Not Just Irrational

Jonathan Clements

OUR FINANCIAL irrationality has been well documented by academics focused on behavioral finance. But we aren’t just irrational. We’re also inconsistent in our irrationality. Here are five examples which, while somewhat amusing, can also have dire financial consequences:

  1. Employees will work for 30 years at a job they hate to qualify for a traditional defined benefit pension, but they wouldn’t dream of delaying Social Security for a few years to get a larger monthly check.
  2. Young parents will carry auto policies with low $250 deductibles, and yet they fail to buy life insurance.
  3. Folks will load up on groceries whenever there’s a two-for-one special, but they won’t put enough in their employer’s 401(k) plan to get the dollar-for-dollar match.
  4. Couples will buy lottery tickets and take vacations in Vegas, but they steer clear of stocks because they are afraid of losing money.
  5. People will run screaming with excitement to the shopping mall whenever there’s a 50% off sale, but they’ll also run screaming with terror from the stock market whenever there’s a 50% off sale.

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