Understanding Financial Behaviors with Cara Macksoud: A Deep Dive into Behavioral Finance
Have you ever stopped to consider why people make the financial decisions they make? Probably not. However, understanding the psychological factors that influence financial decisions is more personal than you think. On a recent podcast episode, we spoke with Cara Macksoud, CEO of Money Habitudes, who offered her insights into financial behaviors and their impact on our financial well-being. Macksoud’s career includes time as a trader on Wall Street to now focusing on the intersection of psychology and finance as a certified financial behavioral specialist and board member of the Financial Therapy Association, she is deeply involved in educating others about the psychological underpinnings of financial decision-making.
Cara Macksoud
CEO, Money Habitudes
What is Financial Behavior?
Financial behaviors encompass everything we think, feel, and do with our money, rather than just the balance in our account. We often link our financial worth with our ability to succeed or fail. People frequently categorize themselves as “low income” or “high income,” assuming these labels determine what they can or cannot have or buy. However, these labels don’t reflect how effectively we use our money to benefit ourselves. This is where the problem lies. Cara emphasizes, “We should view money as a tool. Just like any tool, if we use it improperly, it can hinder us.”
The Science Behind Financial Behavior
The science of financial behavior is complex and deeply personal. Just as no two people have the same metabolism, no two people have the same financial habits. Understanding one’s financial behavior is not about fitting into a specific category, but about recognizing where certain habits might be over- or under-utilized. This awareness allows individuals to make adjustments that can improve their financial well-being.
Cara explains, “we often use money to fill emotional voids or to make ourselves feel better and end up pursuing things that don’t actually benefit us. Whether it’s trying to keep up with the Jones’s or getting stuck in a cycle of always wanting more, the drive for wealth can sometimes turn into greed, even when we already have more money than we need. It’s like the genie in the lamp from Aladdin – once he wished to be all-powerful, he ended up getting trapped in the lamp. This is what our financial behavior can be compared to.”
Recognizing Misaligned Financial Behaviors
One of the most significant challenges people encounter is recognizing when their financial behaviors are not in line with their true needs and goals. Cara emphasizes that self-awareness is crucial. She recommends that individuals critically assess their spending habits by questioning whether their financial decisions genuinely contribute to their well-being or simply serve as a means to keep up with others. For example, someone might feel pressured to buy a bigger house or a luxury car because they see their neighbors doing the same. However, if those purchases don’t align with their personal values or bring them genuine satisfaction, they may end up feeling trapped by their financial decisions.
The Importance of Setting Financial Goals
Setting financial goals is another crucial aspect of healthy financial behavior. Cara encourages individuals to simplify their financial planning by focusing on their most basic needs and desires. She highlights the importance of understanding what truly brings joy and satisfaction, rather than getting caught up in the complexities of financial products and strategies.
To help individuals and credit unions better understand and improve financial behaviors, Cara’s company, Money Habitudes, offers an assessment tool. The Money Habitudes Assessment is designed to identify dominant financial behaviors—such as planning, spontaneity, giving, and security—and how they impact financial decisions. By understanding these behaviors, individuals can make more informed choices that align with their values and goals.
Changing Financial Behaviors
Changing ingrained financial behaviors can be challenging, but it’s not impossible. She shares some creative finance tips especially when money is tight, for instance, finding ways to reduce expenses without feeling deprived, or re-evaluating spending habits to ensure they align with one’s goals, can lead to positive changes. She also suggests celebrating small financial victories, as these can reinforce new, healthier behaviors.
Credit unions are good at connecting and building relationships with their members. They can also help their members by offering financial coaching and counseling services. These services can include tools like the Money Habitudes Assessment to engage members in meaningful conversations about their financial behaviors, helping them recognize and address misalignments. This can ultimately assist members in achieving better financial outcomes.
Having the right digital banking tools can also greatly benefit credit unions in their efforts to connect with their members and provide better financial wellness opportunities. Digital banking offers convenience and accessibility, allowing members to manage their finances anytime, anywhere. Proactively offering instant access to account information, personalized financial management tools, and educational resources, improving member engagement. Credit unions can tailor their offerings based on member behavior and preferences while facilitating effective communication through personalized messaging, alerts, notifications, and targeted financial wellness programs.
To learn more about VisiFI and our connected and modular banking solutions, visit us at www.visifi.com. Listen to our podcast to hear Cara share more about Money Habitudes and the science behind financial decisions.
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