- The habits that are small at the beginning,
like grabbing a chocolate bar
when you're checking out at the grocery line
may be fine at the beginning—
but as you go along,
you can see that habits are hard to break.
There are triggers that we all have
that lead us to these habits
that are invisible for us to see every single day.
- Why are bad habits around money
so hard to tackle?
In the course of your day,
about 40% of the things you do are habits.
All of this happens behind the scenes
without you being aware of that.
Because you have no control,
it's also hard to break it.
- When we talk about money,
there's ways that we have cues,
we have routines, and we have rewards.
Sometimes we get so connected to that reward
that comes from giving or spending
we continue to do that in a routine way that hurts us.
- But the great thing is we all have the capacity to change.
Small behaviors can have really big impacts over time
just through, you know, the power of habit.
- Getting rid of bad habits,
or forming new ones,
will have an impact all the way across the board.
Not just with your money,
but also how you feel mentally,
emotionally, and physically.
- How can you identify what's holding you back?
Can you forge healthier spending and saving habits
that unlock your financial potential?
This is "Your Brain on Money."
Before our two favorite neuroscientists,
Dr. Cerf and Dr. Kable,
explain how our brain forms habits,
Dr. Cerf is going to tell us
how he got into the brain side of things.
After many years of working as a hacker,
I ran into Francis Crick, Nobel Laureate
for discovering the DNA,
and he essentially learned about my profession,
penetrating banks and the government
and he said, "You might as well try to implement that
in a much bigger and much more important question,
which is how our brains work."
And with his endorsement,
I moved from hacking computers
into hacking humans' brains.
- As a brain hacker,
how do habits creep their way into our brain?
Habits are patterns of existence in our brain
that operate without us paying attention to them.
Some habits are so frequent
that nature said, "You know what,
this one we could hardwire into the brain,"
that's what breathing is.
Something that's natural,
as soon as you're born, it just works.
And then over the course of our life,
there are many things that we do frequently
that the brain says, "Let's move them
to a system that is a habit."
So it sees that you drive to work
every day in the same route,
and it says, "You know what? Let's help the person."
Instead of having to navigate,
we just have to have one mechanism ignite it,
and from then on everything's gonna happen automatically.
The location in the brain,
the striatum where it happens,
we basically can monitor how habits are formed,
and what it takes for each process to happen.
- You can do a neuroimaging study
where you ask someone to repeat
the same thing over and over again.
Initially, there's lots of areas of the brain involved.
But as you do the task over and over again,
what you see is fewer and fewer areas
that were necessary the first time through.
It's only using those neurons
and those brain areas that are absolutely necessary
in order to get the task done.
- It's also hard to break it
because now you have to change something
that your brain worked hard to make you not be aware of.
- So what do some of these money habits
look like in our daily lives?
- If my wife was here,
she'd probably tell you some of my quirky habits.
- Dr. James has seen a lot
of different money habits with his clients,
and he's here to tell you
that there is hope in tweaking them.
- Some of the things I've seen for people
is that they might have the resources
to pay for things,
but somehow they spend all they have
because they got used to not having money.
They got used to not having extra resources.
They got used to maybe not even saving.
Hyperfocusing on how much they have,
or are they doing the right thing,
or the latest trends.
When I think about shaping habits,
I do think that we can replace them,
but it takes real intentional work.
If you just say, "I'm gonna read one page a day,
or one chapter a day,"
you will eventually finish the book.
And if you finish the book, then you get to another book.
That's a great habit to build
that started on one page a day.
If we see it as being able to save a dollar
or a few dollars,
that gets you to multiple dollars
that can get you to saving.
- You know, saving $50 a month is great.
But saving $50 a month every single month,
putting it in a savings account,
the better off you will be
because of the magic of compound interest.
That is what really makes a difference
in your financial life.
What we often make a mistake of doing
is trying to do everything all at once.
I'm going to stop spending on takeout,
I'm going to save for retirement,
and I'm gonna walk to work to save money on gas.
Well, that is a lot of change to manage all at once.
Instead, a much better way
to implement new financial habits
is to do one at a time,
and stick to something that you had set out to do.
- So, what specific course of action
can we take to form better habits?
- Building a better set of habits in your life
will start with understanding
what stage of change you're in.
So you may be in a 'place of denial,'
like, 'Ah, I maybe not need to change this habit.'
- So just by saying, "You know, I have a habit,
and I don't like this habit,"
you already did one small step
towards changing it.
- When you get to the point where you are
ready to make a change with the habit,
that's in the 'contemplation stage.'
- So, let's say you're in the habit
of whipping out your credit card
and getting a coffee every morning.
If it's feeling good for you,
make sure it works for your finances,
and if it does, keep on moving forward.
If it feels not so good for you,
that's usually an indication
that you can check in with what's going on financially.
- Then you move to a 'preparation stage'
of actually planning for this change.
- The more you can associate positive habits
or neutral habits with your money, with something good,
the better off we are.
- Then you're at 'action,'
where you're actually putting your foot on the pedal
and things are changing—
where we create a new habit.
We're integrating this in our lifestyle.
- What I heard with this person with this latte example
is that they need a lot of like time
to kind of prepare themselves before they get to work.
So it could be, "I'm gonna get to work
like 5, 10 minutes early
and park a little bit farther away
so I can have that time to take that walk
to really get in my head,
so I can start my day nice and fresh."
- And then 'termination' is the last stage
where we may not have the urge
of that habit that we were looking to break.
- After a few times, there are gonna be two habits,
and if the second one overwhelms the first one,
at some point, your brain's gonna just
cut the original one, and you'll have a new habit.
- As a therapist, I'm always gonna say
that self-evaluation should be a habit.
I mean, I'm number one in that camp.
But honestly, I think a lot of people
don't do that enough.
There's so many things that come from
awareness and reflection,
and maybe even accountability.
- One way you can support forming a new habit
is getting more social.
Tell friends, family members,
and maybe even co-workers
that you want to make a change.
- Associations, connections become really important
when we share with a friend.
We now associate that friend with our goal.
- The sky is the limit
when it comes to how you actually behave
and act with money.
And holistically, things will be better for your life.
If you made the effort to just
get with us to this moment in the video,
you're already a little bit better.