- Growing up, can you recall your happiest memory involving money?
- And what about your most painful memory involving money?
- Is there a money mindset you see in your children you also see in yourself?
- And do you see any of your parent's attitudes towards money in yourself?
Childish attitudes towards adult concepts
Children interpret what they hear about money in childlike ways, so as adults until we reconsider our childhood attitudes, they can often continue to operate unconsciously in our lives directing many of our financial behaviors.
For example: Children whose parents constantly talked about their worries about money, can often grow up to be insecure and constantly anxious about their own finances - believing this is the expected normal state of mind for an adult.
Unchecked, they risk passing this same limiting belief onto their children.
Hows and Whys are different
While financial advisers are usually focused on practical hows, we’ve found if you don't help people address their behavioral whys, no amount of financial advice will make a significant difference.
Many people face a mental block to putting their newfound financial knowledge into action.
Until people see what that emotional barrier is, no matter how great your financial plan maybe it won't deliver the promised results.
History repeats itself
Surprise! People are not perfectly rational with money and financial decisions. Who’d have thought?
For decades, Financial Advisors have following a six-step process - now enshrined in legislation - when preparing advice for clients.
But this formulaic process fails to consider the psychological aspects of money.
Clients have strong emotions about their money (and I know I do too), yet there’s a tendency to focus solely on the economic aspect of a client's financial well-being.
How to approach money stress
While money stress is a major concern for the majority of Australians, helpful discussion about managing it is in the minority.
We’ve found people can get blocked by one of four unbalanced money mindsets.
The 4 Moneyisms
Unbalanced thinking about money often polarises a person's behaviour into one of four approaches towards money:
Some call them a limiting belief, perhaps an obsession or a money mindset - we call them moneyisms - an often unbalanced obsessive narrow belief about an otherwise healthy issue.
The 4 Moneyism mindsets are;
- Avoiding money
- Idolising money,
- becoming Excessively Guarded about money, and
- Confusing Money with Status
The 10 Easy steps to good financial health (so they say)
The basics of good financial health are pretty straightforward no matter if you’re a family or a business or both.
The ten steps are:
- Spend less than you earn and learn how to budget
- Invest the surplus for your future
- Save an emergency fund
- Transfer the major risks away from your family to an insurance company to deal with, eg: health insurance, home insurance, life insurance and income protection cover
- Be prepared to spend a reasonable amount of money to enjoy your life and achieve your goals
- Beware anything that seems too good to be true
- Learn how to regularly get specific financial advice and learn from the expertise of others
- Protect and provide for your family and never risk what you can't afford to lose
- Live your life so you can leave a legacy to the children in your life, so their life can be better than yours.
- And, teach your children to do the same with their children.
Sounds simple. (You think?)
So why do so many of us struggle with the 10 points above? Human nature or human nurture - or perhaps a bit of both?
What does the Status moneyism look like?
People with the status moneyism often equate their self-worth with their net worth.
Owning the latest and greatest anything affirms their core money belief of ‘people are only as successful as the amount of money they earn’.
Over time this becomes a constant low-level torment. They become overly aware of their appearance and very concerned about always appearing wealthy and therefore successful, individuals.
What behaviours can the Status moneyisms create?
- People with money status beliefs often pretend to have more money than they do.
- They’re at risk of habitual overspending and usually carry large amounts of revolving debt on credit cards, so they can give the impression they’re financially successful.
- They’re more likely to be secretive overspenders and persistently financially dependent
- They often lie to their partner or spouse about the extent of their spending
- Are vulnerable to compulsive gambling in an attempt to prove their financial worth to others
- Tend to come from families with lower socioeconomic status and have lower income and lower net worth
Interestingly, the status moneyism mindset may also believe 'if they’re good and do the right thing the universe will take care of their financial future'.
Many are hurtling towards a bleak retirement on a hope and a prayer and not much else.
When you equate the acquisition of material things with your value or status as a person, you set yourself up for failure.
How a Status moneyism mindset affects Investors behaviours
Pro Tip: People who think money and status are closely related are usually more loss averse than the general population because they perceive a loss of social status is associated with lower levels of wealth. (Engelberg & Sjoberg 2007).
You don't have to go far to see many people don't make rational decisions with their money but rather rely upon emotional associations of money, often established in childhood.
Until you’re willing to consider whether you need to upgrade your childhood thinking about money, your adult financial life may be more tied to your past then is good for you, your self worth or you net worth.