Monochrome about money

Our attitudes towards money are far from black or white. Understanding our own psychology and behaviours brings a new awareness that can increase our wellbeing, reduce stress and reveal a spectrum of colour to our lives.

When we think about our money, it is perhaps easier to revert to stereotypes. We are either cavalier or conscientious.

Are we a cavalier individual, who lives in the present and is carefree, often only seeing a green light when it comes to spending and being easily tempted into spending too much? For the cavalier, there is no pain in purchasing, just pleasure as they see buying to be fun. To them there is a relationship between being a spendthrift and boredom.

Or are we conscientious? Proud to the point of being frugal with our spending. The pleasure is going to great lengths to build large savings pots, long-term investments and having empty credit cards. There is a pain to spending and besides, the status of being careful with money is a rational advantage, isn’t it?

The immediate temptation when asked about our attitudes to our wealth is to slot ourselves, with ease, into either the category of ‘spender’ or ‘saver’. We are only human after all and there is comfort, ease and certainty in attaching ourselves to a label.

The truth is that either label is not only unhelpful, it can also be personally limiting. Between the black and white choice of either spender or saver, cavalier or conscientious, there is not just a whole range of grey but the opportunity to open up to a world of colour. When we begin to understand our thinking around spending and saving, we can reduce our stress, increase our buying power and improve our levels of financial security. What is more, it can help us make wiser decisions.

So, perhaps it is time to move out of our monochrome thinking to rewire our thoughts towards our wealth.

Imagine what could change

The ‘conscientious’ can be free from the pain they experience in spending and allow themselves to begin to enjoy their money. The ‘cavalier’ who gets a thrill from the here and now can realise the value of saving and investing, knowing that their spending can be sustained in the future.

Paint your psychological picture

The link between psychology and financial behaviours is a powerful one and is evidenced by years of research.

In 1930, Keynes predicted that as more people became wealthy and had more disposable income, they would save more to protect against unforeseen circumstances, or to sustain or enhance a standard of living. This didn’t happen. Savings did not increase so social and psychological attitudes towards money had to be brought into consideration. We begin to consider our culture, the care we receive when we are young, and our chemistry.

Culture

At the broadest level, our culture has a huge impact on our psychology towards wealth. Consider countries like Vietnam, India and China. In these countries saving is the natural order of the day; saving and investing is what a ‘sensible person’ is supposed to do. Compare this with the culture of immediate consumption and the credit levels found in the United Kingdom, United States and Greece.

Caregiving

Early life experiences inevitably shape our psychology and affect our behaviours. The attitudes of our caregivers or parents influence our own attitudes and beliefs. As children, we often internalise our parents’ emotional response to money, whether they saved for a rainy day or have always given to charity. How do you remember your parents being towards money?

Chemistry

When it comes to chemistry there is a sound base of research that shows how one third of our financial behaviour can be explained by our genetics (1). Our chemical make-up certainly plays a role in how we experience things. Scientists have even identified a gene that makes self-control easier; roughly onequarter of people are born with a saver gene (2). This chemical aspect is hard to ignore. We are naturally built to experience pain vs pleasure and our chemical makeup determines our response. Take the dopamine rush, which some people experience when spending, but is so short-lived it must be repeated for the happiness boost to be maintained. Whilst those who feel physical pain and distress when they spend money or experience financial loss are natural savers and find it easier to set aside money. Both are very real experiences, all part of our natural make up and each one a chemical reaction.

Being aware of behaviours

If our psychology defines our attitudes, then it, in turn, determines how we act as a result. Scholars of behavioural finance outline five main concepts that are often displayed in making financial decisions. Consider which of the following behaviours you may demonstrate in managing your wealth and how your own psychology may be the trigger for you to exhibit them.

1. Mental accounting. A tendency to allocate money for specific purposes.

2. Herd behaviour. Follow the mainstream and mimic the majority e.g. in a period when the stock market is rising, there is a tendency to jump in.

3. Emotional gap. Decisionmaking based on extreme emotions such as fear, anxiety or excitement, limited ability to make rational decisions. Don’t pay a premium for an emotional reaction.

4. Anchoring. Attaching a reference to a level of spending to bring satisfaction e.g. a budget.

5. Self-attribution. Choices based on overconfidence in our own knowledge or skill.

Discover a world of colour

So, how do we begin to become more conscious of our own psychology and start to get greater awareness of how we are wired towards our wealth? Here are some questions that may prompt you into making sure that your money is making your life better, not limiting it.

• Which of the behaviours and attitudes may you have adopted from your parents or carers?

• Which attitudes would you choose not to pass on to your children?

• What is it that is important to you about your money?

• How is your money helping you to live the life you want?

• What is the message about your money that you want to give to those you love?

If spending money causes you stress

• Try not to overthink. Just for a moment, allow yourself to experience the joy in the present moment without worrying about your future.

• Notice the difference between being frugal and knowing how to spend money.

• Check that you aren’t foregoing some purchases and experiences that would make you happy or make your life easier.

If you overspend easily

• Get curious about what owning items means to you. While spending is fun, are you beginning to associate purchases with status, a sense of pride or a way to be accepted by peers?

• If you love to spend, explore how else you could get the same pleasure that doesn’t involve money.

• Remember there is a good feeling to be had when you see your savings and investments grow.

• Picture the goal; the peace of mind knowing that you can maintain your standard of living through retirement or the comfort to know that those you love are well looked after in the event of your passing.

As with anything in life, a

new level of awareness brings new learning. When it comes to your money, taking time to know your own psychology can have huge payback, whether that is understanding your resulting behaviour around finance, giving you the courage to live the life you really want, or simply looking after your own wellbeing.

(1) Cronkvist & Siegel, “The Origins of Saving Behavior” 2015.

(2) Shefrin, “Born to Spend? How Nature & Nurture Affect Spending Habits” 2013.