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Death, Taxes, And Savings Plans: How Personal Beliefs About Money Shape Our Financial Reality

psychology of money financial therapy dollar bill on couch

Money can be a touchy subject. Talk to a hundred people, and you’ll get a hundred different perspectives about everything from investments to budgets to tax deductions - and some of those perspectives are very passionate.

Like love or religion, money and finance are topics that define many people’s everyday realities. We all grow up learning different things about money. Some of our beliefs are shaped by experiences with poverty or loss, while others are more positive and have been influenced by good economic conditions and strong role models.

Whatever influences play a role in your “money beliefs,” you can be sure that those beliefs impact your life and worldview. It’s important to cultivate more than knowledge about money and finance - you also need to foster awareness of how you think and feel about those same influences. 

This article will explore a few ways you can explore your own money beliefs, and while you read you’ll learn about the many ways these beliefs influence the way you approach life and your financial goals.

brain made of money symbolizes psychology of wealth

Where Do Your Beliefs Come From?

To understand why you feel the way you do about money, you have to look at where those feelings come from. Did you grow up in a household of frugal “penny pinchers” who encouraged thrift as the only way to achieve security? Were you
influenced by a culture that encouraged outward displays of wealth?

How you were raised, where you were raised, and the experiences you’ve had throughout your life all influence the way you think and feel about money. 

In an article titled “Common Money Beliefs,” America First Credit Union cited a study showing that “49% of Millennials turn to their parents for financial advice.” Parents are one of the most powerful belief-shapers when it comes to money and finance, as they are generally the ones responsible for passing down beliefs that their own experiences have informed.

Parents aren’t the only influence, though. Friends and social networks have a big impact as well, and cultural beliefs can shape our financial worldview in myriad ways. Some societies discourage openly discussing one’s finances, for example, while others are more “free” about such conversations and consider money to be a perfectly normal thing to talk about. 

It may surprise you to find that religious beliefs also have a strong effect on our money views or “scripts,” with one study showing that “the fear of hell is more potent for economic growth than the prospect of heaven” and “higher rates of religious beliefs stimulate growth because they help to sustain aspects of individual behavior that enhance productivity.”

Knowing how and why you believe certain things about money is an important first step in understanding your financial behaviors.

emotional beliefs about money via heart on seesaw with wad of cash

Healthy Vs. Unhealthy Money Beliefs

Since our personal finances exercise such a big influence on our quality of life, it’s important to know whether your beliefs about money are exerting a positive influence on your behaviors or a negative one.

A positive money belief is one that doesn’t cause anxiety, motivates you, and provides encouragement to reach for your goals in life. A negative belief brings you fear, discomfort, and causes you to behave in ways that are harmful to your financial health.

Financial Psychology is a relatively new field of study, but the topic is one that has been discussed for many decades. According to the Financial Psychology Center, Financial Psychology is “a burgeoning discipline that associates people’s thoughts and feelings about money with how they manage it.”

This area of study is an important one, especially in light of the volatile circumstances seen in 2020. According to the past year’s Stress in America survey by the American Psychological Association, “Nearly 2 in 3 adults (64%) say that money is a significant source of stress in their life.” 

The impact this stress has on financial decisions - such as the choice to pursue further education on subjects like proper taxation compliance, retirement planning, and investment best practices - is beginning to be understood in a broader context. Unhealthy beliefs about money tend to discourage people from pursuing the information and training they need, and it can bring about both individual and societal harm in a number of ways.

For example, a culture that creates broad “money anxiety” can easily create a self-fulfilling prophecy for both the national economy as well as the individuals living under it. As more people begin to doubt the credibility of their own financial intelligence as well as the credibility of institutions that manage their money, investment markets become more volatile and people make fear-based decisions that may harm them (and their country) in the long run.

Fostering a healthy money mindset is therefore important for you as an individual as well as you as a citizen of an interconnected economy. Although it may not feel like it most of the time, your own financial behaviors impact the way your entire country views and approaches money and related policies. 

