April 21, 2019 | 05:14 PM

Your Money

19.07.2018Rash decisions - and how they can hurt your finances

This article will explore the psychology behind bad financial decision-making and take a look at one particularly insidious example of how some unscrupulous providers exploit the phenomenon of rash choices.

From the way people are encouraged to budget and save to the emphasis placed on pensions and investments, there’s often a lot of talk about the best ways to make and manage your money. But in a precarious economy where one wrong move can decimate a person’s financial standing, it’s wise to think carefully about what not to do as well – and making impulsive choices is certainly one thing to avoid.

Unfortunately, scams that prey on hastiness are everywhere. Here in Australia, it’s believed that there have been over 75,000 scams in the past year alone. This article will explore the psychology behind bad financial decision-making and take a look at one particularly insidious example of how some unscrupulous providers exploit the phenomenon of rash choices. 

Money and emotions

The topic of money can provoke an emotional response. For someone who doesn’t have much money or is attempting to grow what they do have, feelings around it can run high. But regardless of emotions, it’s important to take the proper time to make informed financial decisions, even if that means missing an opportunity here and there. Buying a property, for example, is often presented culturally as an essential move. But giving in to that perceived pressure could lead buyers to rush into purchasing bargain properties with potential issues such as broken-down boilers, rotting roofs and more. That’s why avoiding rash decisions is key.

This sort of rashness often bleeds into financial choices, particularly when it comes to investments. Those who trade the stock market, for example, often mistakenly assume that monitoring the value of their investments like a hawk is the best way to increase returns, as it means they can swoop in and close their position if prices go down. But this approach focuses too heavily on the emotional aspect of trading, ignoring the more important, rational side. Leaving the market to fix itself is often a smarter decision, but it requires some discipline – and an aversion to spontaneous decisions.

Sadly, there are so-called brokers and financial services providers out there who specifically target people on this basis and exploit the emotional need many people have for immediate gratification and avoidance of anxiety. The world of online investing is in many ways legitimate, but there are some bad apples – and it’s here that a lot of financial rash decisions are made.

Case study: Binary options

So-called “get-rich-quick” schemes have existed as long as money has been around. But in the modern age, it’s easier than ever for unscrupulous brokers and scam artists to offer alluring schemes over the internet, only for the victim to find out that they’ve been scammed or the odds have been stacked against them. 

One such scam is found in the shady and dangerous world of binary options. Binary options brokers present traders with two potential choices. Typically their choice – and news of whether a payoff or a loss has occurred – will be near-instant. Unlike other, legitimate forms of trading such as CFD (contracts for difference) trading or forex trading, binary options are largely considered to be illegitimate forms of trading. Similar in nature to fixed odds betting, they make it harder for the trader to “win”. These trades rely on a simple yes or no proposition carried out in a short time. As a result, they can become highly addictive. 

In the world of money and personal finance, it’s essential to take a detached, rational approach. Not only can rash decision-making lead to problems down the line, it’s also something that a range of providers – such as binary options brokers – are happy to take advantage of. Luckily, by focusing on long-term goals and sensible, clear-headed decision making, these pitfalls can be avoided.

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