Has this ever happened to you? A statement arrives from the bank, your financial professional, or the tax authorities. You look at the envelope, you get a sick feeling in your stomach, and you tell yourself "I'll look at it later."
Except, later never happens -- until next month. Another envelope appears, with next month's information. You feel anxious, guilty and you know you shouldn't ignore it. You know better but you just can't do it. You'll do it later. And later never happens. We get into a cycle of denial which feeds upon itself until we are dug in so deep, we don't know how to get out.
Why do so many of us do this? What are we afraid of? For many people, dealing with their money is associated with having to take action in an area of their lives in which they feel incompetent. They aren't sure about how to react to the information contained in the statement, so they ignore it. People also hate acknowledging that they may not have managed their money well. The monthly statement is a reminder of that. It's human nature to protect yourself from feeling badly. Unfortunately, you pay a hefty price for this.
What are the consequences? Enormous! While you remain ignorant of your financial situation, professionals have great influence over your decisions and how to manage your money. While many professionals have your best interests in mind, there are others who don't. We have seen countless situations where investors have been swindled out of their life savings. On a less dramatic scale, we have also seen people whose ineffective management of their finances has resulted in financial disaster. Home foreclosures, bankruptcy, no retirement savings are some of the consequences.
Jonathan Chevreau, in a November 2011 column in the Financial Post, stated that it is never in the interests of large financial institutions to have an educated client. Paul Farrell of Marketwatch.com says the institutions make their billions off investors who are "clueless financial illiterates." Every time you avoid opening your envelope, you open yourself up to being a client who is, as Professor Richard Thaler says, who consumers are "irrational and woefully uninformed." This means that you are not only not managing your money well, you're not managing your money at all.
So what can you do?
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