By Ash Toumayants
Have you ever had buyer’s remorse after making a big purchase? Have you ever let fear of failure keep you from investing, or even creating a budget? If you have, you know firsthand how much of a role emotions play in our financial lives. Psychologists refer to these emotions and financial behavior we hold about money as “money scripts.” (1)
Ingrained Money Habits
No matter how hard we try to make only rational and well-thought-out financial decisions, we just can’t seem to do it. This is most likely due to the emotional and psychological baggage we carry around relating to our money, otherwise known as our money scripts. Before you beat yourself up about this, understand that these scripts start forming at a very young age.
Even if we aren’t aware of it, we spend our childhood watching our parents relate to and deal with money, and over time our brains are unconsciously trained to respond in similar ways. If your parents were confident and wise investors, you will likely face investing with confidence. If your parents scrimped and saved and constantly fought over expenses, you may have strong feelings of guilt when making large purchases.
The seeds of money scripts are planted in childhood and grow to influence your financial behavior as an adult. For this reason, it is incredibly important to talk to your kids about money and model healthy financial behaviors. It is also vital for you to take the time to explore and understand your money scripts and how they influence your financial behavior.
The Harmful Side Of Money Scripts
While some money scripts are beneficial to financial health, some, like money avoidance, money status, and money worship, can be detrimental. Unhealthy emotions and belief patterns can lead to all kinds of financial problems, such as financial infidelity, compulsive buying, pathological gambling, and financial dependence. Certain money scripts have been tied to lower levels of net worth, lower income, and higher amounts of revolving credit.
Those may sound extreme, but have you ever let panic during down markets or overconfidence when they rally veer you from your long-term investing plan? Have you ever been unable to make a decision because you were paralyzed with worry and anxiety about the future? Have you ever put off something you know is important out of embarrassment or discomfort? Have you ever wreaked havoc on your budget for the momentary high of acquiring something you really wanted? All of these responses point back to your money script.
The Good News
Everyone is susceptible to emotions and financial behavior that sabotage their finances. The good news is that though our money scripts are ingrained from childhood, they are not permanent. With a focused and concerted effort, they can be changed.
The first step is identifying them. One way to do so is to be aware of your emotional responses to common financial situations. How do the following things make you feel?
- Earning money
- Buying things
- Saving for the future
- Budgeting and tracking expenses
- Making financial decisions
- Volatile markets
- Healthy markets
- Meeting with a financial professional
- Thinking about your financial future
Anything that elicits strong emotions warrants further reflection. Obviously negative emotions are not the only ones that can harm your financial life. Some positive emotions like optimism and self-confidence can bring about negative results if left unchecked.
How To Manage Emotional Money Decisions
Learning to control your emotions and financial behavior is the key to changing your money scripts and developing healthier money habits. You can also build habits into your life that protect you financially, such as taking advantage of automatic saving and investing through your bank or employer’s retirement plan. You can schedule regular family budget meetings and enlist a friend or loved one for accountability. You can learn how you respond to emotional triggers and mandate a “cooling off” period for yourself before making any decisions.
Finally, you need to be willing to forgive yourself when you make mistakes. Leave the past in the past and move forward with the new knowledge you have gained. With discipline, self-reflection, and the help of those around you, you can reverse the money scripts that have plagued you and change the financial path for your future!
Ash Toumayants is a financial advisor and the founder of Strong Tower Associates. For over a decade, he has helped hard-working people across Central Pennsylvania prepare for retirement. Fueled by a passion for helping people see through the veil of confusion that shrouds the financial world, his goal is to educate his clients so they can make more sound choices regarding their financial future. A Penn State graduate, he currently lives in State College with his lovely wife, Noelle, and their two adorable children. Learn more by connecting with Ash on LinkedIn or emailing [email protected].