Editor's note: Join columnist MP Dunleavey and a group of women as they seek to strip away the myths around money, liberate themselves from debt and find financial sanity. Follow the continuing quest of the Women in Redevery other Wednesday in Dunleavey's column on MSN Money.
In case you thought your money problems were a function of modern life -- easy credit, rampant online shopping options, coffee drinks that cost more than a pair of socks -- I have great news for you.
Your bad money behavior (and mine) stems from a host of DNA-deep instincts that have scarcely evolved since caveman days:
- More is always better than less.
- What he has, I want.
- Kill and eat it before it runs away.
Stumble across a variable-rate home-equity loan for $30,000 starting at 8%, capped at 16%, with a minimum payment of $200 a month for the rest of your life, and all your brain registers is: Now we can build that deck out back and grill.
Small wonder there's a teensy problem with the mortgage market.
Fortunately, you can retrain those Paleolithic reflexes before they clobber your bottom line. After all, you're no longer drinking from muddy puddles, right?
The woolly mammoth and youFor hundreds of years, the field of economics was predicated on the idea that man (and woman) was a rational decision maker.
Though it's unclear where ancient economists got this idea, the notion that human beings can be smart, balanced and objective about money has been a powerful and misleading influence for centuries.
The truth, says Michael Shermer, a professor of economics at Claremont Graduate University in California and the author of "The Mind of the Market," "is that most of our decisions are emotional ones, and we often do silly things."
That's because as complex as our finances have become, our brains tend to break things down to more-primitive parameters.
One big step you can take toward financial sanity is to stop fighting the role that emotions play in your money, says Shermer. "Emotions are necessary. You can't make decisions without them. Very few decisions fall neatly into two columns, good or bad," he says.
That doesn't mean you should obey every impulse to stop at Best Buy. Instead, use the following four examples of classic modern money mistakes to learn how your prehistoric hardwiring might be getting in your way.
Why do you shop until you drop?Chronic shoppers like to joke about retail therapy, but there's now some scientific evidence that it exists.
According to a team of researchers led by Ravi Dhar at the Yale School of Management, once you've made an initial purchase of, say, shampoo and magazines at CVS/pharmacy, you're more likely to head next door and buy jeans at Gap.
They call it the shopping momentum effect.
What these researchers suggest is that the momentum to spend builds because there is a shift in your mind-set from deliberative (you weigh the pros and cons of buying something) to implementative (you pull out your wallet).
Once you make that shift, it's harder to stop, like sailing downhill on roller skates.