Willpower Is a Myth That Harms Your Health and Wealth
Practical tips to avoid impulsive decisions
The more you learn to control your impulses, the more freedom you will have.
In this edition of the Money on my Mind series, I review the restraint bias—which refers to the fact that people overestimate their self-control and ability to resist impulsive decisions. I’ll touch on how this lack of impulse control can lead to bad financial decisions and what you can do to keep those impulses in check.
What is the restraint bias?
January 1st: “I am going to eat healthily, sleep better and go to the gym.”
February 1st: ‘falls asleep in front of the couch at 2 AM covered in potato chips.’
That is the restraint bias in a nutshell. We tell ourselves that resisting impulses—like eating junk food— is something we can easily do. Since we believe it’s easy to do, we don’t come up with a plan to resist temptations. Instead, we rely on “willpower,” and since willpower is largely a myth, we end up giving in to our cravings and impulsive decisions.
A 2009 paper found that our tendency to overestimate our willpower causes us to overexpose ourselves to temptation, thus giving in to temptation. The researchers cite the example of the recovering smoker who is overconfident in their ability to kick the habit. So, they needlessly expose themselves to situations where people smoke in a social setting and surprise! They end up falling back into their smoking habit.
Smoking and eating junk food are obvious examples of how overestimating your impulse control can lead to poor decisions.
But impulsive decisions can also wreak havoc on your financial life.
Self-control = better financial outcomes
A 2017 paper surveyed over 2,000 people to measure whether their financial behavior and well-being were linked to “self-control.”
The researchers describe self-control as “our ability to break bad habits, resist temptations and overcome first impulses.”
They found that people with good self-control are more likely to:
Save money from every paycheck.
Make better financial choices.
Feel less anxious about money.
Feel more secure about their financial situation.
In a 2017 paper, a researcher from the University of Munich found evidence that people with low levels of self-control were less likely to keep their money invested over time—particularly after periods of negative stock market returns.
Translation: the lower your self-control, the more likely you are to sell after a market crash— which is the easiest way for investors to lose money.
Low levels of self-control and, in particular, overestimating your ability to resist temptation harms your health and wealth.
Self-Control is not what you think it is
The most harmful myth that causes people to fall victim to impulsive decisions is equating self-control with willpower.
A 2021 meta-analysis aggregated the research of financial self-control strategies across 29 academic studies to determine how effective they were at helping people save more and spend less.
The researchers break down several types of self-control strategies, but to simplify their findings, you can think of two methods to implement financial self-control.
Proactive strategies which focus on what you can do to avoid tempting situations to overspend in the future.
Reactive strategies which focus on what you can do to avoid overspending once you are in a tempting situation to spend.
Another way to think about it.
Proactive strategies= having a plan to avoid tempting situations.
Reactive strategies= relying on “willpower” to resist temptation.
Unsurprisingly, the research showed that proactive strategies are more effective than reactive strategies.
Returning to the example of the recovering smoker. The reactive strategy is overestimating their ability to resist the temptation to smoke. In this classic example of the restraint bias, the smoker does not attempt to avoid situations where they will be tempted to smoke because they believe “they can resist the temptation,” and sooner or later, they relapse.
The proactive strategy would have been to come up with a plan to avoid and remove themselves from any social setting where they may be offered a cigarette.
In the context of saving money, think about situations where you will be tempted to overspend and think of a strategy to avoid that ahead of time.
Let’s say a group of friends want to go out for dinner. This is a prime situation where you will be tempted to overspend. To avoid paying marked-up costs at a restaurant, maybe you offer to host a dinner party and ask each guest to bring an individual item. Someone brings a bottle of wine, another person brings dessert, and you cook the main course.
That’s an example of a proactive strategy to practice financial self-control. Anticipate a situation where you will spend too much money and plan to avoid it.
If you’re an investor who gets anxious when your portfolio is down—a proactive strategy would be deleting the stock market app from your phone, not consuming any financial media, and making it a policy to only check on your portfolio balance once a quarter.
To maximize your odds of resisting temptation, it’s not enough to think of a proactive strategy; you need to write it down.
Research has shown that people who write down their goals are more likely to achieve success.
Say, you read my book and agreed that a buy-and-hold passive investment strategy is best. But you’re worried that when the market starts going down, you’ll make an impulsive decision to sell your investments at a loss.
Rather than giving into restraint bias and relying on “willpower” to keep you invested for the next few decades, you could create a written proactive plan.
You make a clear rule that you will only check your portfolio balance once a quarter.
Next, you delete your brokerage app from your phone—This is kind of like removing junk food from your cupboard as it relies on the “out of sight, out of mind” strategy.
Finally, you stop consuming all forms of media that engage in the daily happenings of the sock market. If you are a long-term index investor, what happens every day in the stock market is irrelevant.
By nature, we are all impulsive—and if we believe in the myth of willpower, those impulses can lead to terrible financial outcomes.
The combination of a proactive plan to avoid temptation and the accountability of a supportive friend can tilt the odds in your favor.
What’s an area in your financial life that you’d like to increase your self-control? Let me know in the comments.
For more tips on improving your financial decision-making, check out the Money on my Mind series.
Retirement Savings 101 Crash Course
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In Section 1, you will learn the basics of retirement saving and how workplace retirement plans work.
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This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any major financial decisions.
Apologies to anyone who clicked on the link to my book and it went to my Notion page brainstorming article ideas.. I put the wrong link in but it's been corrected!
This is a great write-up about some of the most under appreciated human error processes that go on every day.
We are terrible at so many mental feats, including "willpower". Yet, I think there is also a social and educational component to it. How often have we heard that "try hard" , "work harder" , "be tough", or something similar is pronounced to someone - even, or especially to children. Like as if magically they will just do what they are supposed to do and stop doing all the things that are not that good.
I would like to add here, that what you have described here can be used to our advantage - particularly for our health and wellbeing:
E.g. your example with the junk food in the pantry is absolutely on board. Simple transfers into a positive leverage here would be something like putting out all the fruit and vegetables in a bowl in the kitchen rather than hiding it. This immensely increases the chance of us eating them. Similar for the pantry - fill it up with some protein bars, jerky or something else that can be an "alternative" to whatever you are getting rid of.
The same can be done for anything else we want to DO. Trying to use your phone less during lunch break and wanting to relax? Turn your phone off at the start of the day, leave it in the car, and go out for a walk to the park for lunch break.