Some depressing (but unsurprising) news for optimists: We are delusional. Things generally take longer, cost more, and have a higher chance of going awry than we think they will, and there’s not much we can do about it. We should probably know better than to cling to our unrealistic expectations, but somehow we never learn. This persistent phenomenon (known as optimism bias) afflicts about 80 percent of humans, according to Tali Sharot, a neuroscientist at University College London.
While optimism has its benefits, it’s not exactly great for financial planning. It causes people to underestimate the likelihood that they’ll experience expensive, commonplace setbacks like injury, market downturns, or a leak in the roof. Almost all entrepreneurs test high for optimism — and most of their businesses fail. And on a larger scale, optimism bias can cost billions: A Harvard study of 33 countries found that most government agencies were overly confident in their budget planning, particularly when times were flush, resulting in large deficits.
As an optimist myself, I can personally attest that my “it’ll work out” mentality has cost me more money than I care to think about. When you add up all cab fares from when I’m running later than expected or stuff I bought because I believed it was a “good investment,” it’s a lot. I consistently spend more money than I think I will, and it’s gotten me into some tight spots.
Which is why I was surprised to read that, in a survey of over 2,000 Americans who were evaluated with the Life Orientation Test, an optimism scale developed by the University of Miami’s psychology department, 90 percent of optimists had put aside money for a major purchase compared to just 70 percent of pessimists. What’s more, nearly two-thirds of optimists had started an emergency fund, compared to less than half of pessimists.
The key, says researcher Michelle Gielan, is finding the sweet spot of “rational optimism” — a balance of expecting good things, making a realistic assessment of the present, and perhaps most importantly, believing that our behavior can improve our circumstances. She likens it to wearing a seat belt: Not doing so might be the more optimistic choice, technically, but it would also be stupid. “Irrational optimism” is about believing your situation will somehow get better, while rational optimism is about believing that you can make your situation better.
With saving money, Gielan explains, optimists gain the upper hand simply because they think they can do it. “When people believe that their behavior matters, especially in the face of challenges, then it predicts so many success measures — their performance at work, their energy levels, their productivity, and of course their finances,” she says. “When optimists encounter a setback, they tend to see it as a temporary and local event, only one part of their reality, and they believe that if they take steps towards creating a solution they’ll be able to get through it.”
But it’s precisely those hard moments when a “positive attitude” seems Pollyannaish, especially for people grappling with student loans and stagnant wages and the very real possibility that they’ll be in debt for the rest of their lives. When I pointed out to Gielan that prescribing optimism for these situations was a little bit like bringing a knife to a gun fight — or, more literally, a $5 bill to a $1.56 trillion problem — she was quick to agree. “At no point are we like, ‘Hey, just think positive and everything is going to be fine!’” she says. Instead, she emphasized that optimism correlates with resilience, which sometimes requires a healthy sprinkling of denial.
“When someone is facing big setbacks, like, ‘I lost my home and my job and my marriage is failing, and I don’t think there’s anything I can do to solve these problems,’ they can become disengaged,” says Gielan. That disengagement — which might manifest itself as burnout, or depression, or wallowing on the couch in dirty clothes and ignoring your bills — is also known as “learned helplessness,” defined medically as “the failure of human beings to pursue, utilize, or acquire adaptive instrumental response.” You could also call it giving up.
So, what do you do when your own crappy reality scares off your optimism response? You fake it. “We can train our brain to become more optimistic, and it becomes an upward spiral,” says Gielan. “No matter where you find yourself in terms of your financial picture, if you can engage in optimistic habits, it will lead to better financial outcomes.” Those habits include taking time to acknowledge even the tiniest steps — opening a bill or making a budget for the week. While you’re at it, Gielan recommends surrounding yourself with other optimists who will cheer you on. “They can help you take a moment to think, ‘Okay, I put $5 into my savings this month. It’s not going to solve my financial worries, but it was still good.’ When you feel like you’ve had a win, you can move on to the next step, and the next one after that.”