Is Your Money Belief Hindering Your Success?Submitted by Edwards & Associates Financial Services, Inc. on December 19th, 2016
Although one may not realize it, we have all developed core beliefs about money – usually from an early age - that drives our financial behavior and decision-making. That belief, whether positive or negative, is firmly planted in the driver seat of our financial emotions but may remain undetected until provoked. The key, then, to gaining control of your financial success is to discover and bring an awareness of the unconscious beliefs and emotions linked to your money memories.
Like Prints in the Sand
Money beliefs begin forming in our psyche at an early and impressionable age and can normally be traced back to the modeling or events from those closest to us (parents, siblings, grandparents). They are usually developed in direct response to how others handled their relationship with money and the more emotionally charged memories tend to be etched in stone rather than written in sand.
Those strong memories remain with us as a guiding beacon on what to emulate or avoid in our future. Some may remember the emotional pain of not being able to afford new school clothes and that charged memory now drives them to ensure that they look and feel their best in current fashions. Some may remember always having more than enough to spend on whatever they desired, and so they don’t feel that being mindful of how much they are spending is a true necessity. Others may have a strong sense of family pride in being prudent with their finances in order to build on the family inheritance that has been passed down from generation to generation. It is very common for people to remember the events of their lives which included money, but to realize the consequences of those events and those past happenings are affecting not only their present life style, but also importantly, their future success.
Money beliefs quietly effect every area of our financial life but when we are faced with an emotionally charged financial event –those hidden beliefs rise to the occasion and take control, dictating our emotions and actions towards its belief of what survival or success looks like. The most recent emotionally charged event for many was the great recession of late 2007-2009. Depending on one’s investment holdings, some accounts fell in value by 30-50%. Since that time, the indices have not only regained the lost ground but are at new historical highs as of the time of this writing. The recession looked to many as though the financial world was racing to a certain death. However, to others they saw an entirely different scenario playing out before them.
How people responded to these fears was in large part greatly influenced by their money beliefs. Some with a scarcity belief were convinced the market would not rebound, that they would not have enough money to live on, and they began selling all their holdings as the market continued its decline. Others, who may have grown up with a different money belief saw an opportunity and scraped together what little or much they had and invested as the market was falling, in order to take advantage of what they believed would be an eventual recovery. Regardless of the actions taken, their money belief had been triggered by an emotionally charged event and their logical mind was now riding shotgun.
In the early 2000’s Dr. Brad Klontz and Ted Klontz pioneered the research and study of one’s relationship with money, and coined the phrase money script. This opened a whole new avenue into financial planning, one that is continuing to gain momentum with financial planners today who focus on life planning as a part of their business model. Having an investment account is only one part of the equation to your success. In our business, we focus on helping clients with the hard numbers (investment management) as well as the soft subjects (transitioning to retirement emotionally, discussing success and wealth with heirs, and discovering ones’ money beliefs).
[Dr.’s Klontz’s study further explored an additional area of financial concern - that being financial infidelity. To read our prior blog discussion on the subject, click here.]
So what are the money scripts that either aid or hinder our success? Dr. Klontz has identified four specific types. Below is our quick summary of each. For a more thorough understanding of the research and findings, you may find the various books written by Dr. Brad Klontz of interest.
Which Money Belief are you?
Money avoidance: For those in this profile, money can be a challenge to address since they seem to fall into one of two distinct camps: (a) Some believe that money is bad and that people with discretionary funds are greedy. (b) Others may be uncomfortable with the thought of discussing or handling finances and so they avoid having to deal with it directly. This may be because money was not discussed openly in their household, or because they struggle with understanding or feeling incapable of handling a matter which they view as opaque, confusing or complicated. These types can sometimes struggle with managing a budget, balancing the checkbook, or having the dreaded talk with their boss to discuss salary or raises.
Money Worship. For those in this profile, money equates to happiness and is seen as something to be sought after and enjoyed. This profile values the opportunities that wealth affords to enjoy life, family and friends to the fullest. They believe that to have more money is better and that truly no one can ever have enough. Embracing this belief, if not managed properly, tends to lead to a pattern of excessive spending or lack of future planning.
Money Status. For those in this profile, net worth and self-worth are synonymous. They highly value the social status that money affords. They tend to live large - and even beyond their true wealth - in order to appear successful and wealthy through possessions and extravagant spending. Impressing others is very important to those in this profile. Challenges for those in this type can also lead to a pattern of excessive spending and lack of future planning.
Money Vigilance. For those in this profile, they are alert and focused about gaining or maintaining financial stability. These people are usually those who have an emergency fund, a savings account, and who are striving to diligently contribute to their retirement plan. They make their financial decisions carefully and usually only after weighing the factors. Some in this type may choose to leverage assets strategically while others may avoid credit like a disease. Some in this group (or their spouses) can find it challenging to find a proper balance between ever saving versus remembering to enjoy the journey.
Shared Family Values
So how much influence did your parents’ financial beliefs have on your young impressionable mind? Our process begins with 11 guided questions to help us explore the memory, the emotion and the depth of impact on those early years. If asked, how would you answer these starter questions?
- What is your first memory of money? How old were you?
- How have you seen that memory influence you today in your financial choices?
In the 2012 National Foundation for Credit Counseling Financial Literacy Survey it stated:
- “44% of Americans learned the most about personal finance from their parents or at home. In spite of the home being the primary teaching ground, many have never stopped to connect the dots between their financial habits and their parent’s.
- 12% chose to embrace financial habits that were exactly opposite of their parent’s, while 9% admitted their habits were very similar.
- 35% indicated their financial style was a blend of how their parents handled money and their own attitudes.”1
Direct or indirect money messages that we received along our journey can be challenged and even modified, but first we have to become aware of them. And that can be difficult since they are outside of our natural scope of awareness!
Once we take the time to explore our money beliefs and gain a better understanding of our reactions to financial triggers, then we are in a better position to challenge our beliefs and make any necessary mental adjustments required. Remember, like everything else in our life, we may have built-in default reactions to financial triggers, but by recognizing our money belief framework and learning how to compensate for it, we can confront and change what needs to be challenged to ensure it does not hinder our financial success.
For many clients, bringing an awareness of their money belief, its origin, and how it effects their financial decisions can be the most powerful element to their financial success in the work we do together. Investment management and portfolio planning is something that we do behind the scenes for our clients’ success, but what they do on the front end matters just as much! No one profile is good or bad, but the key is to understand your beliefs and leverage them for your success.
If you find it difficult to follow the financial plan you and your Advisor created, or to explain the sudden sprees of spontaneous shopping, tendencies toward hoarding cash, or break out in cold sweats when having to discuss your finances, perhaps the root lies deeper than just your will power.
With our clients, we incorporate the life planning processes in our practice and firmly believe that financial planning is truly both a science and art. If you would like to learn more, we invite you to schedule a free one-hour consultation with our team.