The Subconscious Mind’s Impact on Financial Literacy
I’m Andy Temte and welcome to the Saturday Morning Muse! Start to your weekend with musings that are designed to support your journey of personal and professional continuous improvement and improve financial literacy around the world. Today is March 8, 2025.
Today, we’re going to continue our conversation about the interrelationship between value, price, and decision-making and their role in financial literacy. The purpose of focusing our financial literacy conversation on value is to reduce personal expenditures on things that don’t really matter to us. The majority of us can look around our living spaces and identify things we’ve purchased that we don’t find useful, don’t bring us joy, and are just taking up space—valuable space.
By focusing on value during the consumption process, we force ourselves to consider how the goods and services we buy add value to our lives. The goal is to limit frivolous, unnecessary spending and free those resources up for saving, investment, and/or purchases that will truly make a positive impact. The goal is to take our brains off autopilot and make more conscious buying decisions.
But how do we uncheck the autopilot setting that’s turned on in our brains? The answer is to engage in self-talk and embrace the power of the question “why?”
Now it may sound odd to begin consciously talking to yourself, but we talk to ourselves all the time! Our subconscious mind is continually prattling on, giving us directions about where to go, what to do, what to say, and what to buy. By flexing your self-talk muscles, you give less agency to your subconscious and more agency to your awake, conscious mind to make better, more informed decisions.
I assume you’ve heard the phrase “going through the motions?” That phrase aptly describes the subconscious mind at work. Many of us go through the motions of our day and don’t question the things we do. We go to the same places, take the same routes, and buy the same things—over and over again. We do this because it’s easy to relinquish control over our lives to our subconscious. However, this is a dangerous path to take because our minds are filled with bias and fixed opinions about the ways things have been done in the past.
Engaging in self-talk is a great way to actively challenge our preconceptions and beliefs about value and gives agency and power back to our conscious mind. To get a sense of the biases that clutter minds and that impact our ability to make sound decisions with our money, I encourage you to visit The Decision Lab’s website and their exhaustive list of cognitive biases that are most applicable to behavioral economics. Here are a few biases to focus on:
Confirmation Bias - here, we give greater weight to existing beliefs and we tend to ignore or minimize information that is not “confirmed” by what currently believe to be true. Confirmation bias leads to poor decision-making because potentially valuable information is not considered. To minimize confirmation bias, check your ego at the door, and use facts and other objective sources of information as a check on your beliefs. Most of all, be ready to accept that you might be wrong!
Decision Fatigue - here, our ability to make good decisions falls when we’re tired and/or overwhelmed. Note that decision fatigue can occur when we’re mentally tired but also occurs when our knowledge of a subject is low. So avoid making decisions when you’re mentally drained and/or when more time is needed to process a complex purchase.
Disposition Effect - here, we tend to hold onto losing assets too long because we dislike feelings of regret and/or our ego tells us that if we hold on longer, the asset will increase in value. The disposition effect is related to the concept of loss aversion—the bias that we feel the emotional sting of a loss much more than we feel the joy of experiencing a gain. The best way to minimize the disposition effect is to recognize that most of us are loss averse and to ask “why am I holding onto this” to look more objectively at the reasons for holding onto the things you have.
Messenger Effect - this is a very important bias in the social-media, influencer dominated world we live in. The messenger effect says that we place more weight or ascribe more validity to information if it comes from certain people—influencers or authority figures. Listening to influencers and authority figures can challenge our ability to be objective about our consumption and investments. Minimize this bias by recognizing that the intentions of influencers and authority figures may not be pure. Apply a good dose of critical thinking and the use of “why” to look for flaws and inconsistencies in the messages you’re getting from influencers.
Optimism Bias - we routinely overestimate the likelihood of positive outcomes and as a result, are overconfident in the decisions we make. A solution to optimism bias is to write down the potential outcomes of a purchase or investment and objectively review them with a trusted colleague or companion who is not afraid to point out an overly optimistic viewpoint.
Sunk Cost Fallacy - let’s suppose you’ve put a lot of time and energy into evaluating a potential purchase or investment. Then late in the game, bad news arises about its prospects. Instead of halting the purchase or investment, many people will minimize or ignore the potential impact of the bad news and will move forward anyway—only to regret their decision later. Minimize the sunk cost fallacy by recognizing that the work you’ve done up to the point of receiving the bad news is indeed a sunk cost that can’t be recovered. Ignoring sunk costs is difficult due to our tendencies to be loss averse and the power of a weak ego that won’t admit that we were wrong.
Now these are only six of the most important biases that litter our subconscious minds. There are many more to consider. The important point is to recognize that these biases exist and they have a profound impact on our ability to make sound decisions with our money. The purpose of engaging in self-talk is to challenge our internal biases and to bring more decisions—especially the important decisions we make—into working memory as opposed to giving agency to our biased, subconscious mind.
Grace. Dignity. Compassion.
