Six ways our brains make bad financial decisions – The Globe and Mail 01-25-13

Salient to Investors:

Dan Ariely at Duke and Nina Mazar at Rotman School of Management write:

  • Our brains are hard-wired to choose short-term payoff over long-term gain.
  • Saving money as a habit is especially important, so use commitment devices like pre-committing to saving a percentage of future wage increases.
  • Studies show that we need 135 per cent of our current income in retirement because we are likely to engage more frequently in expensive activities. So save early and attach an immediate reward to every retirement contribution.
  • Choose high deductibles when buying insurance. Decline add-on insurance offers like extended warranties and collision insurance.
  • Shop around for a mortgage and continue to research options like refinancing.

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