Overcoming the Whitewashing of Your Past to Improve Your Financial Decisions

It took me a long time – most of a year, in fact – to come to terms with the fact that I spent most of my early professional life making horrible financial decisions and pretty mediocre career decisions.

I wasn’t exactly lacking in evidence in either department, to tell the truth. One only had to look at our financial state in early 2006 to see the reality of our poor financial choices. We were facing a ton of credit card debt, student loans, two car loans…. and all of that while living in a pretty cheap apartment.

My career choices weren’t nearly as bad, but they weren’t stellar, either. I hadn’t really bothered to continue my training or education or to get any certifications during those early years. I had completed some projects of note that were probably resume-worthy, which meant that things weren’t completely disastrous. However, I didn’t bother to put real effort into launching any side businesses or other streams of income in my spare time. My professional choices were mediocre at best.

Yet, if you went back and asked me in early 2006 how my choices in both departments had been, I would likely have described my finances as “pretty good” and my career choices as “excellent.”

How could I do that? It’s simple. I’d find every scrap of positive news and inflate it to the moon while overlooking and minimizing the negative news.

With my career, I’d point to things like my job performance reviews, which were pretty good, and to the projects I had completed. That was evidence that my career was going really well.

With my finances, it would have been a bit harder, but I could have pointed to the nice things that we owned and some of my “investments” like my vintage trading card collection to show that our money had been used to build wealth.

This isn’t abnormal at all. In fact, this is the way our minds usually work. It’s called choice-supportive bias. In 2000, Mara Mather and Marcia Johnson wrote a great paper on the subject, entitled Choice-Supportive Source Monitoring: Do Our Decisions Seem Better to Us as We Age?. I came across this paper a few years back and it’s had a lot of impact on how I reflect on my own past and use it to move forward.

In that paper, the researchers draw this conclusion:

This study suggests that as people age, their tendency to distort memory in favor of the options they chose increases.

They elaborate on this idea a little bit in the introduction:

[W]hen asked first to choose one of two options and then later to indicate which option particular features had been associated with (or whether they were new features), younger adults tended to attribute (and misattribute) more positive features to the option they chose than to the foregone option, and they sometimes also tended to attribute (and misattribute) more negative features to the foregone option than to the option they chose.

In other words, when people look back on the decisions that they made in the past, they tend to think more positively about the choice they made and more negatively about the choices they didn’t make, even to the point of adding false positive details to their actual decision and false negative details to the other options.

My own alteration of my financial memories is a great example of this. As I said, I would look back on my financial decisions, even though they were disastrous at the time, and genuinely believe that they were pretty good.

I would point to the nice things we owned as evidence of our smart financial moves. Owning a large DVD collection, for example, was surely a sign of wealth. I would attribute our ability to actually “afford” all of those DVDs – and all of our other splurges – to our financial wisdom. “Look at us!” I would think. “We live in this small, inexpensive apartment so that we can afford all of these pleasures in life! I am the master of finances, for I have clearly shown my ability to restrain myself in terms of renting an apartment, and my reward for these restraints is this tremendous collection of DVDs that anyone would be proud to own!”

In other words, I would take that sign of overspending – that big DVD collection – and find a way to twist it into a positive. Rather than being proof that we were throwing money into the wind, it became evidence of our good financial choices, because we were able to “afford” those DVDs because of our “belt-tightening” when it came to our small apartment.

The fact that we were accumulating credit card debt by the boatload was an insignificant factor, one to be overlooked and minimized. It was just a temporary state of affairs, one that would be fixed in the future… somehow.

At the same time, I would trumpet my “investment” in vintage trading cards. I would conveniently minimize or ignore the fact that the market in those things was incredibly speculative at best and disastrous at worst. Instead, I would trumpet again and again how I had made money a couple of times by trading and selling these cards, ignoring how a lot of my “investment” had actually lost value since I acquired it and also ignoring the fact that I mostly “invested” in these things because I aesthetically enjoyed them… there’s just something that really appeals to me in vintage sports cards and other trading cards.

Again and again, I’d look back on my past choices and whitewash them, accentuating the small handful of positives and ignoring and minimizing the great field of negatives.

Mather and Johnson actually point this out as a phenomenon in their paper, believe it or not:

In addition, it suggests that affectively reviewing choices increases younger adults’ tendency toward choice-supportive memory.

