Finance
Emotions, Ego, & Envy: Avoid Financial Failures With “Clear Thinking”
One of the best books of 2023—and one sure to land on my list of Advisor Resources for Financial LIFE Planning—was published near the year’s end. I’ve been following Shane Parrish’s work for years as the creator and curator of the Farnam Street blog and newsletter, so his new book, Clear Thinking, was in the cue.
One of Parrish’s greatest gifts is simplifying the realm of behavioral science to the point that it becomes, uh, clear, and perhaps more importantly, actionable. So, while you can peruse through a nearly comprehensive list of the 188 cognitive biases to which we may fall prey, you could also just read Clear Thinking and examine the four defaults Parrish suggests are “the enemies of clear thinking.”
Clarify your thinking
In this post, I’ll review each of the four and suggest four companion lessons to apply in pursuit of better financial decision-making:
1) The Emotion Default: “We tend to respond to feelings rather than reasons and facts.”
While emotion is too often used as a pejorative synonym for foolishness in the realm of personal finance, it is undeniable that, as Parrish suggests, “Emotions can multiply all of your progress by zero.”
Indeed, emotions often lead to rash decisions because they are centered in our System 1, in Daniel Kahneman’s Thinking, Fast and Slow parlance. While our System 2 is the processor in our brain that is slower, deliberate, and seemingly more rational, our System 1 is our source of fast, autonomic, and yes, emotional thinking and reacting.
That’s why we can find ourselves doing and saying things when we’re emotionally charged as though there is no gap between our feelings and actions. And while it would be nice if we could choose which of our Systems to use in the face of financial decision making (System 2, please!), the fact is that 80% or more of our decisions are driven by System 1, by our emotions.
Lesson: Money is inherently emotional.
This is where the financial industry has served us so poorly. From investment managers to gurus and advisors, most of us are taught to insist that consumers, followers, and clients separate themselves from their emotions. The only problem is that it’s a biological impossibility. Money, in particular, is inherently emotional, so we need to deal with those emotions rather than suppress or ignore them.
Of course, retailers and social media companies are well aware of this conundrum and seek to capitalize on it daily. Therefore, the best we can do when we experience emotion is to sloooooow the process down. Acknowledge the emotion, process it, discuss, decide, and then in the best-case scenario, harness the power of your System 1 to harden your better-informed resolve. Emotion need not be the enemy, and it can be part of the solution.
2. The Ego Default: “We tend to react to anything that threatens our sense of self-worth or our position in a group hierarchy.”
Nothing threatens our sense of self-worth more than others’ perception of our net worth. Even those who’ve destroyed every relationship in life are still often viewed as successful simply because they are rich. And their riches may only be a matter of perception, especially when we consider that most visible signs of wealth are evidence that someone has parted with their money in pursuit of a depreciating asset.
Lesson: “Comparison is the thief of joy,” and the modern world is wired to create comparisons everywhere we turn.
In The Gap and the Gain, co-authored by Strategic Coach founder Dan Sullivan and Dr. Benjamin Hardy, the authors suggest that the world we live in is designed to perpetually convince us that we are “in the gap”—that we are conditioned to compute our circumstances based on what we lack and how far we are from our ideal state—rather than “in the gain,” acknowledging how far we’ve progressed from the starting point of our goal pursuit.
3. The Social Default: “We tend to conform to the norms of our larger social group.”
Have you ever been in an environment where you quickly realized that your opinions or worldview were in the minority? Have you ever lived in a neighborhood or been part of a group at work, school, church, your kids’ extracurricular activities, or online where the larger group’s apparently unanimous deviation from your belief or preference applied an enormous pressure that challenged your belief and shifted your preference?
Although I live in Charleston, South Carolina, I’m from Baltimore, and when I meet someone else from Charm City (that’s Baltimore, IYKYK), the first question they usually ask is, “Where did you go to school?” They don’t mean college. They want to know which of the uber-elite private schools I went to. They’re sizing me up. I can’t tell you how much I love telling them I was a public school kid :-), but the condescension is powerful, and I’d be lying if I said I’d never wished my answer could be, say, Gilman.
