This recent research out of UCLA provides a useful reminder of the importance of behaviors (and habits) when it comes to financial capability which I have written about here, here and here. 

Here's a few of the financial behaviors which often have an emotional component to them also:

• Paying down loans with lower balances (vs. higher interest rate loans): "Research shows that consumers often have better success if they repay smaller debts first. The psychological lift of being able to pay off a debt entirely — closing an account, if only figuratively — can often be more compelling than making the money-saving move of focusing on the card that is charging the highest interest."
• Just say NO to credit card limit increases: "One study found that when banks increase credit card limits, folks spend more. “When consumers have a higher limit on their credit card spending, they infer (often erroneously) that their future incomes will be higher, and thus, that they will have enough money at a later date to pay off their credit cards,” explain Greenberg and Hershfield."
• Put that credit card back in your wallet: "Relying on a bank debit card rather than credit cards can also serve as a braking system on overspending. Research shows that consumers spend less money and buy less when they use cash, compared to when they charge it on a credit card."
• Set your credit card up for automatic payments. "And automated payments, whereby you preset your bill to be paid off in full no matter the balance, can be an effective end-run around the costly “minimum payment due” anchoring trap that shows up in your monthly statement."
  • Editor's note and warning: Better be sure you know a) your checking account balance and b) your credit card balance before embarking on this strategy!
• For savings, make SMALL goals. "Greenberg and Hershfield reference a study that showed focusing on smaller, attainable goals is a more effective motivation to save than setting out to achieve some giant goal. That suggests you focus on what you can manage to tuck into emergency savings this week or month and tune out the noise that is harping on your need to save six or more months of income.
• For savings, set up accounts and name them based on their specific purpose: "Cordoning off different savings accounts for distinct goals — earmarking in academic circles — also can motivate consumers to stick with a saving plan."
• Make your savings automatic: "The age of automation makes it easier to follow through on research that has found individuals have better saving outcomes when saving is a habit and not a “linear” goal they are working toward. Payroll deductions into a 401(k) or automated transfers from a checking account to a savings account earmarked for emergencies is all this nudge requires."

About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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