Making Your Brain Financially Smarter

Our wallets and our brains are much more closely connected than you might believe. In fact, there’s such a strong correlation between the ways we spend and think, that a rising field known as neuroeconomics explores this connection.

At least a few of you know someone who always seems to have money set aside, who is never plagued by debt as you sometimes can be. According to science, that may not be purely coincidental. A recent study funded by Chase Bank suggests that good financial strategies are just another part of nature, encoded in our genetic makeup. These genetic factors are passed onto only about 25 percent of the population, but luckily, our brains aren’t impervious to good financial advice. Here are four tips for turning your brain towards smart spending.


An experiment conducted by the University of Chicago Booth School of Business invited several people to set up a 401k for retirement. Taking money for the savings account directly out of employee paychecks, the experiment allowed participants to voluntarily increase the amount. Over a two-year period, the savings set aside for the average 401k in the study increased from 3.5 to 11.6 percent. It’s instinctive for us to spend money as soon as we receive it, a function of the prefrontal medial cortex, which thrives on instant gratification, but by depositing the money immediately, the participants were able to bypass this, activating the dorsolateral cortex which takes control by shutting down the brain’s response to immediate gratification.


Humans are social beings by nature — we look for and take our cues from each other before we act. Your financially literate friend is an important part of finding a workable plan for your finances and helping you stay with it. Choosing a plan that allocates a specific amount of money to be spent every month also sets a realistic goal of exactly how much you need to save while planning all your expenses accordingly, giving you a peace of mind rather than having you panic at the end of the month.


Financial literacy takes a lifetime to master — your kids don’t have to figure it all out on their own. Electronic games can be a particularly helpful way to learn about finances, regardless of how old you are, as they activate reward circuits within the brain. The earlier you start, the more plasticity your brain has as well, allowing you to absorb more information from games such as simulators of the stock market. At the same time, brain chemistry is activated when we play and unleashes our sense of competitiveness, triggering dopamine in the brain, which keeps you goal driven.


This principle borrows a bit from a concept known as identity reinforcement theory. Rather than just setting a percentage of your earnings to save each month — make that percentage represent something. Instead of saying “I’ll set aside 8 percent of my earnings this month,” say “If I save eight percent every month, I’ll be able to pay off my mortgage in the next three years.” You may also consider your student loans, or your children and their college tuition. You end up saving because it represents who you want to be.

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