If you have trouble keeping up with your therapy practice’s finances, psychological factors may be partly to blame.

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A working paper published by the National Bureau of Economic Research (NBER) suggests that individuals are least likely to check their bank account balances when doing so would benefit them the most—that is, when money is tight.

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The paper’s authors call it the “ostrich effect,” and demonstrate that this head-in-the-sand approach to financial matters can have serious consequences. More frequent account-checking correlates with better financial health, while avoidant behavior only worsens difficult financial situations. 

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Here’s a breakdown of what the paper has to say, how it relates to your personal relationship with money, and steps you can take to redirect your attention to where it’s needed most.

Methodology of the ostrich effect paper

“The Ostrich in Us: Selective Attention to Financial Accounts, Spending, and Liquidity” by Arna Olafsson and Michaela Pagel was initially published in October 2017 and most recently revised in January 2023.

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To conduct their study, Olafsson and Pagel tracked transaction-level records from Meniga, a financial management platform used by 20% of Iceland’s population (52,545 users out of 262,846 adults, as of January 2017). Using transaction data rather than a survey allowed them to observe behavior directly, avoiding potential biases in self-reported data.

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The final analytical sample consisted of 11,699 individuals who all met four criteria:

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• Complete account and balance data
• Observable income arrivals (earnings)
• Available demographics (age, sex, and postal code)
• Credible consumption (at least five food transactions in at least 23 of every 24 months)

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Meniga is available through all major banks in Iceland. And Iceland has a very low rate of cash transactions (about 1%), so the platform is ideal both for tracking spending behavior and individual attention to finances and for making broad observations.

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Olafsson and Pagel tracked how frequently users logged in to their bank accounts and when they were most likely and least likely to do so. They compared login data from each account with individual spending and earning history, bank balances, and liquidity.

What is the ostrich effect?

According to folk belief, ostriches bury their heads when they are frightened. 

Many historians believe this myth originated with Pliny the Elder (23 – 79 AD). In Book 10, Chapter One of his Natural History, he wrote of ostriches: “They imagine, when they have thrust their head and neck into a bush, that the whole of their body is concealed.”

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Later, oral tradition modified this to full-on head burying. That’s how we get the term “head in the sand”—an idiomatic expression to indicate that someone would rather avoid confronting a problem than deal with it directly.

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As a matter of fact, ostriches do sometimes lower their heads parallel with the ground in order to ingest gravel and small stones, which—like many birds—they need in order to digest their food. So, from a distance, an ostrich may indeed seem to have its head in the sand.

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So, what does this have to do with personal finances?

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Olafsson and Pagel use the term “ostrich effect” to refer to individuals’ selective attention in money matters. Their study found that individuals are less likely to log in and check their bank balances when news is bad—that is, when funds are low. Conversely, we’re more likely to check our accounts when news is good—after receiving income, or when account balances move from negative numbers (overdraft) to positive.

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Individuals are less likely to log in and check their bank balances when news is bad—that is, when funds are low

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As with the mythical ostrich who tries to hide itself from danger by burying its head, this behavior is counterproductive. Less attention to finances leads to worse financial outcomes, the paper suggests. 

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The result is a feedback loop—financial trouble leads to avoidance, avoidance leads to more financial trouble, ad infinitum. The trick is to break the cycle—to pull your head out of the sand—and build healthy habits that help you keep on top of finances.

Why do we avoid checking our bank accounts?

To put it simply: It feels bad.

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In the words of Olafsson and Pagel, “Individuals pay less attention when they are doing worse financially.” That is, we prefer no news at all to bad news. 

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Previous studies on selective attention focused on niche scenarios like retirement portfolios or medical tests (people tend to put off medical tests when they suspect they’ll receive bad news). The ostrich effect study is the first to show that the same behavior applies to everyday household finances, suggesting that it’s widespread and fairly common.

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According to standard economic models, all information has positive value. The more you know—about your retirement savings, your health, your personal finances—the more capacity you have to act rationally in your own self-interest. Since Homo economicus always acts rationally in their own self-interest, intentional ignorance just doesn’t make sense.

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But those models ignore the hedonic and emotional impact financial information may have. That is, receiving positive news about your finances—a deposit to your account, for instance—feels good. And receiving bad news—a low balance that won’t budge, or a depletion of funds—feels bad. 

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Many of us tend to guide our financial behaviors based on our feelings, not on what would materially benefit us the most.

