Financial Literacy: Our Disordered Relationship with Money (Part 1)

Oct 01, 2017 News

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Dr. Terence Smith, Deputy Governor, Bank of Guyana

Our dysfunctional relationship with money
Some individuals have indicated to me that they are having a difficult time trying to save money. Some

have even asked my advice on the idea of financial counselling. Although financial counselling and financial therapy sessions are prevalent in North America, that is not the case in Guyana.
I did some research and found that both Drs. Brad Klontz, financial psychologist and Sonya Britt, financial therapist of Kansas State University performed studies in understanding the cognitive basis of a financial problem. The researchers stated that, “It is common knowledge that psychological traits may interfere with the financial planning process.” In fact, these professionals indicated that just about all of us have complicated, if not downright dysfunctional, relationships with money.
Our beliefs about money influence every financial decision we make. Because our beliefs define who we are, how we act, and what we may become. It is important that we identify and recognise our disordered relationships with money. Drs. Klontz and Britt suggest that our disordered relationship aren’t our fault, they are a product of subconscious beliefs and thought patterns, rooted in our childhoods, that are so deeply ingrained in us, they shape the way we deal with money our entire adult lives.
However, not all is lost and we are not powerless. By looking deep into our pasts, and ourselves we can learn to recognise these negative and self-defeating patterns of thinking, and replace them with better, healthier ones. While my other articles have indicated sound financial principles and numeracy as essential for financial literacy, it is hardly enough. Psychology also counts. Humans are irrational creatures in all areas of our lives.
Money scripts predict financial behaviours
Dr. Klontz’s research indicates that childhood experiences shape our adult attitudes and behaviours even when it comes to money management. In fact, Dr. Klontz’s team has identified four main ‘money scripts’ that typically operate outside of conscious awareness and are often developed in childhood, and drive our financial behaviours. These money scripts have been found to be associated with financial outcomes, financial behaviours, and other aspects of financial health.
Money script patterns can predict disordered behaviours, such as financial infidelity, compulsive buying, pathological gambling, compulsive hoarding, financial dependence, and financial enabling. According to Dr. Klontz, the four main ‘money scripts’ are as follows:
1. Money avoidance: Money avoiders believe that money is bad or that they do not deserve money. They may believe that wealthy people are greedy or corrupt, and that there is virtue with living with less money. According to Dr. Klontz, “people with money avoider scripts may be worried about abusing credit cards or over-drafting their checking account; they may self-sabotage their financial success and may avoid spending money on even reasonable or necessary purchases or give money away in an effort to have as little as possible in their control.” In this study, Dr. Klontz found that money avoiders have lower levels of income and net worth.
2. Money worship: Money worshipers believe that the key to happiness and the solution to their problems are to have more money. At the same time, they believe that one can never have enough money, and find that the pursuit of money never quite satisfies them. Dr. Klontz hypothesized that, “Money-worshiping money scripts may be associated with money disorders including compulsive hoarding, unreasonable risk-taking, pathological gambling, workaholism, overspending, and compulsive buying disorder.”
3. Money status: Money Status seekers tend to link their self-worth with their net worth. Status lovers believe that owning the newest and best things confer status. This money script can lock individuals into the competitive stance of acquiring more than those around them acquire. Dr. Klontz’s study indicated that, “Individuals who believe that money is a status symbol were likely to be young, single, less educated, and less wealthy.”
4. Money vigilance: Those with this script are secretive about their finances, whether they have a lot or little. Money vigilance beliefs, including themes of frugality, anxiety, and discreetness about money, appear to be protective factors against poor financial health and destructive financial behaviours. Dr. Klontz suggests that, “While they encourage savings and frugality, excessive wariness or anxiety could keep someone from enjoying the benefits and sense of security that money can provide.”
Concluding remarks
Keeping your personal finances in order can seem like it is all about understanding good money management principles including numeracy but as was discussed above, there is also an important psychological component. The research literature indicates that humans are irrational creatures in all areas of our lives and, “The same biases, fears, and unexamined assumptions that drive us to less-than-optimal decisions in our personal lives can wreak havoc on our budgets.” The way to deal with these issues is to examine them and be prepared to counteract them.
According to the research, performed by Drs. Klontz and Britt, money scripts, which are unconscious, trans-generational beliefs about money are developed in childhood and drive adult financial behaviour. These researchers indicated that, “Three categories of money scripts have been found to have a negative impact on financial health, money avoidance, money status and money worship. These beliefs patterns are associated with lower levels of net worth, lower income, and higher amounts of revolving credit.”
Without understanding the particular scripts that inform our money choices, we will never be able to pinpoint the beliefs that are holding us back from financial prosperity. Dr. Klontz’s research literature also indicated that, “An individual’s profession can predict money script patterns and vulnerability to disorder money behaviours. Specifically, when compared to financial advisers, mental health professionals are more likely to be money avoidant, business professionals are more likely to be anxious and secretive about money, try to forget about their financial situation, and avoid looking at their bank statements.

Next week in Part 2 of this article, we will examine tips for counteracting our negative money scripts. Thanks for all your comments and support. As usual, please send your comments or questions to [email protected]

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