In other words, as I reviewed those past decisions, I would actually sharpen my tendency toward positive reasons for past bad decisions. The way I reflected on the choices I’d made would just reinforce things, further convincing me that the terrible decisions I was making were actually good ones.

What a disaster. Sometimes, I honestly wonder how I ever managed to right that ship.

This Does Not Mean the Past Isn’t Valuable

One might simply take away from this that our own past isn’t a very useful guide for thinking about our present and future decisions. After all, if we naturally “whitewash” our past decisions, how can we really draw on them to make sure we’re doing good things now and in the future?

This finding is even more troubling considering I’m a person who spends significant time reflecting on my decisions. I spend at least an hour each week reviewing how the past week has gone and how I want the following week to go. I generally find that reflection to be quite valuable, but it leaves me wondering whether or not I am merely spending that time reinforcing bad decisions.

How can I be sure I’m not just whitewashing the mistakes of the past and setting myself up to repeat them?

Over the last few years, I’ve been developing strategies to ensure that when I rely on the routines and habits I’ve built up in the past and when I reflect on past events and decisions, I’m actually making good decisions as much as I possibly can.

Distorted view of house through glass

As we get older, we tend to distort our memories in favor of the choices we made. Photo: Kevin Dooley

Strategies for Cleaning Up Our Decision-Making

There are several things that I can do – and you can do – to make sure that we don’t fall prey to whitewashing our decisions and memories. This isn’t just so that we can remember the past correctly, but so that we can move forward by drawing on the past to make better decisions today and tomorrow.

Question What You Do

In a given day, we make thousands of decisions big and small. These range all over the place, from deciding whether or not to hit the “snooze” button on the alarm clock to what to eat for breakfast, from whether or not to talk to a particular coworker today to whether or not to stop at the store on the way home (and what to buy there).

Almost all of the time, we make those decisions nearly subconsciously. We don’t even really think about those decisions at all. Instead, we rely on our mind’s natural response to situations.

Underlying all of that is the assumption that our instincts are virtually always right. We have to trust our instincts over and over again or else we would never get through the day.

That’s normal life.

The problem is that such heavy reliance on instinct ends up turning into complacency. We don’t ever really second-guess those little decisions. Instead, we just move on from situation to situation, assuming that we’ve almost always made the right decision.

The first step toward cleaning up your decision-making process is to start breaking down some of those little decisions. Why did you buy the things you did at the grocery store? Why did you choose not to talk to that coworker? Why did you skip out on Marcy’s party?

Take some time each day – when you’re in the shower, for example, or when you’re commuting to work – to really think through some of the decisions you’ve made recently. Make this a habit.

Try to figure out why you made the decision you did and what the pros and cons were of that decision were. Most importantly, do not assume you made the right decision. In fact, when I’m doing this, I usually try to make a strong case for the other decision, intentionally amplifying the thoughts that would push me toward the other decision.

This serves several benefits.

First, it forces you to really hammer out the elements that really matter when you make these snap decisions. Often, you’ll think of things and observe things that you completely missed the first time around, especially since you’re giving the decision more conscious thought.

Second, it trains your mind to make better decisions in the moment. If you spend a lot of time carefully rethinking shopping decisions, you’re going to eventually improve your own natural decision-making process.

Third, it shows you the common areas where you make mistakes. If you think through a lot of your decisions, you’ll eventually start to notice patterns in the ways you make mistakes. Finding those patterns is incredibly valuable, because if you can correct those patterns, you will naturally make better decisions in your life.

Finally, self-reflection will begin to come more naturally to you. If you make it a habit to reflect on your decisions, you’ll find yourself doing this self-reflection more and more regarding different aspects of your life at all kinds of idle moments throughout the day. This will inevitably lead to improvement in almost every aspect of your life.

Trust Numbers and Data, Not Your Own Memories

As Mather and Johnson showed, we have a tendency to whitewash our past. In our minds, we add more positive elements to the decisions we’ve made than were truly present at the time, and we also add more negative elements to the options we didn’t choose.

It’s hard to completely correct that bias. It’s just something we naturally do.

However, one great way to overcome it is to start trusting in numbers and data much as possible. Rather than relying purely on our memory of an event, take every opportunity to look at the actual evidence of what happened.

One incredibly valuable tactic here is to save your statements and receipts, at least for a while. I save all of my store receipts and credit card information for long periods so that I can go back through them when I’m trying to figure out decisions I’ve made in the past.