When are we most likely to check our account balances?

Olafsson and Pagel’s study showed that users were 30% more likely to check their bank accounts when they expected a deposit that would increase the balance.

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That propensity increased to 62% on paydays. For context, the likelihood of any user checking their bank account on a particular day was about three percent.

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What’s really interesting is that users were most likely to check their accounts after they expected regular, recurring payments to go through. Individuals receiving biweekly paychecks were more likely to log in than those who received less predictable deposits—for instance, in the form of investment earnings or tax rebates.

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As Olafsson and Pagel note, “It appears that individuals have a larger spike when they can easily predict the payment even though the actual payment verification is less important." That suggests that the reason for logging in isn’t purely utilitarian; users want to see their balances go up because it feels good.

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The study also found that users were 50% more likely to check their bank balances when they were at their highest than when they were at their lowest. A similar increase in likelihood mapped to higher cash savings (also a 50% increase) and high liquidity (a 30% increase). The higher the balance, the bigger the positive emotional impact.

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You might expect that when users’ bank balances hit $0, they stopped checking altogether. But the numbers tell a different story. At balances around $0, the study showed a spike in login activity.

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That’s because users checked their balances when they expected a deposit to move them from overdraft (under $0) to a positive balance (above $0). Since users timed their logins to check for these changes, it’s possible they weren’t 100% certain of their balances and wanted to confirm. It’s also possible that they knew their accounts would be going from the red to the black, and wanted the emotional payoff of seeing it happen.

When do we avoid checking our account balances?

According to the study, we’re least likely to check our account balances when the hedonic impact would be negative—that is, when it would make us feel bad.

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That’s borne out by the fact that logins were less frequent when balances were low. But we can also see it in further data about overdrafts.

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The larger users’ overdrafts, the less likely they were to check their accounts. And the correlation between overdrafts and a lower likelihood of checking applied even when users had enough savings in other accounts to pay off their overdrafts. The overdraft itself—and not each user’s broader financial picture—was a deterrent.

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In the words of Olafsson and Pagel:

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If budgeting were an important determinant of logins, then the opposite would be true because budgeting is more important when bank accounts are in the red... When individuals have large overdrafts relative to their own history, they should budget more carefully. Yet, empirically, logins decrease with the size of overdrafts.

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Based on their data, the study’s authors rejected six hypotheses for why people checked their balances:

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• Transaction verification: Users logged in even when they were expecting regular, predictable payments.
• Budgeting: Users were less likely to check their balances at times when budgeting would be of greatest benefit (when money was tight).
• Planning: There was no relationship between logins and next-day spending.
• Uncertainty about balances: Logins did not increase during times of high spending that would lead to balance uncertainty. And they increased during predictable deposits.
• Opportunity costs: Cross sectional variation in income (a proxy for opportunity cost of time) did not explain login patterns. 

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That leaves selective attention and hedonic utility—doing what feels good, avoiding what feels bad—as the best explanation for individual behaviors.

What are the benefits of checking your account more often?

Olafsson and Pagel found that individuals who log into their accounts more often:

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• Overdraw their accounts less frequently
• Overdraw lower average amounts
• Incur less overdraft interset
• Are less likely to take payday loans
• Are less likely to incur late fees
• Have greater savings and cash holdings

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It’s unclear whether the users who check their accounts more frequently do so because they have better financial habits overall, which contribute to their overall financial health; or whether merely the act of checking their accounts helps them maintain better control over their finances.

How do you counteract the ostrich effect?

If you know you personally have a tendency to avoid checking your bank account balance when money is tight, the least effective way to solve the problem is to beat yourself up about it.

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As Olafsson and Pagel’s paper shows, the ostrich effect is common and pervasive. Many people have complex emotional relationships with money, some of which include feelings of shame and fear. Shame is not an effective motivational tool, and adding it to the mix is only likely to further complicate matters.

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What you can do is take concrete steps to change your financial habits. That may be uncomfortable at first—breaking any habit usually is—but it pays off in the long term by giving you more control over both your personal finances and the finances of your private practice.

