The Three Barriers to Good Financial Management

For most people, sorting out financial matters ranks well down the priority list. Confronting one’s finances elicits emotions ranging from boredom to fear, guilt and anxiety hence it is less stressful to ignore them. A study done in 2009 by Professors Karen Pine and Ben Fletcher of the University of Hertfordshire on the barriers to financial change identified the three principal barriers as inertia, ignorance and immediate gratification. These findings came from an extensive consumer survey.

People have a preference to stick with what they know and to leave things as they are. For that reason, insurance policies and investments stay in the bottom drawer without being reviewed and credit card statements stay unopened. Making changes requires effort, whereas keeping the status quo doesn’t, so inertia rules. Changing the status quo can mean taking a risk that the change will pay off and not everyone is willing to stick their neck out. Fear is often the cause of inertia.

Ignorance of what actions to take is a major problem. This is not just a matter of financial illiteracy. Sometimes it is due to information overload, where people are bombarded with facts, figures and information but have trouble filtering out what is relevant to them or simplifying it down to the one or two things that will really make a difference. What makes it worse is not knowing who to turn to for advice.

Finally, there is the temptation of immediate gratification. Spending is easy when the pleasure of buying something is immediate and the pain of paying is delayed through credit. A tendency to live in the present and let the future take care of itself is a significant barrier to improving financial management.

A change in mindset is the only way to overcome these barriers and bring about change.