps.

    As Christians we must also remember that God wants us to change and He gives us the grace to do it and works through our efforts! He wants us to become the stewars He originally designed us to be.
    .-= JT@RedeemingRiches´s last blog ..9 Simple Investing Guidelines =-.

  2. says

    I think that people tend to have, especially in our culture today, a sense of never being wrong, or that things that go wrong in their lives aren’t their fault.

    I love how this post speaks to the need for us to take on wise counsel, and to take responsibility for our bad choices. Once we do that we can start on down the road of financial responsibility and prosperity.
    .-= Peter´s last blog ..Personal Finance Bible Verse Of The Day: Count The Cost And Plan Ahead =-.

  3. says

    I absolutely love this post! GREAT job!

    I think people continue to do the same things over and over again for many reasons, a lot of which were stated in this post. I think it is easier to do the same thing, because people are afraid of change. Change sometimes feels like sacrifice to some. Also I think that people are not willing to look at the truth in the mirror. The truth hurts and it is also easier to ignore.
    .-= Brad @ enemyofdebt´s last blog ..Loans, Gifts, And Boundaries: How Loans And Gifts Create Bondage And Why Boundaries Are Important =-.

  4. says

    Great golden oldie Craig!

    The areas we would like to comment on are number 2, 3, and 4. To God, these are all like number 1 (the arena) in the sense they are transparent to him like number 1 is transparent to ourselves and everyone else. He sees through our blind spots, facade, and the unknown.

    Should we not continually ask ourselves, “What is it that God sees that we don’t and are we fooling God or just ourselves and a few close associates?”

    After we ask the above questions, should we not also ask God directly, “God, what do you see that I don’t and am I really fooling you when I put on a diplay of wealth, absent substance?”

    If we beleive God answers our petititions, why would He not answer the above petition? And, of all the wise counsel in the world and universe, can we think of any counsel greater than God’s?
    .-= Steven and Debra´s last blog ..Are YOU a Hoarder? Are You Sure? (Part IV of a Four Part Series) =-.

    • Craig says

      @Steve and Brenda
      Great quote – Should we not continually ask ourselves, “What is it that God sees that we don’t and are we fooling God or just ourselves and a few close associates?”
      You’re exactly right that God sees and knows everything.

  5. Tracy says

    Great post, indeed. I appreciate the information provided, as this definitely helps me grasp a better understanding of why I make the same financial mistakes, over and over.
    I will certainly read more about the four windows. I now realize that I am sometimes my worst enemy.

  6. says

    There is a lot of reason for people making unwise or simply bad money relate decisions. Some had bad examples when they were very little and they jut do not know any other type of behavior. Others fail to learn from their own mistakes. More important question is how to prevent those decisions and turn them into good one, this is what you should be worried about today. Thanx for the article anyways

  7. Erin Merrick says

    But the truth is when you use this formula, it becomes REALITY almost instantly!
    Keep on reading and pay close attention to what I’m about to reveal: You don’t need a product, list, domains, website, experience, or even MONEY to do it!

    This is how SIMPLE it is:
    1. Copy a listing from location A
    2. Paste it in location B & make $20-$80 every single time… You ALWAYS keep the profit!

    ANYONE Can Do This, Even Total Noobs
    Literally anyone can pick this up, implement the same day and see Real Results of this formula working VERY FAST, without
    working hard, spending a ton of Cash!
    You’ll be successful faster than you ever though was even possible.

    Is a brand new arbitrage formula – very few people know about it and even less are actually using it.
    We focus on an overlooked area when it comes to arbitrage – and it’s pretty crazy because EVERYONE wants these services.
    Anyone that does this makes an absolute killing – and there’s no end to how many customers you can have.

    If you’ve ever tried arbitrage, you know how POWERFUL it is…
    Regular evryday people that aren’t marketers have been using it for YEARS to make a steady online income… but if you think that you know the formula we’re revealing inside THIS FORMULA – think again!

    [Reply to this email] ==> GetProfitOnline@mail.com

Leave a Reply to jarthurford Cancel reply

Your email address will not be published. Required fields are marked *