Status Quo Bias: Why We Avoid Changing Our Financial Plans

“Set and forget” is a common attitude that many of us have towards our financial investments. Once we open a savings account, buy an insurance policy, or start an investment plan, we may often leave it untouched for years. This tendency is known as status quo bias, and it can explain why investors don’t change plans even when more suitable options might be available.

Let’s take a look at how this bias shows up in our financial lives, the risks it carries, and how we can break the pattern.

Table of contents

• What is status quo bias and how does it manifest?
• Impact on investments, insurance, and savings decisions
• Risks of sticking to outdated choices
• Low-effort ways to initiate changes
• How to set review intervals for financial plans

What is status quo bias and how does it manifest?

Status quo bias is the preference for keeping things the way they are, even if change could align plans more closely with goals. It may show up in the following ways:

• We continue with the same bank account even if another has more favourable terms.
• We stick to an old insurance plan without checking whether the cover still meets our needs.
• We allow default investment settings in our retirement fund to decide where our money goes, without reviewing if those choices match our risk level.

This behaviour comes from comfort and convenience. Change feels like effort, while sticking to the familiar feels safe. This is typically referred to as inertia in investing.

Read Also: What are money market funds?

Impact on investments, insurance, and savings decisions

Status quo bias may look harmless, but it can actually affect different financial areas:

• Investments: Many people never revisit their mutual funds or fixed deposits. Over time, markets shift and personal goals change. Without adjustments, your portfolio may no longer suit your goals or risk appetite.
• Insurance: A policy purchased years ago may not cover new health costs or family responsibilities. Even then, many continue paying premiums because reviewing alternatives seems like a hassle.
• Savings: People sometimes keep large sums in low-interest savings accounts. They hesitate to explore other options because the current arrangement feels easier.

Risks of sticking to outdated choices

• Reduced return potential: Keeping all funds in low-yield products can mean slower potential wealth creation.
• Insufficient cover: Old insurance policies may leave gaps when actual needs increase.
• Missed opportunities: New products, better interest rates, tax benefits, etc. can often remain unused.
• Poor alignment with goals: A plan made when you were single may not work once you have a family or dependants.

These risks may not show up immediately, which is why many people continue without realising the long-term cost.

Low-effort ways to initiate changes

Breaking inertia in investing simply requires small, low-effort actions:

• Automated reminders: Set a simple phone reminder once a year to review major policies and investments.
• Ask simple questions: Does this plan still meet my needs? Is there a more suitable alternative for me?
• Start with one product: Instead of reviewing everything, begin with one insurance plan or one investment.
• Seek professional advice: A financial adviser can help you review your choices. Taking small actions lowers the mental barrier and reduces the fear of making mistakes.

How to set review intervals for financial plans

Regular reviews can help reduce the chance of falling into status quo bias. You don’t have to check your portfolio everyday.

• Look at investments once a year, unless there is a big life change such as marriage or retirement.
• Revisit insurance every 2-3 years to see if the cover is still enough.
• Check savings and fixed deposits when interest rates change significantly.

These intervals balance effort and benefit. They help to keep your financial plans updated without it feeling like a major task.

Read Also: Understand Benefits and Investment Risks of Money Market Funds

Conclusion

Status quo bias explains why investors don’t change plans even when change could help. It can keep us tied to default investment settings, outdated insurance, or low-yield savings. While the comfort of doing nothing feels easy, it can limit protection and hold back potential financial progress. Avoiding these traps doesn’t require dramatic action. Small changes and simple reminders can go a long way in keeping your money aligned with your goals.

At Bajaj Finserv AMC, we recognise that emotions are the cornerstone of investor behaviour – not just for investors but for investment professionals too. That’s why, behavioural finance is at the heart of our investment philosophy, InQuBe, which combines the Information Edge, Quantitative Edge and Behavioural Edge. By understanding, tracking and monitoring market sentiments and our own investment biases, we seek to make mindful and strategic investment decisions. Get the Behavioural edge by investing with Bajaj Finserv AMC. Read more about InQuBe here.