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 Money and MindsPsychology | Money and Minds - Part 2
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Empowerment leads to better mental performance

A study in the May issue of Psychological Science looked at people’s cognitive performance when they were feeling high or low in personal power. Smith, Jostmann, Galinsky, and van Dijk randomly assigned participants to a low-power or high-power group and then tested their executive functions, processes in the brain that guide behavior according to one’s goals and organize and sort information.

They found that people in the low-power group were less able to focus on their goals and to plan out strategies to meet them. High-power participants were more efficient and made fewer mistakes, even though motivation and effort were the same between the two groups.

Smith et al. suggested that their findings have direct impact in the workplace–that empowered employees will also perform better–and demonstrates how hierarchies persist: the people in power do their tasks well, while the people without power do poorly and can’t become empowered. This could also have social and economic implications. We’ll pass over the social aspect, but consider the impact this might have on your financial decisions. If you don’t know much about finances–and nobody starts out knowing a lot–you won’t feel empowered. And if you don’t feel empowered, you’ll make mistakes, mistakes that could cost you money and peace of mind.

Some people say, “I don’t get investing,” and let it go at that, but doing so could cause more problems than you might think. When people feel likely to fail at something, they tend to stop trying and find an external source to blame, something like “finances are too hard” or “it wasn’t my fault, I never learned about this.” This is called self-handicapping: behavior that deliberately (if subconsciously) sets up oneself for failure in order to proactively find something else to blame for the failure.

The lesson here? Avoid unconsciously handicapping your financial future. Empower yourself when it comes to finance. Simple steps will give you a feeling of knowledge and control.

  • Ask experts. Your banker and your stockbroker and even your employer’s HR department (in the case of 401ks) are there to help you learn more about your money and the things you can do about it. Banks will sometimes offer seminars on the basics of investing and retirement funds.
  • Read. The bookstores and libraries are awash in personal finance books. The Internet is full of advice–good and bad–and sites to give you information and personal experiences.
  • Talk to the people you know. Maybe your parents have a nice mutual fund. Maybe your brother knows what buying margin means. Maybe your best friend’s sister tried credit card arbitrage and can explain where she went wrong.

The most important thing to remember is that feeling overwhelmed will cause you to make mistakes…and it’s easy to correct. Learn all you can. Knowledge is power…and power is, apparently, a big part of proficiency.

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