2 psychological biases that could affect women’s financial decisions and how to overcome them

We all like to think we’re fully – and consciously – in control of our choices and behaviours. However, when it comes to financial decisions, your subconscious can play a significant role.

For example, a 2023 study by the University of Bath found that women feel the pain of losses when they invest more than men do. Moreover, the study found higher levels of “loss aversion” in women. This psychological bias occurs when the pain of losing something is felt more intensely than the pleasure of an equivalent gain.

Unfortunately, loss aversion can lead to emotional investing or a reluctance to invest altogether, both of which could hamper your progress towards your long-term goals.

Read more: How to overcome loss aversion and achieve your financial goals

Keep reading to learn about two common psychological biases that might affect your financial decisions and find out how you can overcome them to build more positive money habits.

1. The endowment effect

This is a cognitive bias that might lead you to place a higher value on something simply because you own it.

An overview of endowment-effect studies by reveals that people routinely demand a much higher price to give up an item they own than they would be willing to pay for it in the first place.

This is partly due to loss aversion – selling something might feel like a loss. Also, once you possess an item, it may become part of your identity, which is likely to make it harder to part with.

How the endowment effect could influence your financial decisions

• Holding on to poorly performing investments – You might think, “I’ve had them for years” and “I don’t want to make a loss”.
• Overestimating the value of your assets – This could potentially lead to a financial shortfall in the future. For example, you might calculate your retirement income needs based on an unrealistic estimate of how much your assets are worth.
• Failing to switch to more beneficial products – Whether you’re comparing savings accounts, investment funds, or financial protection, periodically shopping around could ensure that your financial strategy aligns with your goals and that you get the best deal. The endowment effect could make you reluctant to switch products even when this makes financial sense.
• Keeping assets for emotional reasons – For example, following divorce, you might be reluctant to sell your family home even if hanging on to it might add unnecessary financial pressure or jeopardise your long-term security.

Read more: House or pension? Financial guidance can help divorcing women make this tough decision

How to overcome this bias

Create an investment strategy that includes clear criteria for when to buy and sell assets. This approach removes emotions from the decision-making process and keeps you focused on your goals.

A financial planner can help by providing objective guidance and using cashflow modelling to show the impact of different financial decisions, such as whether to keep your home or sell it. Regular reviews could ensure your financial plan remains aligned with your circumstances and objectives.

2. The sunk cost fallacy

Have you ever sat through a tedious film because you’ve made the effort to travel to the cinema and paid for the ticket? Or have you stayed in an unhappy relationship because you’ve been together for many years?

That’s the sunk cost fallacy at work.

In other words, it’s often hard to abandon a strategy or course of action if you’ve already invested in it.

How the sunk cost fallacy could influence your financial decisions

• Failing to learn from mistakes – The sunk cost fallacy stems from a reluctance to admit a past decision was a mistake. As a result, you could waste more time and money trying to “make good” your financial investments and commitments, rather than choosing a new path that could help you build the future you want.
• Sticking with a losing financial strategy – You might continue to pour money into a long-standing project, business, or investment even though it has been underperforming for some time and no longer aligns with your financial plan.
• Delaying or avoiding important retirement planning decisions – For example, staying with unsuitable pension schemes because you’ve had them for years and failing to adjust your investment strategy even when your goals change.

How to overcome this bias

Set meaningful financial goals and track your progress towards them. This could help you focus on future outcomes rather than past costs. Ask yourself, “What serves me best from today onwards?”

A financial planner has no emotional attachment to your past decisions, so they can provide an alternative perspective that leads you towards logical, data-driven decisions.

Get in touch

If you’re keen to overcome the psychological biases that might be holding you back financially, I can help.

Through regular reviews and objective, impartial advice, I can guide you towards data-driven decisions, rather than emotional ones.

To find out more, please get in touch by email at lottie@truefinancialdesign.co.uk or call 03300 889138.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate cashflow planning.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance. 

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. 

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Note that financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.

Approved by 2plan wealth management Ltd 15/1/26.