35,000 decisions. That’s how many decisions the typical Canadian adult makes in a day. And those decisions start from the moment we wake up. Coffee or tea? That’s a decision. Cereal or toast? That’s another one.
As the day progresses, the decisions that we make have a tendency to become increasingly complex and confusing. So much so, that – you’ve guessed it – the experts have come up with a phrase to describe it: decision fatigue.
Decision fatigue, refers to the weakening quality of decisions made by an individual after a long session of decision making. It is most commonly associated with irrational tradeoffs. This helps explain why ordinarily sensible people get angry at colleagues and families, splurge on clothes, buy junk food at the supermarket and can’t resist the dealer’s offer to rustproof their new car.
No matter how rational and high-minded you try to be, you can’t make decision after decision without paying a psychology price. It’s different from ordinary physical fatigue — you’re not consciously aware of being tired — but you’re low on mental energy.
The more choices you make throughout the day, the harder each one becomes for your brain, and eventually it looks for shortcuts, usually in either of two very different ways known as impulse decisions and avoidance.
Impulse decision making can become reckless. It is the act of performing a decision or action without thinking about the unintended consequences. (Sure, tweet that photo! What could go wrong?).
The second shortcut is the ultimate energy saver known as avoidance. Avoidance is most commonly known as doing nothing. Instead of agonizing over decisions, you simply avoid any choice. Ducking a decision often creates bigger problems in the long run, but for the moment, it eases the mental strain of not having to deal with the situation or topic right away.
According to a recent piece of research (April 19, 2018) by Principal Financial Group and behavioural economist Dan Goldstein – We make 35,000 decisions a day – financial decisions are among the most difficult to make.
In the report, it was made known that: ‘People have their reasons for postponing financial decisions, but those reasons aren’t as insurmountable as people think. Some of the circumstances people consider to be barriers are, in reality, challenges that can be overcome with the right frame of mind.’
The research reveals that people’s indecision is largely grounded in myths and misconceptions, three of the most common myths are:
Myth #1: I’ll never know enough to be confident in these types of decisions
People who spend some time learning about financial planning are 75% more likely to be confident in their financial future, which can positively impact their decision-making and retirement preparedness.
Myth #2: It’s just not the right time
People report they would take financial action if a major life event happened. In reality, people who experience a major life event are more likely to postpone financial decision-making.
Myth #3: I don’t have the money to make these financial decisions
Many people report having too much debt or not enough income to plan financially, yet debt and income level do not play a large role in determining whether people postpone decisions. In fact, 1 in 4 (23%) households with a high-income level almost always postpone making major financial decisions.
Knowledge = Confidence
The research suggests that the importance of confidence in people’s financial decision-making can’t be overstated. Simply put, the more informed you are about your financial choices, the more confident you will be about making them.
It goes without saying, that this is a good reason to work with a financial advisor.
Richard Branson cuts to the chase
Richard Branson, founder of the Virgin Group, is a man whose decisions have multi-million dollar consequences. He has distilled the challenge of decision-making into four simple rules:
1. Don’t act on an emotional response
Whether your feelings about a particular decision are positive or negative, take the time to settle down, accumulate necessary information, and avoid letting your instincts take control of you.
2. Find as many downsides to an idea as possible
Mr. Branson carefully considers everything that could go wrong before he goes forward with a decision. He believes: ‘Nothing is perfect, so work hard at uncovering whatever hidden warts the thing might have and by removing them you’ll only make it better.’
3. Look at the big picture
Before he makes a decision, Mr. Branson takes a look at how it will affect his other projects in both the short and long term.
4. Protect the downside
Translated this means limit possible losses before moving forward with a new business venture. In 1984 Mr. Branson made a leap from the music business into the airline business with Virgin Atlantic. He convinced his business partners at Virgin Records to agree to the deal after he got Boeing to promise to take back what was then the only aircraft in his fleet if he did not make a financial success of the venture.
Mr. Branson’s decision-making criteria are compelling and helpful if properly used. They are practical and easy to follow. Above all, they go a long way to eliminate the hazard of decision fatigue.
Michael Fahy, The Michael Fahy Group, CIBC Wood Gundy, 604-691-7207.