The Ostrich Effect and Money

Attention to money changes with the news

You know where this is going.

You open up the credit card bill to learn you forgot to make a payment last month. Interest and a late fee that slaps you in the face. The emotional penalty of the penalty is harder; you think, “It just isn’t me.”

Or you receive that horrid text from the boss who writes, “call when you have a moment.” In every other communication, your boss never gives you the deference to respond.

You think: “Something must be wrong. I’m about to lose your job. How will I pay my bills?”

“I’m in a bad dream.”

Nope. Wide awake. Reality is bad.

The Better Side

An unexpected salary increase, the excitement of a new job, and an unexpectedly lower tax bill are plus moments.

Holding shares of a start-up that IPOs are supra-plus moments.

Household financial moments flow through our lives and the event itself can trigger a response.

Arna Olafsson and Michaela Pagel studied the problem of “what drives attention to personal finances,” and their research is forthcoming in the Review of Economics and Statistics.¹

In the academic world, “RE Stat” is a leading journal. The authors conducted their study with large-scale data from individuals in Iceland with financial characteristics similar to U.S. households.

The Findings

Individuals tend to ignore finances when bad money events arise, but stay engaged when flush with cash.

• Increasing consumer debt ➡ decreasing attention to personal finances

• predictable income arrivals ➡ increasing attention to personal finances

“Relative to their personal histories, individuals pay more attention when holding more cash and liquidity and when receiving income. In contrast, attention decreases discretely as bank account balances go from positive to negative, and then decreases further as overdraft debt increases.”

One implication from an Ostrich effect finding is that those who need to turn around their finances are fighting against an inclination to ignore bad news.

The Data

The authors measured “attention” by an individual’s login activity into their financial accounts, through either a computer or a mobile app. The authors worked with Icelandic data provided by Meniga, a software company that rolls up an individual’s financial transactions into a single location, a process similar to one used by YNAB and Monarch. User data was collected across six consecutive years, beginning in January 2011.

The authors utilize user login activity and collate these data with user financial variables: income, spending, debt, and credit card usage. “Attention” to finances, then, can be associated with financial outcomes. The data are special in the sense that Icelandic adults have little choice about whether to participate in the banking system. As the authors state: “all adult individuals in Iceland must have a bank account.”

There is no requirement that bank account holders participate in the platform, and the authors stated 20% of bank account holders participated in the Meniga platform “to some extent.” Their final sample size of active users for which they had complete data was 11,669 individuals.

Implications for You

If the authors’ findings ring true for you, establish a new trigger.

1. If you know you spend to the edge of your income and feel anxious about it, get a baseline financial plan using the methods I teach. A proper baseline financial plan removes uncertainty. Knowing how to spend and save is both financially informative and freeing.

2. Make a stressful financial event more financially informative. For instance, if you lose your furnace or air conditioning and have no rainy day fund, go online to your bank and credit card accounts to see where you stand. You may find that you have some wiggle room.

1. Arna Olafsson, Michaela Pagel; The Ostrich in Us: Selective Attention to Personal Finances. The Review of Economics and Statistics 2025; doi: https://doi.org/10.1162/rest_a_01566