Financial literacy meets human nature

Editor’s note: This article first appeared in Money Matters, a newsletter from Britannica Money, on September 27, 2026.

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Why we don’t take our own advice.

© WHstudio Leushin N, Matteo, Ibnu Fatah/stock.adobe.com; Photo illustration Encyclopædia Britannica, Inc.

I truly don’t know how I survived my early years as a trader. When I started out, I could be stubborn. Confirmation bias and recency bias clouded my thinking, and sometimes I had a hard time unwinding a position—for a profit or a loss—because some part of me was convinced the next move would prove me right. Today, I teach about those same behavioral biases for Britannica Money.

Then again, I know plenty about nutrition, too. When my diet is going well, I know what I’m doing right. When I deviate, I’m well aware that the cheesecake I’m about to eat isn’t helping.

It’s the same with money. We’ve written extensively about saving, spending, debt, and investing, and so has every other financial site. But for many (if not all) of us, the knowledge is the easy part. Matching what we know with what we actually do? That’s where things tend to break down.

In the 1970s, psychologists Daniel Kahneman and Amos Tversky began documenting the mental shortcuts and errors that affect decision-making. Their work on cognitive biases helped lay the foundation for behavioral economics, which examines why we don’t always make rational choices and act in our own best interest.

I saw—and felt—plenty of that on the trading floor. Fear led to early profit-taking, while stubbornness led me to hold—or even double down on—losing positions. Confirmation bias made it easy to notice evidence that supported my position; recency bias could give too much weight to whatever had just happened. And after a loss, I sometimes wanted the next trade to make me whole again.

Knowing these tendencies didn’t make them disappear. Over time, I got better at recognizing them before I acted, and that helped me become a better trader. It also carried over into the rest of my financial life: investing with more discipline, sticking to a household budget, and recognizing when I was trying to rationalize a decision I already knew I probably shouldn’t make.

What chore have you been putting off? Don’t lie; there’s always a list. I’ve needed to clean my workbench and get an eye doctor appointment for the last few weeks. And I really owe my sister a call. It’s not that I don’t know these things, but there’s always a reason why today isn’t quite the day.

We’re all great lawyers for decisions we already want to make, and personal finance gives us plenty of opportunities to rationalize. I’ll increase my 401(k) contribution after the next raise. It’s not a $300 driver—it’s a $600 driver on sale for half price. That stock will come back, so selling now would only lock in the loss. In fact, I should buy the dip, so it only has to recover halfway for me to break even. 

None of these decisions feels irrational in the moment. We can explain every one of them, sometimes quite convincingly. That’s why “knowing better” only gets us so far: Our brains are awfully good at finding an exception when the general rule becomes inconvenient.

Knowing where we tend to get in our own way gives us a chance to do something about it. Want to stack the deck in your favor? Here are a few ideas:

Financial literacy can give us the knowledge, but we’re still human. Sometimes we’ll break our own rules, rationalize a purchase, or eat the cheesecake anyway. The trick is getting a little better at catching ourselves before the occasional deviation becomes the default choice.