PERSONAL FINANCE
Tumelo Sejo Boitumelo
Behavioural Finance: Money and Emotions
O
ne of the significant components of financial planning is looking beyond the analytical tools. It is a consideration of how clients feel and think. A great deal of what guarantees the efficiency of financial planning is a combination of analytical tools, client goals and needs and most importantly, the emotions that drive financial decisions; this is where behavioural finance comes into play. Behavioural finance compels one to interrogate the client’s motivation and expectations, beliefs and level of financial literacy. It brings up the conversation of their exposure, their childhood and how that influences their money decisions. Our financial decisions are intuitive and are often on an unconscious level of decision-making. It is because for the same reason that we always defy logical plans and default to what we know and deeply believe. Money is more than a financial concept. It is an emotional construct. In most instances, the disasters we experience are due to a poor psychological relationship with money. Our attitudes greatly influence our financial behaviour. Several factors like culture, ethnicity, gender, family and sicioeconomic status influence our atittudes. We discuss a few money scripts, or our unconscious beliefs about money, embedded in childhood, which affect our adult behaviours and perspectives.The attitude of parents towards debt can have a significant impact on how children perceive and utilise it. Parents who believe debt is the solution to their financial problems, and tend to be over-indebted, can influence their children to fear debt. This stems from the children’s experience in how debt, affected their parents and may have impoverished them. A few money scripts are discussed below:
Money avoidance This is a perception that there is a certain level of evil associated with money and the belief that rich people are greedy and corrupt. People who are money avoiders do not take responsibility for their financial behaviour and tend to blame others. Money Worship People who portray money worship, believe money will bring more happiness. Money worshipers believe that their needs can never be fulfilled, and they tend to become workaholics. They are also likely to show symptoms of hoarding and compulsive buying. Money status This is the belief that money brings status. People who believe in money status, link it to socioeconomic status.They link it to different socio-economic classes and are
Strides Magazine
22
July 2022
often materialistic and competitive. Money status has a big element of comparison, and they are more concerned with external perception. Money Vigilance These are people who are conscious of their finances and strong belief in the importance of saving for the future. They believe people must work for their money and do not believe in financial gifts or handouts. Such people tend to be anxious and secretive about their finances. Money vigilance is associated with positive financial outcomes and negatively associated with gambling disorder, compulsive buying, financial denial and financial infidelity. The financial decision-making process compels us to introspect, and have a deeper understanding of self. It is the psychology that drives and greatly influences the financial choices we eventually make.