Similarly, a friend of mine from the U.K. was an elementary school teacher across the pond, and she told me that on the first day of class, all of the kids insisted on knowing “Which football team do you pull for?” By “football,” they meant soccer, and by soccer, my friend told me what the kids really wanted to know was if she was Catholic or “Proddy” because there was such a clear division depending on which jersey she might wear. (She told me she decided she would choose to respond by mentioning the worst team in the league, which threw the kids off track and resulted only in jeers for supporting such an abysmal football squad.)
The powerful force of groupthink is one of life’s most persuasive.
Lesson: Be cognizant of the influences of your social groups.
We are social beings and benefit so much from our social connections that the lesson here is hardly to be a hermit. The lesson is to be aware of our surroundings and our circles and question the apparent norms. The chances are extremely good that most of the parents on your kids’ lacrosse team have houses, cars, and take vacations with price tags with a standard deviation below 25%.
Some sub-groups, especially in personal finance, reach levels of pressure that are downright cult-ish. For example, if you follow Dave Ramsey, you’ll likely be looked at with evident disdain if you pull up to your Total Money Makeover class in “the ultimate driving machine.” You’ll similarly get an eye roll if you put less than 20% down on your house or have a mortgage with a term of more than 15 years. Meanwhile, you won’t even be able to get into a pickleball game at your country club if you’re not driving a luxury vehicle.
Just remember that personal finance is more personal than it is finance, and so, too, are the best financial decisions. There’s nothing morally right or wrong with driving or living in whatever you choose (that you can afford), having a mortgage or not, or sending your kids to private school or public. The question is, What’s right and wrong for you and your family?
4. The Inertia Default: “We’re habit forming and comfort seeking. We tend to resist change, and to prefer ideas, processes, and environments that are familiar.”
As we have learned from Charles Duhigg, James Clear, and others, humans are creatures of habit—whether we like it or not. Even the things we don’t think are habits usually are, so the inertia that Parrish refers to is often not even conscious. Therefore, one of the best ways to acknowledge our habits, for good and ill, is to pause long enough to ask, “Why am I doing this?”
The challenge is that it is exceedingly difficult to stop doing something habitual. Therefore, the best way to stop a bad habit is to replace it with a new one. Recognize the cue that leads to the behavior, then replace the behavior with something preferable.
Lesson: Become familiar with the habits and processes that are likely to lead to financial success.
There are no guarantees in life, and especially money. But there are foundational principles that will make you much more likely to be financially successful. Thankfully, we see several of those principles illuminated in the companion lessons to counter the previous three defaults:
Know thyself. Become aware of your emotions around money by slowing down the process between idea (or, more often, feeling) and action. Better yet, plumb the depths of your emotions to reveal what it is in life that is most important to you—not what is most important to those in your social circles. Then, with a better understanding of your values, motivations, needs, and wants, establish the habits that will facilitate the pursuit of those goals, all while appreciating how far you’ve come rather than fixating on the distance between you and the ideal.
The Bank of New York Mellon (BNY) will serve as the financial agent for the Direct Express program, which provides 3.4 million Americans with a prepaid debit card to receive monthly federal benefits.
The U.S. Department of the Treasury’s Bureau of the Fiscal Service said in a Thursday (Nov. 21) press release that it selected BNY for this role after evaluating proposals from multiple financial institutions and seeing the bank’s offering of features and customer service options.
The new agreement will begin Jan. 3 and will last five years, according to the release.
“Since 2008, the Direct Express program has paid federal beneficiaries seamlessly, inclusively and securely, while sparing taxpayers and customers the costs and risk associated with cashing paper checks,” Fiscal Service Commissioner Tim Gribben said in the release. “This new agreement will further our goals of delivering a modern customer experience and strengthening Treasury’s commitment to paying the right person, in the right amount, at the right time.”
With this agreement, BNY will add to the cardholder experience features like online/digital funds access, bill pay, cardless ATM access, omnichannel chat and text customer service, online dispute filing and in-person authentication options, the bank said in a Thursday press release.
