How Cognitive Loading Undermines Your Good Financial Decisions

One of the earliest posts on The Simple Dollar was centered around a trip to the grocery store that I took with my then-one year old son. The focus of the post was on comparing prices on various items and using the actual cost per serving to decide what to buy, as well as making sure you were actually looking at all the options. Here,

take a look.

When I look at that post, other than being struck by the fact that my child actually used to be that little, I’m reminded of a concept called cognitive loading.

Several times in the past, I’ve discussed the idea of decision fatigue on The Simple Dollar. For those new to the concept, decision fatigue refers to the idea that people tend to make worse decisions after having made a lot of decisions.

This is why it makes good financial sense to make your financial decisions earlier in the day rather than later. If you’re going shopping, do it earlier. If you’re prone to online impulse buying, stay off of ecommerce sites in the evening. It makes sense, right?

Cognitive loading is a very similar concept. Cognitive loading simply means that the more things you have to focus on at a given time, the worse your overall decisions are going to be regarding each of those things. This is why it’s often considered a really good idea to use to-do lists, because if you instead try to keep the tasks you need to accomplish in your head, you’re adding to your cognitive load and thus you’re splitting your focus away from the task at hand and not doing it quite as well. (Plus, you’re likely adding to your decision fatigue, because you’re loading yourself up with little decisions about what to pay attention to.)

So, let’s jump back to my trip to the grocery store with my one year old.

It may seem like I’m focused on one thing in that picture – shopping for groceries – but the truth is that I actually had three major things I was focusing on during that trip, and my attention was jumping back and forth between them. I was focusing on groceries, obviously, but I was also focusing on my one year old and I was also focusing on taking lots of pictures and deciding what to write about for that article.

In short, during that grocery shopping trip, I was under a fairly high cognitive load.

You can actually see the result of that cognitive load right there in that article. I ended up handing a package of goldfish crackers to my son without even really looking to see if it was the best buy or considering whether we even wanted to buy him crackers. Because I was switching back and forth between three things I was thinking about, I was under a higher than normal cognitive load and it caused me to make a suboptimal decision.

What would I have done normally without that cognitive load? For one, I wouldn’t have been shopping with my son, so I would have never had any reason to impulsively consider buying goldfish crackers. If they did happen to be on my list, I would have stopped and compared brands and sizes and likely bought a large container of store brand goldfish crackers, which would have cost about half as much per cracker.

So, without that cognitive load, I would have either skipped that purchase entirely or else spent half as much on it.

Let’s step back and look at a more general definition of cognitive load: In cognitive psychology, cognitive load refers to the total amount of mental effort being used in the working memory. In other words, the more things you have to keep in your working memory at once, the more taxing it is and the more focus you have to apply to that.

When you’re in the grocery store with a list in your hand, no children to watch, and no article to worry about, your cognitive load is low. You have very little that you need to keep in your working memory.

Add a child to that, and you have to remember to keep track of your child. Where is your child? What are they doing? You’ve got to remember to pay attention to that child very frequently!

Add more demands to that, like the need to remember to keep working on an article, or the need to remember additional items that aren’t on your list, and more and more of your focus is devoted to maintaining a fairly complex state in your working memory. That means less and less of your focus is applied to actual grocery shopping.

What happens then? You’re prone to make progressively worse buying decisions in the store. You’re more prone to marketing techniques, from in-store advertising to how products are arranged on the shelves. You’re more prone to have to backtrack repeatedly during your shopping trip. You’re more prone to throwing unplanned things in the cart. All of those things cost you money and time.

These things don’t just happen at the grocery store. They happen at work, pulling your focus away from the task at hand and reducing the quality of your output. They happen when you’re paying bills or making an investment decision. They happen all the time in modern life.

You try to keep several thoughts in working memory at once so often that you often don’t even realize how much it’s affecting your ability to focus, and a reduced ability to focus means worse decisions.

How do you fight that? Here are four very effective simple strategies I’ve learned to utilize over the years.

Shop alone, or only with people who are focused on a frugal shopping trip. I try as hard as humanly possible to not take my children to the grocery store with me unless the intent is to buy a very small number of items and to use the experience as a teaching tool. If I’m there just to shop for groceries or for other things, I prefer to shop alone or to shop with Sarah when we’re both on focus with the task.

Why? Other people are a distraction. Children are definitely a cognitive load, as you have to keep track of them, but other adults can be, too. Minimize those distractions.

Use lists whenever possible. One of the biggest cognitive loads that people burden themselves with when shopping is trying to remember the stuff they need to buy in their head rather than writing it down on a piece of paper. If you’ve ever walked into a grocery store trying to remember seven things you need to buy and then wandering through the aisles only finding four or five of them but winding up with six other things in your basket or cart, you’ve seen the dangers of cognitive loading at work.

Make a grocery list before you go. Think it through and make sure everything you really need is on that list before you ever leave. That way, you can fully trust that list and simply follow it, reducing your cognitive load and enabling you to focus more on each purchasing decision, which means that you’re more likely to end up with the best bargain for each product in your cart and less likely to wind up with unplanned items in your cart, both of which will save you money.

Keep a pocket notebook or a smartphone note taking app with you at all times, jot down things in it, and review it a couple of times a day. Sometimes, life is going to throw tasks at you that you’re going to need to remember later. Sometimes, pieces of information are going to pop up that you’re going to want to recall later. Simply trying to hold them in your memory for the time being introduces cognitive load in everything you do until you take action on that item.

This is why a pocket notebook or a note-taking app is so handy. Just pull out that notebook and jot down whatever it is that came to mind and then let it drop from your mind. Just make it a habit to review that notebook at least once a day, if not more often, and then you can completely trust it as an extension of your memory, reducing your cognitive load and enabling you to focus on your decisions.

Handle financial decisions in a calm and non-distracting environment. If you’re going to be doing things like filing taxes or studying investment options or making a budget or reading through a bill, do it in an environment with few distractions and with a notepad on the table in front of you to jot down notes as you go. You want the fewest possible mental distractions or things on your mind when making important decisions like this, so make an effort to put yourself in a place with almost no distractions or things to remember so you can really focus on the task.

Reducing your cognitive load whenever you’re making a spending decision is a great way to improve all of your financial choices, and when you do that, you’re going to gradually improve your overall financial state. Take charge of your financial load and you’ll find that everything simply clicks into place much better than before! Good luck!

Trent Hamm
Trent Hamm
Founder of The Simple Dollar

Trent Hamm founded The Simple Dollar in 2006 after developing innovative financial strategies to get out of debt. Since then, he’s written three books (published by Simon & Schuster and Financial Times Press), contributed to Business Insider, US News & World Report, Yahoo Finance, and Lifehacker, and been featured in The New York Times, TIME, Forbes, The Guardian, and elsewhere.

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