What is the financial cost of procrastination?
According to one recent economics paper, in an extreme case it can be equivalent to paying a perpetual 14-per-cent consumption tax.
In a recent Globe and Mail column, I looked at research on “present bias,” our tendency to place far more weight on what feels good or bad today than on consequences that arrive years into the future.
That matters for financial decisions because so many of them involve exactly that trade-off. Saving for retirement means giving up spending today in exchange for having more money decades from now. On paper, the decision may be straightforward. Emotionally, it is much harder.
One of the more interesting arguments in the research is that poor outcomes are not simply the result of weak willpower.
We often build commitment devices into our financial lives precisely because we know our future behaviour may not match our intentions. RRSP withdrawals come with an immediate tax cost. Locked-in investments penalize early access. A mortgage effectively forces homeowners to build equity through regular payments.
But there is another side to the modern financial system.
Credit cards, buy-now-pay-later services and other forms of easy borrowing allow us to access future income almost instantly. That can weaken the very safeguards we created to protect ourselves from our own present bias.
There is even a wrinkle here. Locking up too much of our money can leave us short of readily available cash, which the research suggests may make impulsive spending more likely.
The lesson is not simply to “be more disciplined.”
Good financial planning should recognize that discipline is unreliable. We need systems that make good decisions easier to maintain, while still leaving enough liquidity that we do not feel compelled to break those systems.
Sometimes the biggest financial leak is not a fee, a tax or a bad investment.
It is the price we quietly pay for always telling ourselves we will deal with it tomorrow.
Preet Banerjee
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