“Drawing on our leading platform capabilities, we look forward to advancing the program’s goal of providing high-quality financial services to individuals and communities throughout the U.S.,” Jennifer Barker, global head of treasury services and depositary receipts at BNY, said in the release.
Seventy-seven percent of the recipients of disbursements opt for instant payments when given the option, according to the PYMNTS Intelligence and Ingo Payments collaboration, “Measuring Consumers’ Growing Interest in Instant Payouts.”
That’s because consumers looking for disbursements — paychecks, government payments, insurance settlements, investment earnings — want their money quickly, the report found.
In October, the Treasury Department credited the Office of Payment Integrity, within the Bureau of the Fiscal Service, with enhancing its fraud prevention capabilities and expanding offerings to new and existing customers.
The department said its “technology and data-driven” approach allowed it to prevent and recover more than $4 billion in fraud and improper payments, up from $652 million in 2023.
Across the globe, Muslim communities find themselves disproportionately affected by climate change, with extreme weather events, rising food insecurity, and other climate impacts taking a toll on their livelihoods, cultural practices, and spiritual life.
In the last few years, devastating floods swept through Pakistan, affecting millions, displacing thousands, and leaving entire communities struggling to rebuild. In Indonesia, one of the world’s most populous Muslim-majority countries, rising sea levels threaten to submerge coastal villages and erode vital agricultural lands. Meanwhile, in parts of the Middle East and North Africa, persistent droughts and water scarcity are increasing pressures on already fragile ecosystems and economies.
The climate crisis is having a profound impact on the daily lives and religious practices of millions of people
These climate pressures extend beyond immediate threats to survival. Climate change has also begun affecting food security in Muslim-majority regions, especially during Ramadan, a holy month where fasting is practised from dawn until dusk. In communities already grappling with the impacts of droughts or floods, maintaining food stocks for Ramadan can become a significant challenge. In Somalia, where cycles of drought and flash floods have eroded food systems, many families are forced to navigate long-standing shortages, with climate-induced shocks compounding existing vulnerabilities.
Food insecurity is a worsening crisis as global warming affects harvests, disrupts fisheries, and drives up food prices, making the observance of Ramadan particularly strenuous, both physically and economically. This brings climate change into the daily lives and religious practices of millions in profound ways, reminding us that the climate crisis is as much a social and economic issue as it is an environmental one.
Islamic finance: a financial system grounded in ethical responsibility
Islamic finance has been operating in the global financial system for decades, providing an ethical foundation rooted in Islamic principles that promote fairness, social responsibility, and environmental stewardship.
Ethical banking is a core pillar of Islamic finance. Through principles like zakat (charity) and waqf (endowment for public good), Islamic finance encourages financial activity that uplifts communities, supports sustainable projects, and avoids investments in industries harmful to people and the planet.
Many Islamic financial institutions in countries like Malaysia, the United Arab Emirates, and Saudi Arabia already support projects aimed at protecting the environment and enhancing social welfare. Success stories are already emerging. Malaysia’s green sukuk initiative has mobilised billions for renewable energy projects, while the UAE’s recent US$3.9 billion in green sukuk issuance demonstrates growing momentum. Saudi Arabia’s Vision 2030 has allocated US$50 billion for renewable initiatives, targeting an emissions reduction of 278 million tons by 2030.
A US$400 billion opportunity for climate action
While Islamic finance principles already provide a framework that aligns well with sustainability, there is still much room to strengthen its role in addressing the climate crisis, enhancing resilience in vulnerable communities, and shifting investments towards clean, renewable energy.
A new report by Greenpeace Middle East & North Africa (MENA) (as part of the Ummah For Earth Alliance) and the Global Ethical Finance Initiative (GEFI), highlights the transformative potential of Islamic finance in accelerating the global transition to renewable energy and addressing the triple planetary crisis: climate change, pollution, and biodiversity loss.