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Some actions you can take right now to make a change:

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• Add account checking to your schedule. Set a day each week when you will review your personal finances and stick to it. For your business, you might choose to schedule a 15-minute block each morning to look at your books, financial reports, and bank accounts.
• Challenge your money script. According to Brad Klontz’s research (covered below), each of us follows an internal script in our relationship with money. Analyzing and challenging your own script—possibly with the help of another therapist—can help you overcome blocks and change your habits.
• Take note of the positives. Proactively affirm positive news when you check your accounts. That could mean celebrating the growth of your savings account or the paying down of debt. Or just give yourself a pat on the back for checking your accounts at all—it isn’t always easy to do, and you deserve recognition.
• Set up clear financial reporting. A partially-automated, easy-to-understand financial platform for your practice makes keeping up with accounts less difficult. Heard’s done-for-you bookkeeping and up-to-the-minute financial reports can serve as a foundation for building better habits.

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Olafsson and Pagel’s study correlated more frequent account-checking with better financial outcomes, but it would be a stretch to say that by simply checking your account regularly you’ll solve all your problems. Combined with budgeting, bookkeeping, and smart tax strategy, however, it’s a big first step in the right direction.

The ostrich effect and the money script inventory (MSI)

Brad Klontz’s research into money attachment styles and his money script inventory (MSI) have had a major impact on how therapists treat clients with problematic financial behaviors. 

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At its most basic level, Klontz’s MSI outlines four attitudes towards money that most people unconsciously adopt early in their lives, usually as a result of their parents’ attitudes towards money when they were children. 

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Not everyone falls neatly into one of these four categories; there can be overlap. But reviewing your own formative experiences with money and the internal script you follow gives you a better sense of what motivates your actions and why you may fall into the ostrich effect trap.

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The four categories are:

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• Money avoidance
• Money worship
• Money status
• Money vigilance

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Money avoidance

Core beliefs: Money is bad or corrupting, or you do not deserve it. You associate wealth with greed and poverty with moral virtue.

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Common behaviors: Ignoring bank statements, self-sabotaging financial success, feeling anxious about budgeting, overspending or relying on others for financial support.

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The ostrich effect: If you fall into this category, you may avoid keeping up with your accounts because you feel ashamed of dealing with money.

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Money worship

Core beliefs: More money is the solution to all life’s problems and the key to happiness and freedom. You can never have “enough” money.

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Common behaviors: Overspending and debt accumulation, impulsive buying, prioritizing wealth accumulation over relationships.

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The ostrich effect: Individuals with a money worship script may be particularly averse to checking their accounts because of growing debt and large, impulsive purchases.

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Money status

Core beliefs: Net worth and self-worth are one and the same. Money is important for displaying status and gaining the approval of others; material possessions determine personal value.

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Common behaviors: Overspending in order to appear wealthy and successful, making high-risk financial moves, hiding debt from others in order to maintain a facade of affluence.

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The ostrich effect: Someone who equates their personal value with their wealth may find it especially difficult to confront their financial situation because it challenges their self-worth.

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Money vigilance

Core beliefs: One should be alert and secretive about their finances; it’s normal to be anxious about money. Saving for the future and being debt-free are top priorities.

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Common behaviors: Being frugal to an extreme degree, hoarding wealth, avoiding any debt, keeping financial matters secret, and constantly worrying about money.

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The ostrich effect: In contrast to individuals following other money scripts, a person who is money vigilant may check their bank balance compulsively, focusing on their finances in a way that feels beyond their control.

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Struggling with financial anxiety and avoidance? Learn how to strike the right mind-money balance.

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Summary

• Olafsson and Pagel’s paper on the “ostrich effect” suggests people avoid checking their bank accounts because of emotional discomfort
• The same paper shows people most often check their accounts when they expect “good news,” eg. new income
• We’re less likely to check our accounts as balances decrease and debt grows
• More frequent account-checking correlates with better financial outcomes across the board
• Changing financial habits with scheduled balance checks can help break the ostrich effect cycle
• Your internal money script (Klotz et al.) could drive avoidant behaviors; analyzing and challenging that script can improve your relationship with money

Sources:

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Klontz, B.T., Bivens, A., Klontz, P.T., Wada, J., & Kahler, R. (2008). The treatment of disordered money behaviors: Results of an open clinical trial. Psychological Services, 5, 295-308.

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Klontz, B.T., Britt, S.L., Mentzer, J.K., & Klontz, T. (2011). Money Beliefs and Financial Behaviors: Development of the Klontz Money Script Inventory. Journal of Financial Therapy, 2, 1.

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Olafsson, A., & Pagel, M. (2017). The Ostrich in Us: Selective Attention to Financial Accounts, Income, Spending, and Liquidity. National Bureau of Economic Research.

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