The seven signs of financial self-sabotage

We have written extensively on this blog about the many ways in which the financial services industry either actively or by omission leaves opportunities on the table to help women manage money better. But there’s a more pernicious enemy to women’s financial progress – themselves. What is surprising is that women also contribute to their own financial problems by subtly sabotaging their interests in at least 7 ways:

We have met the enemy and he is us

– Walt Kelly
  1. Leave money un-managed: Whether it is money they have earned and saved, or received through bequests or other sources, women sabotage their long-term well-being when they manage by default – i.e., let it sit without attention in whatever form they received it. If they were lucky enough to have it managed well by default, that is only by a stroke of luck. Too often, the money sits in value-destroying forms like cash.
  2. Don’t look at account statements: This is easy to fall prey to, especially if the money is being managed by someone else, whether family, an employer, or an advisor. The excess burdens on their capacity and mind-share make it only too easy to assume that since someone else is ostensibly “responsible” for it, it is, by definition, being managed well.
  3. Don’t question the path: When an advisor or family member recommends or adopts a plan or financial strategy, women tend to shrink from even seeking to understand the what, why and wherefore of such a plan in time to see if it makes sense to them or not. Frequently, the downside from poor strategies backfires a lot harder on women, as they live longer and need the resources more than men typically do.
  4. Abandon money due to them: Especially early on in their careers, when the money in question is not large, and when other family and relationship priorities are at the forefront, women risk abandoning money that’s due to them. Classic examples range from foregoing employer matches on retirement contributions, abandoning entire retirement accounts when they change jobs, all the way to not claiming employment benefits that are their rightful share (e.g. accrued pension benefits). Over time these lapses add up to the comforts and necessities that would have made life a lot more livable but for a little attention early on.
  5. Don’t invest in stocks: Women appear to have a lower appetite for the inevitable gyrations of price movements involved in stocks and consider less volatile instruments “safer”. The insidious risk of inflation and lack of long-term growth is not felt until it is too late, as for example, when they are living out their non-earning years on a budget that’s not extending far enough into their needs.
  6. Defer investing large lump-sum payments: When women receive cash bonuses or even sums such as legal settlements, the pressures of daily life mean that these sums typically sit untouched sometimes for years, making them lose out on significant increases in wealth for very little additional effort.
  7. Suppress genuine concerns about finances: There is a tendency for women in relationships to defer to a family member managing the finances. While there is a risk of abdicating all responsibility for staying abreast of what’s being done with the money, there is an additional risk that even when women do get involved, they suppress voicing any genuine concerns about how the partner or family member is investing the money, especially when fragile male egos are involved. This attempt to buy peace comes at a very high cost if that trust is not justified.

The challenge with these forms of self-sabotage is that they come from deep-rooted social mores and cultural norms, and in many cases are deeply entrenched in how we are hardwired to behave.

Photo by Owen Kemp

But looking a little deeper, the causes for these acts of self-sabotage can be boiled down to five big drivers:

Causes of financial self-sabotage:

A. The “large blob” factor: Perhaps the biggest cause for inaction and unintentional negligence is that the work in managing money is so undefined and therefore scary. This problem is not unique to women, of course, but what makes it worse is that it might well be the last straw given their already overloaded plate.

B. Disproportionate cognitive and execution burden: Relative to other responsibilities that need to be managed, money management, especially of the DIY variety, imposes massive cognitive and emotional burdens to get right. We already saw in an earlier post that even without stress humans routinely make suboptimal and poor decisions. Adding to this, the simple tasks of managing money don’t fit neatly into the natural calendars of many women – leading to further risk of inattention.

C. The math assumption: Many women assume that you need to know a lot of “math” to be able to invest or even manage your money. Many segments of the industry are only too happy to encourage this thinking by subtly and overtly indicating all the smart Ph.D.’s , algorithms and strategies that they, and only they, can provide. The basics of managing money require no more math than addition, subtraction and basic multiplication and division, if that. But the self-proclaimed math fears create a significant and false barrier

D. Fear of success: Psychology studies have revealed the existence of a fear of success in women, that doesn’t seem to have an equivalent in men. Women expect significant negative consequences upon achieving success, more than men do, who see it as all positive. This phenomenon is called the “fear of success” and may explain why women are reluctant to deal with money.

E. Desire to maintain relationship balance: The desire to maintain familial harmony likely precludes many women from even seeking information, leave alone question or raise concerns about how money is being managed. While this may be “rational” from an emotional calculus, it is highly unlikely that without significant diligence, women have even a fair idea of the long-term costs of this approach. This gap may also preclude them from searching for other ways to maintain relationship harmony without necessarily sacrificing their long-term financial well-being.

All is not gloom and doom, however. Despite these significant hurdles and deep-seated causes, simple and viable solutions to all of these problems exist. The key to success is to co-opt the same forces at play, but harness them to work in favor of women’s financial security, rather than against it.

Photo by David Iskander

Here are five potential solutions to the problem of financial self-sabotage:

Solving the financial self-sabotage problem: paths to success

  1. Link to purpose: Perhaps the biggest and most implementable solution is to link all financial tasks and imperatives to goals, purpose and values that women see as much larger and more important than “merely” their personal success. When inattention is linked to harming these interests, attention is caught faster, and the likelihood of active agency zooms much higher.
  2. Package tasks in familiar terms: Women are no strangers to tackling hard and disagreeable tasks. But they make these manageable by packaging them in forms that make them easier to grasp and execute, for example, as projects. Packaging financial tasks in these familiar forms vastly increases the comprehensibility and feasibility compared to presenting them in intimidating financial jargon and as large, risky strategies that put women’s entire financial futures at stake.
  3. Create a baby-steps approach to overcome fear factor: The current all-or-nothing approach to money management is almost designed to drive women away because of the lack of any way to test their way slowly into a path or relationship. Risk management is key, and being able to offer an entry on-ramp that gives them the option to exit anytime without significant up-front investment is extremely important. Small baby steps give them the ability to do this, and have the added advantage of building their self-efficacy in the process.
  4. Make information visceral: The MEGO effect (“My eyes glaze over”) is particularly strong in women, with the sad result that they may not fully internalize the practical impact of numbers, say, a small difference in compounded annual returns over 30 years. But if it is presented to them as the difference between being able to fund a state-college education versus having to borrow for it (for example), the impact becomes a lot more visceral and impactful. The key is to present these critical pieces of information in as many modes as possible, and linking them to real-life impacts as much as possible, to spark action and ownership in women.
  5. Link to natural action triggers: All the plans in the world mean nothing without action. To make it a lot more likely that these actions will happen, link them to natural triggers that are second nature to most women. For example, link investing to a monthly activity they must do, for example paying the bills. For less frequent actions, such as rebalancing a portfolio, integrate them with a natural reminder such as Christmas shopping. This will be even more powerful provided the actions have been made simple and doable given the time and bandwidth constraints most women share.

Even one or a few of these steps will go a long way in helping women reduce the instances of financial self-sabotage, but without triggering deep-seated beliefs or upsetting any social mores or norms – and there lies the path that must be taken to make women fundamentally better off.


The inspiration and a few key themes for this post came from one of the best books for women I have read on investing: Smart Women Love Money, by Alice Finn.

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