When volatile markets hit and people start to worry about money, their thoughts often run much deeper than simply what is in their portfolios. In this way, gyrating markets can often be a gateway into unresolved family histories and insecurities.
This fact emerged in a recent study, Money Beliefs and Financial Behaviors: Development of the Klontz Money Script Inventory, the results of which have been published in the U.S.-based Journal of Financial Therapy.
This study, conducted by Kansas State University professors Brad Klontz and Sonya Britt, found some people were worried about having too little money, while others were anxious about losing what they had or felt uncomfortable for having so much.
These feelings are all due to what the researchers call “money scripts” – strong feelings that individuals may have learned when young and that drive their behaviour. The study identified four broad categories related to beliefs about money: money avoidance, money worship, money status and money vigilance.
“Money avoidance” is a set of beliefs that include anti-wealth statements such as “rich people are greedy” or “money corrupts people.” Often, Klontz maintains, such beliefs are rooted in low self-esteem and childhood experiences in which money was misused or misunderstood.
“Money worship” beliefs are centred on the idea that more money or more possessions will make a person complete, even though there is little research to support this view. Related beliefs include “more money will make you happier” and “it’s hard to be poor and happy.”
“Money status” beliefs include “your self-worth equals your net worth” and “money is what gives life meaning.” When individuals equate acquiring material things with their value or status as human beings, Klontz notes, they may take excessive risks to achieve them or slip into despair and panic when they fail to do so.
Then, there is “money vigilance.” People in this category pay their bills at the end of each month and don’t live beyond their means. If they are too careful, they can lose out on financial opportunities, but they don’t tend to lose their house or their self-worth.
Interestingly, the study found few links between who held what belief and their race, gender, education level or income.
What does this mean for financial advisors? As clients typically come to planning sessions with ambivalent feelings about really wanting to save for the future, even well-intentioned questions, Klontz says, can be a catalyst for inner conflict. Advisors need to remember that emotions – not logic – drive clients’ financial decisions.
One of the goals of the study was to use the results to create a quiz that advisors could use to understand their clients’ attitudes toward money.
Younger individuals are most likely to hold potentially destructive beliefs about money, Klontz maintains. By examining their feelings in this way, both parties can get a better sense of what may be holding clients back.
Such an exercise could be particularly useful with couples, for whom identifying divergent money scripts can help resolve money-related conflicts.IE
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