Question #4 – Behavioural Finance

Kile has decided he wants to spend less money on goods and services that are not essential. As he has traditionally not adhered to a budget and spent money on things as he pleased, this will be a change for him. Although Kile is part of a group of friends that spend substantial amounts on things such as clothes, shoes, and restaurants, he is the only one planning to make this change. Which of the following will make it easier for him to make this change and stick to it?

  1. If there are multiple steps to achieve the change.
  2. If Kile maintains the same circle of friends but does not share his desire to change with them.
  3. If Kile is told that change is required by an expert such as a financial planner (rather than if he perceived the need for change himself).
  4. If change can be accomplished quickly or easily.

Solution:

The characteristics that make change easier to accomplish (and stick with) are: it is simple (fewer steps), there is gratification over the short term (instead of long-term), the person has support or a coach to encourage them, and if there is a plan in place to follow.

What makes change difficult is if it is painful or forced.

For change to be successful it must be brought on from the person wanting to make the change – motivation. The correct answer is d.