The Law Of Unintended Consequences—And Your Money

The Law Of Unintended Consequences —And Your Money 10 13 2015A dentist kills a beloved lion and ruins his life.

The invasion of Iraq results in region-wide instability and war.

Burning fossil fuels creates air pollution.

Introducing kudzu in the U.S. South (and rabbits in Australia) produces ecological disasters.

Unintended consequences are like that. You begin with an idea that sounds great, at least to you. Then suddenly, without notice, a shift spins you in the other direction spelling d-i-s-a-s-t-e-r. 

This same law also applies in the case of your money and financial responsibility. Most parents do not talk to their children about money in an effort to “protect” them from the harshness of the real world. Spouses keep money secrets from each other because they fear being judged or criticized. Their intent might be pure, but the unintended consequences can be devastating.

Take the parents who kept their kids in the dark about their financial situation. Then when it came time to make a decision about which university to select, they had to fess up that their child’s first choice was not even a possibility.

Or the spouse, whom in an effort to spare his wife’s worries, held back the fact that they were severely delinquent in paying their taxes. When it all came out, the reaction was swift and terrible.

Then there’s the couple that bought investment property because they believed it would bring them a “guaranteed” stream of passive income. When the tenant moved out and the income stopped, the deal turned into a nightmare of costs and property problems.

And of course we have the “investor” (aka the gambler) who bet on the price of a stock or commodity based on his belief of a future outcome. Unfortunately, the market disagreed with the investor’s point of view and—wham—the investment crashed, losing a sizeable chunk of capital.

There are a lot of ways we can bump up against unanticipated consequences. Sociologist Robert K. Merton suggested five possible causes:(Wikipedia)

  1. Ignorance, making it impossible to anticipate everything, which leads to incomplete analysis.
  2. Errors in analysis of the problem or following habits that worked in the past but might not apply to the current situation.
  3. Immediate interests overriding long-term interests.
  4. Basic values that may require (or prohibit) certain actions even if the long-term result might be unfavorable.
  5. Self-defeating prophecy or the fear of some consequence which drives people to find solutions before the problem occurs—they never anticipate the non-occurrence of the problem.

So what can you do to protect yourself and your money?

Be sure to consider whether there might be outcomes that you have not fully considered. What happens if your point of view proves wrong? What’s the downside? And how much risk does that expose you to? Is there a way to inject some expertise into the mix—do you need a sounding board before making big money decisions (including deciding NOT to make them)?

In a society where immediate gratification is often a desire—maybe even the norm—the law of unintended consequences becomes that much greater a risk. The more we “ready-FIRE-aim”, the more likely we are to miss our intended target.