The report shows that the Islamic finance industry continues its robust expansion, with assets projected to reach USD$ 6.7 trillion by 2027, and that a strategic allocation of just 5% toward renewable energy and energy efficiency initiatives could mobilise approximately USD$ 400 billion by 2030 – a transformative sum for climate-vulnerable regions.
Islamic finance can help foster climate-resilient infrastructure, restore and protect biodiversity, and finance climate adaptation projects in at-risk communities. By explicitly directing funds away from fossil fuels and into green energy projects, Islamic financial institutions like the Islamic Development Bank (IsDB) can lead by example, especially in regions that are both vulnerable to climate impacts and hold significant influence in the global fossil fuel market. These institutions must accelerate their commitment to renewable energy investments.
As climate impacts intensify, Islamic finance offers a bridge between faith-based values and practical climate solutions. The convergence of Islamic finance and climate action represents more than a financial opportunity – it’s a moral imperative aligned with Islamic principles of environmental stewardship (khalifah) and balance (mizan).
Islamic finance, grounded in ethical principles and community responsibility, has a unique role to play in the global climate movement, particularly in the Global South. For millions across the globe, this form of finance offers a culturally relevant and powerful instrument to not only protect their communities from the worsening climate crisis but to promote environmental and economic sustainability in ways that align with their beliefs. Islamic finance offers a bridge between economic strength and ethical stewardship, creating pathways toward a more equitable and sustainable world for all.
Your voice can transform Islamic fiance
Ask your Islamic bank to support increasing investments in renewable energy!
Take action
BAKU, AZERBAIJAN – 2024/11/14: Participants walk in front of the main entrance during the United … [+]
World leaders are gathered in Baku, Azerbaijan, for the COP 29 on Climate Change. As the conference enters its final day tomorrow, the atmosphere is charged with anticipation. Will the leaders be able to conclude discussions on critical issues?
A document released by the UN this morning hints at progress in discussions on climate finance: while the exact figure remains undisclosed, it is mentioned that it will be in trillions of dollars. The decision on trillions of dollars is a positive step, as many experts have expressed concerns that a few billion dollars will be insufficient and will fall short of necessary action to address the urgency of climate change.
By the end of COP 29 , the world will hopefully get a new number. A lot has gone into deciding this number: 12 technical consultations and three high-level ministerial meetings. The final leg of the consultations is happening in Baku. It is worthwhile to take a look at the key items that came out of the draft document on finance today and the discussions that led to those decisions. Much of this document can be expected to feed into the final decision that comes out of COP 29.
A Decision On Trillions Of Dollars – The Quantum
What is a good number for a finance goal? Should the number be in billions or trillions? The draft text released today mentions that the amount will be in trillions. Although the exact number is unspecified.
One of the key outcomes expected from this year’s COP is this exact number which will become the new collective quantified goal, popularly referred to as NCQG. There is a high expectation that countries will be able to reach a consensus on a quantified number, which can be the North star to mobilize funds to address the urgency of climate change. It was during the COP in Copenhagen in 2009 that the earlier goal of mobilizing 100 billion per year was decied– an amount pledged by developed countries to support developing countries in addressing climate change by 2020. There are questions about whether that target was successfully met, with views from some countries that it was not met. The decision that came out today relfects this disagreement.
A few billion dollars would be unacceptable, according to Illiari Aragon, a specialist in UN Climate Negotiations, who has closely followed NCQG negotiations since they started. Many developing countries would be unsatisfied if a number of billions were proposed. In earlier talks, some numbers in billions were also floating around. Most estimations however point towards trillions. A number of at least 5 trillion, was estimated as being needed based on the Standard Committee of Finance of the United Nations as part of an assessment of needs proposed by countries in their Nationally Determined Contribution.
A Decision On The Contributor Base And Mandatory Obligations
Another key topic of discussion has been who contributes to the financial goal that comes out of COP 29. Some developed countries suggested expanding the donor base to also include countries like China and India. However, that was an unacceptable proposition, with media from India, based on interviews with experts, particularly reporting it would be unacceptable.