For example, I might want to justify how much money I spent at Gencon last year, but when the raw dollar amount is staring me in the face, it’s pretty hard to argue against it.

Another useful tool is to ask others for their remembrances without stacking the deck first. Instead of talking first about what you think happened at a particular event, ask your friends what they honestly remember about that event. Do they remember what exactly you did?

Not only does this provide a fresh angle on what happened, it can also show you where the contradictions in your memory fall.

One problem, though: doesn’t this fly in the face of spending time reflecting when you’re driving or you’re in the shower? Obviously, you can’t tap this kind of information when you’re in those situations.

My solution is to try to formulate questions about the events I’m reflecting on. Exactly how much did I spend at Gencon last year? How much has our family actually spent on going out to eat in the last month? How much are we putting away for our children’s educations and how much will that actually pay for?

Those are questions I can take with me and answer with actual data, not with mental estimates and faulty memory. I can then use the hard answers to those questions to help me figure out where I’ve actually made mistakes and, from there, I can try to figure out whyI made those mistakes.

Look for Excuses and Shred Them

I’ve found that, time and time again, when I’m thinking through my decision-making process, excuses for poor behavior always slip into the equation.

I find reasons why I shouldn’t exercise. I find reasons why I spend more than I should. I find reasons why I didn’t get the kitchen cleaned up. I find reasons why I haven’t bumped up my children’s college expense. I find reasons I find reasons why I failed to pay a particular bill. I find reasons why I wasted three hours yesterday afternoon.

Whenever you find yourself making up reasons why you made a particular decision in order to try to cover up the obvious positive attributes of that decision, you’re making an excuse.

Excuses are absolute poison to success. Success requires making some challenging decisions where you overcome some temptations in order to achieve a greater good. Excuses argue on behalf of those temptations and try to diminish that greater good.

The key here is to always look for excuses and always eliminate them when they come about.

So, how do you identify an excuse? For me, they typically come in three flavors.

The first excuse flavor is the “I know I need to, but…” excuse. For example, when I make an excuse about exercising, I might say something like “this exercise session wouldn’t have made any difference anyway.” I’ll usually pull out this nugget when I’m excusing my choice to break a “chain” of positive moves that work well only when you do them over and over – like exercise. Exercise has a ton of benefits, but you have to do it regularly to enjoy those benefits.

Similarly, frugality has a ton of benefits, but you have to be consistent with it to enjoy those benefits – if you are frugal for a week then spend like crazy on the weekend, you undo those benefits. I might excuse it by saying “one meal out wouldn’t have made any difference anyway.”

The thing is, it does make a difference. It’s consistency in our decisions that makes success possible. If we start saying that our little choices wouldn’t make a difference, we give up on consistency and forward progress toward our goal. You can’t ever make it to your goal if you take steps sideways and backwards.

The second excuse flavor is the “keeping up with others” excuse. For example, I might justify an expensive purchase by saying something like “Bill and Barbara have one of these and love it, so maybe we should have it, too.” I’ll pull this out whenever I want an item without a really good reason for wanting it.

The answer here is to stop caring what other people are doing or thinking. It really doesn’t matter what other people do or own or how they spend their time. The things that Bill and Barbara choose to do with their time and money is their choice, not mine. I will not let Bill and Barbara make choices for me.

The third excuse flavor is the “I don’t know how to do that” excuse. This allows me to avoid doing challenging things and instead fill my life with easy things I already know how to do. For example, if the toilet isn’t working right, I might just “make do” with it or else call a plumber instead of actually fixing the problem because “I don’t know how to fix it.”

The answer here is to learn. Learning doesn’t just help you to fix it this time, it helps you to fix it every time. It also gives you a skill that you can share with friends and family, as well as something that may someday help you to earn a dollar or two. It also builds your confidence. It also helps you to practice similar skills, like repairing a sink after repairing a toilet. Learning a skill has innumerable benefits, so it’s pretty sad when “I don’t know …” is an excuse.

Final Thoughts

We whitewash our memories and recollections. That’s simply how we operate as human beings. The problem is that it leads to us avoiding the kind of true self-reflection we need to break our bad habits and build good ones.

By taking on a few simple steps – questioning, reflecting, using data, identifying and crushing excuses – we can overcome that “whitewash” effect and use our own experiences and choices to head in a better direction in the future, one laden with all of the financial and personal success we can hope to achieve in life.

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