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Business News/ Opinion / Online-views/  Nudging yourself to clear financial clutter

Nudging yourself to clear financial clutter

Nudging yourself to clear financial clutter


As I sit surrounded by mounds of paper, with laptop humming to one side and the fan off, dog and kid out of the room, I bemoan my fate.

After advising the world and its aunty, I find that my own finances are horribly confused. Every new job or assignment will add a bank account, every new service will add bills to pay, new investments will mean more paperwork. And of course, I mean to do it regularly.

But the rational part of the brain sees everything in black and white—sit down once a month and do finances, examine portfolio every quarter—but driven as we are by events in our lives, the here-and-now part of the brain takes over.

Do you really want to open up the financial box—it’s an off after so long, let me sleep or cook or watch a movie. Though currently with no day job, I find enough in terms of swimming, gymming, lunching and cooking to fill my days that, of course, finances still get neglected.

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And so it piles up. I’m reading Time magazine and about Barack Obama’s secret team of economists that is using behavioural economics to nudge people into changing well-established spending and saving habits. This “behavioural dream team—which also included best-selling authors Dan Ariely of Massachusetts Institute of Technology (Predictably Irrational) and Richard Thaler and Cass Sunstein of the University of Chicago (Nudge) as well as Nobel laureate Daniel Kahneman of Princeton—has never been publicly disclosed, even though its members gave Obama white papers on messaging, fund-raising and rumour control as well as voter mobilization. All their proposals—among them the famous online fund-raising lotteries that gave small donors a chance to win face time with Obama—came with footnotes to peer-reviewed academic research".

The latest use of this economics is to send out the $116 billion (around Rs5.8 trillion) in payroll cuts in dribs and drabs rather than in a large lump sum. Since behavioural finance research shows that large sums get saved instead of getting spent, so the latest tax cuts will inflate the salary cheques by small bits so that people will spend more.

This is still too far away from my own pile of worry. Can I use private nudges to make me do this better and put my money where my mouth is? Let me try this from now on: tie up a financial update to an important event. Mum’s birthday, kid’s birthday, dog’s birthday, a fav festival, Wimbledon season start, whatever ignites the regular memory bulb. So each time you think of that day, you think of consolidating your finances.

Buy a colourful box and stuff every scrap of paper, bill, receipt that comes into the house into it. Put it in a place where you see it regularly—every day, several times a day. When the box begins to spill over—there is a nudge to sort it out. I find that it works. This time there was no place to stuff the next bill and I knew the time was ripe to kill a whole day of my life.

The other nudge that may work is to get a friend to pace you. Go to and see how an idea out of behavioural finance is trying to get private and public nudges to work. The idea is simple. A friend and I make a pact. We will both do a quarterly review of our finances and send each other reports in a set format. The one who slips up will pay the other Rs5,000. Two nudges work here—one is public admission of not meeting a target and more importantly the law of loss aversion kicks in. Since we hate to lose, shelling out 5,000 bucks to a friend will be very painful. Remember: no wine or physical good that may be in the house to be given away. You need to shell out cash! That hurts.

So the day ends. My finances are in order. The excel sheet’s neat. It’s 10pm. And, yes, I still get to cook dinner. No nudge about being brain dead from an overload of paperwork seems to work with the spouse. Maybe I need to discuss this with Thaler’s wife to get some tips.

Monika Halan is a certified financial planner and policy analyst in the area of financial literacy and intermediation. Your comments and personal finance queries are welcome at

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Published: 14 Apr 2009, 09:37 PM IST
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