“Do as I say… not as I do.” This has been a popular phrase for many, many years. In fact, it was first recorded in John Selden’s Table-Talk in the 17th century. Possibly, for as long as we’ve had structured societies, we’ve noticed a disconnect between what we say and what we do.

In the 19th century, this recorded awareness grew with books such as MacKay’s Extraordinary Popular Delusions and the Madness of Crowds, which show how group behaviour and psychology affect us. Still, it was only since the 20th century that we started matching this up with financial planning and how our behaviours often override our intentions. 

Behavioural finance is the study of the effects of psychology on both investors and financial markets. It aims to identify and understand why people make certain decisions based on their biases and irrational thoughts. We could have all the head knowledge and say the right things, but if we’re stressed, feeling vulnerable, insecure or inadequate, we may act in the opposite way, and our actions will not reflect our words.

“It’s understated to say that financial health affects mental and physical health and vice versa. It’s just a circular thing that happens,” said Dr Carolyn McClanahan, founder & director of Life Planning Partners Inc. “When people are under stress because of finances, they release chemicals called catecholamines.” 

Catecholamines (dopamine, norepinephrine, and epinephrine) are hormones made by our adrenal glands, two small glands located above our kidneys. These hormones are released into the body in response to physical or emotional stress. When we make bad financial decisions, our health will suffer.

Over the long term, these affect our mental health and ability to think clearly, impacting our physical health, wearing us out and making us tired. Lack of sleep, poor health and mental state mean we will be vulnerable to making unhealthy decisions in every area of life, not just in our finances.

Behavioural finance can help us understand our own biases and recognise them when they arise. It can also help us engage in conversations that are kinder, more intuitive to the cause of our financial stresses and lead to practical ways to “walk the talk”.

This is why personal financial planning is such a powerful practice in helping us apply broad-based intellectual knowledge to our unique situations in a way that makes sense and can be implemented in our daily lives. We can cultivate healthy habits that reflect our heartfelt intentions.