Nudge theory: How it can help you make better money choices

21 December 2020
In this edited extract from his book, Going ApeS#!t, Phil Slade reveals how he uses ‘nudges’ to help with his personal finances.

Putting chocolate bars at the eye level of children when you’re lining up to pay for groceries, putting a flashing light on a sign, making a task list of the day’s activities, sending out notifications in an app with a little “you’re missing out on something” message… these are all simple little nudges that can influence our choices.

The concept of nudging is basically the practice of using simple cognitive and environmental mental tricks that leverage our cognitive biases and influence our choices. We call this the art of designing better choice architecture.

One of the earliest examples of nudging to improve decision-making was road markings. When cars and roads first came into being, there was no concept of the side of the road. There were just smooth tar paths you could drive on easily. Where there was a blind corner, and when cars got faster, these corners became death traps for unsuspecting commuters. One of these corners in America became so notoriously dangerous it was known as dead man’s corner. That was until someone had the idea of painting lines on the road to suggest where the safest place to drive would be.

To this day, most road and lane markings around the world aren’t road rules — they’re just road suggestions; very good nudges that help keep us and everyone else safe on the road.

Governments all around the world have been very interested in nudging, particularly when it comes to good health and financial behaviours, economic stability and market negotiations. The superannuation system in Australia is a classic example of this. We all know putting away savings for our retirement is a good thing to do. It’s not only good for us and our families, it’s also good for the long-term health of the economy. Problem is, we have a strong cognitive bias to problems or opportunities in the present and, therefore, trade off future benefits for short-term relief or gain.

Ever noticed how saving doesn’t necessarily get easier as you earn more? Our ability to expand and contract our expenses in relation to our income is quite remarkable. Therefore, in Australia we have an element of forced savings that’s linked to tax and income law. Before your pay even hits your account, your employer by law has to put money into your superannuation. Do we suffer because of this? Not at all. We avoid the temptation to spend by not even seeing or feeling the pain of loss in the first place.

This system recognises the impact of loss aversion and short-termism, and designs a choice architecture accordingly. This makes it simple and painless to put money towards retirement saving, and hard and painful to draw on it before we hit retirement. We can then choose to add more to super if we want.

Another example of nudging is that in many countries, people separate their own rubbish into general waste and recyclables, something that was unheard of 30 years ago, all because of small nudges like coloured bin lids, the use of icons and pictures, and the fact that having two bins collected means your rubbish won’t overflow into the street like it did with one bin.


Source: OneSideProFoto (Shutterstock)

The nudges I use for my money

Nudges aren’t only used when you want other people to think about their choices. I set up nudges for myself all the time for the benefit of my own finances, social connections and health. Let’s take a look at how I use nudges with my personal finances:

  • I set up a password on my bank login that’s actually a goal I’m saving for in the next 12–18 months. For example, when we were planning a European trip a few years ago, it was Euro2018!. This reminds me of what we’re saving for and makes me less likely to dip into those savings for other things.
  • I follow an 80–20 rule. Whatever my income, I live on 80% and save or invest 20% at a minimum. If I can’t live on 80%, then something needs to go.
  • Weekly direct debits go to separate accounts. I work out what essential and predictable bills need to be paid over the course of the year and then set up weekly instalments to smooth bill shock.
  • Calendar reminders pop up a month before I need to buy presents for people. This allows me to think, plan and shop for good value items. Whenever I leave presents to the last minute, I always spend more and the gifts never seem as good.
  • I’ve set up multiple sub-accounts with titles like kids’ school expenses, entertaining money and gifts. This allows me to budget for unplanned expenses. It also lowers the overall amount I have in any single account. Having five accounts with $500 in them will make you thriftier than having one account with $2,500 in it. The lower overall number makes us feel intuitively like we have less to spend.
  • I do not have a credit card. I spend money I have now, not money I hope to have in the future. This also means I don’t use services that spread out payments over a month but allow me to have the goods now.
  • I focus my debt on appreciating assets. Debt isn’t a bad thing but we try to limit it to large investments—most of which are high-value assets that will grow over time. I definitely limit the amount of debt on depreciating assets like cars, electronics and household appliances.
  • I cap our subscriptions and memberships. For instance, we love great wine and visit great wineries and wine-makers. However, we cap the number of our cellar door memberships. If we find a new winery we love, we need to choose a membership to drop before signing up to another. The same goes for entertainment streaming services. If the kids want to sign up for another service, we get them to choose which other service they wish to drop.
  • I donate to a cause I know is helping others. Consciously giving a portion of my income away to assist others helps me maintain a healthy attitude toward finances.
  • I talk about money with our kids. Being open about finances with the kids not only means they’ll be better at managing finances in the future but it also helps to keep us accountable. Sometimes it’s in the teaching of something that you learn the best lessons yourself!
  • Delay gratification. The more I can think of how I will feel in the future, the better decisions I will make in the present. How will I feel about shouting a round of drinks for everyone tomorrow? How will I feel about this new car in three months time? The bigger the expense, the bigger the time gap. Again, this isn’t about being frugal — it’s about being in control, rather than being controlled.

These are all just simple rules of thumb and ways I design my choice architecture to nudge me towards better decision-making. Your choice architecture needs to suit you. A lot will come down to recognising your own weak spots.

Going ApeS#!t book cover


This is an edited extract from Going ApeS#!t by Phil Slade (Decida $24.95) republished with permission.



Cover image source: microstock3D (Shutterstock)

This article was reviewed by Editorial Campaigns Manager Maria Bekiaris before it was published as part of our fact-checking process.


Phil SladeAbout Phil Slade

Phil Slade is a behavioural economist, psychologist and co-founder of Decida. Phil has worked with Westpac, Domino’s and Suncorp on developing improved self-awareness and reactivity, and practically applying behavioural economics.  His first book Going ApeS#!t is a guide to controlling your inner Ape and making better decisions in all aspects of your life.



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