The Psychology of Money

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The way you think about money has a significant effect on the way you live, and if you happen to be a financial professional, your feelings about money are certainly going to affect how you work with clients. It can be invaluable to take the time to think about what money means to you, a process that may often uncover financial fears and irrational thoughts.

Money messages—your earliest memories about money, often passed down by your parents—influence your financial perspective in an extremely powerful way. For instance, one of my clients has a strong memory of his father putting change in a huge container in the living room every evening, explaining that when it was full, they’d be able to go on a vacation…and teaching the value of saving for a goal. This client uses the same tactic with his kids, tweaking it slightly so they realize that when their containers are full, they can exchange the coins for bills.

Those who were raised to believe that money equates to power, freedom and control are going to behave much differently than those who were taught that money isn’t a good thing. Among the money messages some people learned as a child are:

  • You have to work hard and suffer to earn money.
  • Having a lot of money isn’t “spiritual.”
  • Money is too hard to manage.
  • You’ll never be rich.

If you were brought up with these beliefs, you can actually sabotage yourself as an adult with respect to making financial decisions. Your upbringing will also have a lot to do with whether you’re a prosperity thinker or a poverty thinker.

Those who focus on prosperity believe money is for pleasure, and they derive joy from spending it; money gives them a sense of abundance and optimism, and they believe they’ll always make more. On the other hand, poverty thinkers have a mistrust of money and negative feelings about it; they operate out of pessimism and fear. They’re reluctant to spend money and never feel secure or as if they have “enough,” regardless of the truth about their finances—and their feelings aren’t necessarily based on reality.

Living at either extreme can be a problem; those focused on prosperity need to ensure they’re not living above their means, and those more worried about poverty can look like they are not generous, even to their own family members. As you might imagine, mixed monetary philosophies in marriages can result in significant tension over finances.

It’s critical to be aware of your money messages and how they influence your decisions and actions. In particular, you must be willing to “shift” your thinking to get out of “victim mode” and find the balance that works for you on the prosperity-poverty continuum. Whether you’re making investments for yourself, or serving as a trusted advisor to clients, you must understand your beliefs about money, and work proactively to ensure they don’t affect your behavior in ways that result in negative consequences.

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