What You Thought You Knew Is Hurting Your Money

Making money decisions is tricky business. There’s a lot we gotta think about when we’re trying to build our savings or invest what little extra cash we have. If that’s not hard enough, on top of that, our brains can play psychological tricks called on us called fallacies, too. In Psychology there is a fallacy called “overconfidence bias” where we start believing we know more than we actually do. We might think we’ve got special skills to predict which stocks will blow up or when the market’s about to make a turn. But a lot of times, we end up making risky plays that don’t work out how we thought.

Understanding OverConfidence Bias

Overconfidence bias is a cognitive bias that can lead investors to overestimate their knowledge, skills, and abilities in the financial markets. At its core, overconfidence bias is a cognitive fallacy where individuals overestimate their abilities, knowledge, or skills. In the realm of finance, this bias manifests when investors believe they possess a unique ability to predict market movements, time buy and sell decisions accurately, and outperform the market consistently. This overestimation often leads to excessive trading, increased risk-taking, and suboptimal investment outcomes.

This issue hits the Black community harder than most. Between dealing with unfair access to money and resources for generations or not seeing people who look like us in finance leadership, the black community has to overcome barriers daily. Those extra obstacles make it even easier for this confidence to go unchecked. Individuals are prone to taking bigger gambles trying to guess the market’s next move. But in the end, It’s likely that they just lose more of our hard-earned money.

There is No Such Thing as a Sure Thing

As a professional wealth advisor, I will assure you that investing has NEVER been a sure bet. No matter how smart anyone may think their takes are, the market is always unpredictable. Keeping our confidence in check helps us make wiser choices, that add up to better outcomes in the long haul.

Its easy to chalk up these unwise decisions to stubbornness alone but, lets explore another reason minority communities get hit harder by overconfidence when investing – many communities don’t have access to the same resources others do. If no one taught you the complicated ins and outs of the stock market, how can you know what reasonable risks and rewards to take or expect, how would you gauge this one your own? When we lack that background, it becomes much more likely for people to rely on their gut, follow trends we on social media, or listen to advice from friends and family who might be just as clueless, and end up in riskier investments than we understand.

On top of this disadvantage, minority communities often feel the added pressure to play the market aggressively. Generations of unfair treatment and limited opportunities have left many communities far behind in wealth. It’s understandable why someone would go “all in” or “yolo” on risky investment strategies in hopes of catching up financially or securing a better future for their family. However, that urgent pressure often clouds judgement even more. It allows overconfidence to take over and gives us false hope in predictions that we don’t have the tools or experience to truly make.

Bad To Worse

What makes things worse is how many con artists and scammers know this vulnerability exists. They see minorities desperately trying to improve their money situation and use it as a chance to take advantage. They’ll promote get-rich-quick schemes, or push complicated financial products they benefit from even when it leaves your savings emptier. These predators feed off the very real economic challenges minority communities face, deepening the cycle of mistrust and financial frustration.

This is made worse by the lack of professionals from these communities that understand the cultural issues and communication styles of those who need help. Without that representation, minority communities will continue to feel disconnected from traditional money systems. We’re left thinking the stock market or big banks weren’t designed for us in the first place.

So when we want to improve our money situation, we’re more prone to look outside the mainstream. Things like crypto, NFTs or meme stocks seem more accessible. But because there is still a lack of financial education and understanding, it becomes easier to gamble on their super volatile price swings. We end up trying to time entry and exit points on assets no one can predict.

Even well-intentioned efforts to gain financial freedom can backfire because of distrust. Generations of discrimination and injustice have made Black communities feel like traditional wealth building is out of reach. The constant uphill battle destroys hope and self-confidence over time. Instead of making slow, steady money moves that pay off, it becomes reasonable to chase unrealistic get-rich fixes based on rumors or viral trends. The feelings of desperation leave us vulnerable to risks we would not be comfortable with if they were explained adequately.

Get Well Soon

“Minority communities face a complex challenge when it comes to market timing and overconfidence bias. By tackling the underlying issues such as

• limited access to information with targeted education
• historical economic disparities with economic growth
• lack of representation with increased financial pros
• distrust in financial systems with protection and transparency

we can create an environment where individuals can make better financial decisions. This will help build financial resilience and empowerment #intheBlaQ community.