Behavior Change
One of the most important aspects of financial literacy is deciphering between your needs and wants. There are some things you need in life, and there are other things you just want. While it might seem like there’s an obvious distinction, our emotional wants sometimes cloud our judgment regarding finances. Once you have decided what you need and what carries enough value for you to pursue, you will have to establish behaviors that assist you in achieving your goals.
Habits and Behaviors
As a human being, you are preconditioned to want to avoid pain and experience pleasure. This disposition leads us all to form habits that may lead to less than ideal decisions with our money. However, the good news is that habits can be stopped or started with some intention and self-awareness. By identifying your money habits and then actively working towards more successful behavior patterns, you can increase your financial well-being. Below, you will find a model of behavior change that can help you figure out where to begin and identify where you may be in the process of behavioral change.
Behavior Change Process
The transtheoretical model of behavioral change was developed by Prochaska and DiClemente in 1977 and has since that time been adapted and used in countless settings and industries. The model also fits perfectly within the context of your financial behaviors. The stages in the model and your ability to progress through and recognize the stages can help you stop bad financial behaviors and begin new ones. Let's assume that you want to stop shopping impulsively o the weekends with friends. Below you can see how your thinking and actions unfold within each stage of the model.
PRECONTEMPLATION - You start here. When in this stage, you do not even know that there is an issue or an action that you need to take. The saying "ignorance is bliss" comes to mind in this stage.
CONTEMPLATION - You wake up one day and take a look at your credit card statement and realize that you are a bit out of control with your spending. You think to yourself, "I better get control of this spending before I get too far into debt." You are now out of the precontemplation stage and firmly in the contemplation stage.
PREPARATION - You've accepted the fact that your spending is way too much. You've looked back at your statement and saw the money you have wasted. You decide it's time to make a change. In this stage, you may also begin to take smaller steps toward changing the behavior. Your friend calls and wants to head to the mall on Friday, and you tell them "not this weekend" for the first time in a while.
ACTION - Once you move to the action stage, you are now taking intentional actions and steps toward getting control of your spending. Maybe you plan out your shopping trips on a calendar. You might set up a budgeting system that includes a shopping line item to limit your spending. You might even ask a friend or family member to help keep you accountable.
MAINTENANCE - Well, look at you - you are really getting the hang of this. It's been about 7 months, and you are sticking to your plan, tracking your spending, and still enjoying the occasional shopping trip, but it is planned out way ahead of time.
TERMINATION - It's been a while now, and you can't even believe the trouble you used to have avoiding unnecessary shopping. You got this. You are able to avoid temptation, and you have no desire whatsoever to go back to your old way of shopping just for fun. Your new behavior is so natural now that you don't even have to plan it out or feel like you are missing something in your life. Congratulations, you did it!
Think about some behaviors you want to start or even stop. What stage of the model are you currently in concerning each of these behaviors, and what do you need to do to progress to the next stage?