Irrational or rational? Time to rethink our understanding of responsible financial behaviour

Abstract

Financially rational individuals are expected to be knowledgeable about financial concepts, conduct regular pension investments throughout their working life, and build a diverse asset portfolio for their retirement. Yet, this assumption of responsible financial behaviour ignores factors outside an individual’s control, such as having to take a break from work due to caring duties or being affected by unemployment or underemployment. Even if individuals are able to behave as expected, there is still uncertainty with regards to future values of financial investments, limiting their ability to plan for the future. In light of these constraints, is behaviour deviating from ‘acceptable’ financial strategies really irrational