The term “Status Quo Bias” was uttered by Carl Richards, author of The One Page Financial Plan, at a conference I attended some time ago and it will stick with me forever.
Status Quo Bias is defined by Wikipedia as: An emotional bias; a preference for the current state of affairs.
Richards described it as “when faced with the opportunity to do something or do nothing, most people will do nothing.”
Most rational human beings know that they need to do the following things:
- Spend less than they earn to have discretionary, investable assets
- Pay down their debt to pay less in interest
- Invest in long-term securities, or at the very least have a long term investment outlook
- Put away money in a 529 Plan for college costs down the road
- Invest in a 401k to get a company match
- And the list goes on and on…
Yet, it seems that a majority of the populace, when faced with the decision to do these things or not do them, opts to not do them. It’s illustrated in several metrics collected today:
- 63% of Americans couldn’t come up with $500 cash in an emergency. (Forbes)
- 1 in 3 Americans have saved $0 for retirement (Inc.com)
- College costs out of control for most families (CNBC)
I recently had a conversation with a gentleman who was investigating the mortgage elimination software that I offer at www.ShredMyMortgage.com. He was already using the Infinite Banking Concept, pioneered by R. Nelson Nash, which is based on the concept of over-funding whole life insurance policies and borrowing the cash value to invest in things like real estate, while reaping the benefits of dividends paid into the account (and the protection of the death benefit). He was a lifetime Quicken user, with decades of data to draw upon in making financial decisions. As well as having nearly everything BUT his home paid off. If I were in his shoes, the decision to jump on the software would have come in short order. It absolutely makes sense.
And yet, we left the conversation, after nearly 2 hours of discussing the benefits of the software, how much he’d save in his lifetime, and what the next steps in dominating his finances were, and he said he’d let me know in the next couple of weeks. At which point I asked him, “how much time have you spent investigating this strategy?” His response was over 20 hours thus far. “And how much is your time worth?” His response — at least $50 an hour.
$1,000 invested, and still no action.
What this gentleman has, and I find most people have, is a combination of analysis paralysis and status quo bias. The fear of not having enough information leads people to stay exactly where they are and not make radical leaps with their money.
You can spend time trying to make the right decision, or you can make a decision and then make it right.
The bottom line as it relates to doing something or doing nothing is the money that runs through your personal economy is like water. It will find it’s way to the lowest lying spot if not guided properly. Meaning, if you don’t have a plan for the money, it will either leave your economy through spending, through loss, missed opportunity or through dormancy by way of inflationary impact.
If you have children, college costs will continue to rise and unless there is money put away for those college expenses, you and your children will likely incur future indebtedness to pay for it.
If you one day would like to retire with dignity, you will HAVE to put money to work for you in ways it probably currently isn’t.
If you’re carrying massive amounts of debt and you don’t own the lion’s share of your income, you’ll one day look back and wish that you had paid everything off much sooner.
I feel qualified to write about status quo bias because I have it or have had it numerous times in the past. I’ll have it numerous times in the future. And yet, every time I push forward and finish what I’ve started investigating, it’s always been in my best interest. When faced with the opportunity to do something or do nothing, and something is clearly better for me and my family financially, I’ll always do something. And I think you should too.
The Shred My Mortgage Software is a mortgage acceleration tool designed to help you maximize the use of your income for it’s greatest efficiency as it relates to both paying down debt AND building real wealth. If you’re interested in finding out more about how it works, visit www.ShredMyMortgage.com.