The new text released today goes away from the mandatory approach and adds flexibility to better reflect needs of developed and developing countries. The text states that it invites developing country Parties willing to contribute to the support mobilized to developing countries to do so voluntarily, with the condition that this voluntary contribution will not be included in the NCQG.
The document released today also states that it has been decided that there will be minimum allocation floors for the Least Developing Countries and Small Island developing countries of at least USD 220 billion and at least USD 39 billion, respectively. Deciding such a minimum allocation floor is a big step as these countries are particularly vulnerable to the extreme impacts of climate change. In March 2023, Malawi, in the African continent, was devastated by a tropical cyclone. Africa, according to some estimates, contributes to only 4% of global warming, but is particularly vulnerable to climate cahnge.
Some Decisions On Structure- What should be included?
The question regarding what types of finance will be classified as finance has been a key topic of discussion. The type of finance is crucial because it determines what kind of finance can really be aggregated to reach the big quantum goal.
In the negotiations so far, some countries suggested requiring funds to be channeled from the private sector as well. However, some parties questioned whether the private sector could be obligated to contribute to a goal and be made accountable for this goal. There were also discussion on grants versus loans. Many countries called for more grants and financing with higher concessional rates, reducing the repayment burden.
The document that came out today clarified both the above concerns. It states that the new collective quantified goal on climate finance will be mobilized through various sources, including public, private, innovative and alternative sources, noting the significant role of public funds. The decision to include the private sector is a significant step, as it provides an entry door for the private sector to be more actively involved in climate action. On grants and loans, the decision text states that a reasonable amount will be fixed in grants to developing countries, with significant progression in the provision. The decision on this allocation floor for grants, is also an essential consideration as it helps these countries to avoid being tied up in debt.
The decisions on climate finance published today during COP 29, which will act feed into the final decisions from COP 29, can add significant momentum to what is available for climate finance and action. They can also help build trust among many vulnerable countries in the power of multilateral decision-making process, showing that the world is indeed united in addressing global warming.
Smoke shop in Southern California hit by vandals in bizarre incident
Downtown Detroit puts final touches on Christmas tree lighting ceremony
Gang of young punks, including 12-year-old, charged in $84K San Francisco robbery spree
Triple shooting in NW Miami-Dade under investigation
On Nov. 22, 1963, Dallas became ground zero for conspiracy thinking
Colorado Rockies game no. 116 thread: Zac Gallen vs José Ureña
See it: Tesla crashes into Columbus convention center at 70 mph
Fox News Politics: Georgia the whole day through
Why Marjorie Taylor Greene was ‘kicked out’ of the Freedom Caucus according to Rep. Buck
Death of missing Oregon girl found in stream ruled homicide
Massachusetts GOP slams liberal leaders after illegal immigrants accused of child rape arrested by ICE
German Defence Minister says he won't run for chancellor in 2025
Smollett's attorneys praise overturn of actor's conviction
Ted Cruz urges White House to halt $1.25B in 'digital equity' funds
UK imposes sanctions on Isabel dos Santos, Ukrainian oligarch Firtash
-
Business1 week ago
Column: OpenAI just scored a huge victory in a copyright case … or did it?
-
Health1 week agoBird flu leaves teen in critical condition after country's first reported case
-
Business5 days agoColumn: Molly White's message for journalists going freelance — be ready for the pitfalls
-
World1 week agoSarah Palin, NY Times Have Explored Settlement, as Judge Sets Defamation Retrial
-
Politics4 days agoTrump taps FCC member Brendan Carr to lead agency: 'Warrior for Free Speech'
-
Science2 days agoTrump nominates Dr. Oz to head Medicare and Medicaid and help take on 'illness industrial complex'
-
/cdn.vox-cdn.com/uploads/chorus_asset/file/25739950/247386_Elon_Musk_Open_AI_CVirginia.jpg "Inside Elon Musk’s messy breakup with OpenAI")
Technology4 days agoInside Elon Musk’s messy breakup with OpenAI
-
Lifestyle5 days agoSome in the U.S. farm industry are alarmed by Trump's embrace of RFK Jr. and tariffs
