Building new habits on top of old ones

Posted by on July 17, 2012 @ 11:00 am in Personal finance

I’m not one to pore over the newest self-help book. After reading All I Really Need To Know I Learned In Kindergarten, I figured everything that could and should be said had been. But I do fervently believe that change is possible.

I’ve been reading a fascinating book on habits—The Power of Habit: Why We Do What We Do in Life and in Business, by Charles Duhigg. It’s an entertaining read, exploring how we form habits and how we successfully (or not so successfully) change them. It has a number of other dimensions, including the habits or routines formed by organizations or companies. That’s all interesting, but I was struck by the research and its applicability to saving and investing.

The author presents an array of diverse examples of how habits are formed and altered. “We know that a habit cannot be eradicated ,” he writes. “It must, instead, be replaced.” In order to replace a habit, the author insists, you must understand the “cue” that triggers the routine (habit) as well as the reward you get from that routine. Once you understand those two drivers, then you can insert a new routine that can be triggered by the same cue and will provide the same reward. It’s not quite as simple as that, and different steps may work for different people. One helpful factor, the author says, is confidence—the more you have to begin with, the better your chance of overlaying a new habit on an old one. Also, “the odds of success go up dramatically when you commit to changing as part of a group.”

I’m wondering if we in the financial services industry are missing some opportunities in the financial education arena. For example, Vanguard uses social media channels to share messages, and, to some extent, provide financial information to investors. These are regulated spaces in which we abide by a number of strictures concerning what can be said, but social media may be able to play a helpful role for investors seeking a community in which to discuss financial behaviors and receive support when change is needed.

Facebook, Twitter, and blogs like this one are forums that were unavailable a short while ago. They can—and probably are already—filling this role. For example, if you can find a diet coach online, or a “health advocate” to help you sort out the confusing landscape of health care choices, why not a savings advocate? He or she would be there to provide support, suggestions, and encouragement, and help you tap into a community to share your changed routine? Investment clubs may have partially filled this need in prior times, but those groups really appealed to members with established habits for saving and investing—not those who needed to build positive new habits on top of old ones already in place.

What do you think? Could an online support group be a critical success factor in replacing the old routine of spending every cent with saving—and then investing—instead? Have you had experience with changing a financial habit, and does it feel like you replaced the old habit with a new one, as the author posits? Does the old habit linger in the background? Above all, what made you successful—or held you back from succeeding?

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