Evolution has taught us to think short-term and made it difficult to plan for the future. Making a few small changes might help us get better at financial planning.
Why we are bad at Financial Planning
Planning, by definition, involves thinking about the future. You may want to develop a financial plan to buy a car next year, send your kids to college in 5 years, or retire in 10 years. In each case, you have to plan for the future.
But humans are terrible at planning for the future. The reason, surprisingly, is evolution! We have been trained by evolution to think short-term.
More than 99% of all the species on this planet are now extinct. It is incredibly difficult to survive on earth! Over these millions of years trying to survive, we humans learned a lot of skills. However, the things that helped us survive in the jungle are the same things that are hurting us today.
Evolution, it seems, has prepared us to survive – but not to thrive!!
How we evolved
Let us go back thousands of years when humans lived in the jungle ….. Ben is an impulsive guy who jumps to conclusions and makes decisions quickly (short-term thinker). On the other hand, Jerry is a thoughtful bloke who likes to think carefully before deciding (long-term thinker).
Back then, food was hard to come by. Survival meant two things – finding something to eat and avoiding being eaten by another animal.
One fine day Ben and Jerry find a coconut each. Ben instantly cracks his coconut open and enjoys a good snack. Jerry, however, thinks about the future and decides to plant his coconut so that it can become a tree and give him many more coconuts!
The next day Ben has more energy to find his next meal. Meanwhile, Jerry is tired, hungry, and at risk of not surviving if he cannot find food quickly.
An even starker example – coming across a tiger in the jungle. Ben makes a quick decision to climb a tree. Jerry thinks of the pros and cons of the different actions – climb a tree, run, hide, etc. While he is doing this, the tiger attacks him.
Over time, natural selection made sure that short-term thinking people survived. Ben manages to survive in both the examples above, whereas Jerry does not fare so well.
How evolution impacts Financial Planning
In the modern world, we do not face hungry tigers or live on coconuts – hence, short-term thinking is not necessary for our survival now. So why can’t our brains change and adapt to the modern world?
The reason is that adaptation takes millions of years. Dolphins, whales, and some other creatures that live in the sea today were land animals before – they actually lived on land! Gradually they evolved into modern-day dolphins and whales. But that process of evolution took over 15,000,000 years!
Evolution is a slow process – it takes millions of years.
Humans left the jungle life less than 15,000 years ago (basically just 0.1% of the time for evolution to work). Over the next 15 million years, our brains will also evolve and adapt to modern (non-jungle) life. But for now, our brains are still wired as if we were living in the jungle.
That is why we still think short-term. It is not easy for us to plan for next month, forget about planning for next year or next decade, or several decades in the future.
This is also the reason for our impulse shopping / why we buy things without thinking.
Related Article: What is the Real Cost of Buying Something?
How to avoid short-term thinking
The first step to deal with this evolutionary limitation is to realize that it exists! So when our brain tells us to go for short-term happiness and buy that new shiny item, it is merely doing what millions of years of evolution have taught it to do.
Now that we know that evolution wants us to buy that new item, we can trick evolution by changing the duration of the decision-making process.
Whenever I am tempted to buy a new or expensive item, I add it to my Amazon shopping cart and let it sit there for a week. After a week, if I still want it, I buy it. However, I have seen that most of the time, I am not interested in the item after a week.
Another thing I do is force my brain to think about the future. Will I still use this new item in 5 years? If my 80-year-old self could talk to me, what would it say? Asking questions like these helps shift my thinking towards the long term. This is not easy, but just like everything else, the more you practice, the better you get at letting go of short-term thinking.
Lastly, if you make a hasty decision once in a while, don’t beat yourself up. After all… you are human!!