Why self-control alone fails in personal finance 

(First of two parts)

The year 2026 is upon us. And with each new year comes new year resolutions, promises that, despite our fervent desire to fulfill them, are most challenging to keep until the next new year.

But rather than just giving in to the saying that promises are meant to be broken, let us instead see how promises can be kept, particularly those relating to personal finance.

Just after the New Year, one of the usual headlines is the number of firecracker injuries. Our artificial intelligence-assisted research at the Personal Finance Advisers Philippines Corp. (PFA) shows that over the past 50 years, firecracker injuries have been on a general decline. But this decline shows zero to weak correlation with gross domestic product growth, alcohol availability index and weather favorability index.

On the other hand, firecracker injuries exhibited strong to very strong negative correlation with the public mobility and enforcement strictness indexes.

First, index definitions are in order. The indexes above are analytic proxy indexes, not official single published indexes. The indexes are built from real, observable data sources and standardized onto a common scale (e.g. zero to 100) for analytical comparison. The alcohol availability index measures the ease of access to alcohol during the New Year period. Alcohol amplifies the risk of firecracker injuries.

The weather favorability index measures how conducive weather conditions are for outdoor New Year celebrations, the implication being that weather modulates behavior.

The public mobility index measures the intensity of population movement and public presence during the New Year period. What the index means is that mobility creates the opportunity for injuries.

Lastly, the enforcement strictness index measures the intensity, visibility and consistency of law enforcement related to firecracker regulation and represents the intensity of punishment-based deterrence.

The analysis shows that across half a century, as enforcement rises, injuries fall. This relationship is stable, strong and persistent. Punishment works best as an integral part of the structure.

One-off crackdowns do not explain the declining trend. Institutionalized deterrence does. And while economic cycles repeat, firecracker injuries do not track prosperity or recession.

Over a 50-year period, the reduction in firecracker injuries is best attributed to sustained enforcement and long-term behavioral normalization, not economic conditions. Punishment-based deterrence initiates change but negative reinforcement, time and norms lock it in. And just to be clear, punishment-based deterrence adds something unpleasant to reduce a behavior while negative reinforcement removes something unpleasant to increase a behavior.

And how are the conclusions of PFA’s research into firecracker injuries related to managing personal finance? Well, behavioral finance and public-safety policy are governed by the same human psychology in that fear-based controls reduce financial damage short-term. Relief-based systems reduce financial stress long-term.

A parallel of public policy to reduce firecracker injuries and personal finance management can be illustrated as follows:

See Also

SEC flags Adscent International scheme

• punishment-based deterrence can be penalties, fees, fear of debt;
• negative reinforcement is the removal of financial anxiety;
• enforcement is done through budgeting rules and automation;
• compliance is achieved through saving and spending control; and
• norm internalization is attained by way of healthy money habits.

Digging deeper, further examples of punishment-based deterrence in personal finance are overdraft fees, late-payment penalties, low credit score and fear of debt collectors that stop bad behavior quickly.

However, they increase stress, lead to avoidance (e.g. not opening checking accounts) and are unsustainable emotionally because while heavy policing may be effective, it is also exhausting.

Further examples of negative reinforcement are emergency funds that make anxiety disappear, automatic bills payments that remove mental load, sinking funds that avoid being surprised by expenses. So, when we behave well, financial pain is removed and calm ensues.

In summary, punishment brings damage control, negative reinforcement bring stabilization, and internalization leads to sustainability.

In next week’s article, we will dig deeper into the emotion regulation system and the role of friends and institutions to complete our discussion on why self-control alone fails in personal finance.

(To be continued)

Send questions via “Ask a Friend, Ask Efren” free service at personalfinance.ph, SMS, Viber, Twitter, LinkedIn, WhatsApp, Instagram and Facebook. Efren Ll. Cruz is a registered financial planner and director of RFP Philippines, seasoned investment adviser, bestselling author of personal finance books in the Philippines and a YAMAN Coach.