Even before the pandemic, roughly 60% of Americans expressed angst if not outright anxiety about money. To Bradley Klontz, founder of the Financial Psychology Institute, this is to be expected. Here’s the basic mental trajectory according to Klontz.
While financial literacy is certainly important, says Klontz, we also need a solid understanding of our relationship with money. This, writes Klontz, “is where your financial psychology comes in.”
From his perspective, financial psychology consists of three fundamental steps:
Financial Flashpoints – Our relationship with money starts with one or more monetary experiences that leave a lasting imprint on our lives (think Great Depression for the grandparents, a bankruptcy for Aunt Alice, or Cousin Ted’s big lottery win).
Money Scripts – Klontz says we create mental money scripts to make sense of those flashpoints, some of which may actually be passed down from previous generations. A family member loses big in the stock market and we tell ourselves the markets are inherently unsafe.
Financial Behavior – Research shows that those mental money scripts are associated with financial behaviors and outcomes, including credit card debt, income, overspending, financially enabling others, and so on.
Concludes Klontz: If you’ve got financial problems, it’s not because you’re lazy or stupid. “Understanding your financial psychology will help you make sense of your relationship with money.”