Rather than feel overwhelmed by this burden of responsibility, Financial Psychologists encourage you to consider it an opportunity to improve your mental-financial health and approach money matters with a collaborative, you-are-not-alone attitude. Seeking out good advice and accurate information can be viewed not as a stressful, personal burden, but as a civic duty and legal right that everyone in your home country shares equally.

Healthy money beliefs tend to be centered around an understanding that, while circumstances change frequently, good financial habits are a reliable way of weathering any challenges that come your way. They also focus on money as a part of your life without making it a central tenet of day-to-day living.

Financial self-help expert Ken Honda provides a good example of a healthy money belief in his 2019 LiveHappy article titled “Let Go Of Your Negative Beliefs About Money.” Rather than viewing money as a dangerous and unpredictable entity or as a rare resource to be hoarded, he advocates a more balanced perspective.

Money can be a wonderful social force, for example. “If you spend money wisely, you can help create better relationships. For example, you can use money to plan a family trip and make happy memories that will last a lifetime. You can use money to make all kinds of fun arrangements that bring you closer to your family and friends,” Honda says, providing a healthy “script” that readers can try to bring into their own financial dialogues. 

Ultimately, healthy beliefs about money center around the perspective that it’s a tool to be used in the service of a happier, more fulfilled life, rather than viewing it as a weapon or an unpredictable force operating outside our influence.

brain depositing money out of it beliefs about money and wealth

To Encourage Your Own Healthy Money Mindset, Ask The Right Questions

When you go into your next meeting with your accountant or wealth manager, pause for a moment to consider the emotions you’re feeling as you prepare for any discussions that are about to come up. Are you anxious? At ease? Enthusiastic? Suspicious?

While many of us consider such questions as too “touchy-feely” for the hard-nosed world of finance, the truth is that your emotions have a larger influence on your behavior than any other factor - even if you don’t realize or wish to admit it. This doesn’t have to be a bad thing, either.

Emotions may seem unpredictable, illogical, or even unhealthy in the context of money, because we’re used to thinking of finance as a purely intellectual exercise. Realistically there are no “purely intellectual” activities, however, and money is one of the most emotionally-charged areas of most people’s lives. The key to approaching this from a healthy belief system is simple awareness.

By asking yourself the right questions before entering financial conversations or decisions, you accept the reality of your own human nature and better prepare yourself for the process of making good choices. Venture capitalist and author Morgan Housel advises you to “Manage your money in a way that allows you to sleep at night,” and understand that, when it comes to money, “people make [...] decisions they regret, and they often do so with scarce information and without logic. But the decisions made sense to them when they were made.”

If you make a practice out of asking yourself the right questions about your beliefs in money, you lessen both the possibility and the harm of making those regrettable decisions. Even if things go wrong, you’ll know that you approached your choices from the best possible place and made decisions that reflected your own valid, experience-backed worldview. 

Here are a few examples of good money questions to ask yourself, taken from a range of papers and articles released by Financial Psychologists and other related experts:
  • Who had the biggest hand in shaping your experiences about money? Did they have a healthy, unhealthy, or middle-of-the-road perspective on money, and how did that perspective enter into your own beliefs?

  • What is the first experience you can remember having that involves money or finances? Was it positive or negative?

  • How did the economy look when you were growing up, especially during your early adulthood years when you were building up your financial independence? 

  • When you think about your finances, what is your immediate feeling? Are you anxious, with a racing pulse and sense of physical discomfort? Are you calm, perhaps curious or even pleased?

  • Who do you mostly rely on now for your financial information? Do you make a habit out of meeting with a CPA or financial advisor regularly? 

  • If not, do you feel anxious about doing so? Why might that be? Is it possible that you feel embarrassed, skeptical, or suspicious about such professionals?

  • If you had to write out your own 2-3 sentence “money mission statement,” what would it sound like? Has it changed over the past year? Ten years?

These questions are just a few examples of how you can negotiate and approach your own money beliefs with a focus on awareness. Making a habit out of answering these questions and bringing up the resulting questions and concerns with a professional can drastically improve your financial literacy, and can help you reach your financial goals in new and positive ways.

At the end of the day, money does matter - and so do your beliefs about it.

Tarun Juneja, Firm Principal, Foumberg, Juneja, Rocher & Co. 

Emily Montague | 02/23/2021