Financial Literacy and You: Psychology and Your Money

Psychological analysis of people’s relationships with money has become an increasingly important area for financial planning.

 

The tendency in financial services has been to view such matters as having to do only with products. For paying bills and daily expenses, you need a chequing account. To save money you need a savings account. To buy a house, you need to borrow money via a mortgage. You need all kinds of insurance: property insurance for your house; auto insurance for your car; life insurance for your spouse and children if you die unexpectedly; and disability insurance if you become injured or sick and cannot work. To save for retirement, you look for a job with a good pension, otherwise, you need to set aside significant sums in an RRSP or TFSA for which you can open a mutual funds or brokerage account. All of these have one thing in common: they are rooted in the sale of financial products to a consumer of those products.

 

However, before you buy a product, isn’t it important to know what you need? A sales representative of financial products and services has a mandate to sell you what is suitable, but it may not necessarily be what is in your best interest. The problem is that we often don’t know what we need. After all, that’s why we go to our local bank – so that we can be told what we need. And that’s a problem.

 

If you are married or in a long-term relationship with someone, you may realize that your partner may not have the same attitudes about money that you do. For you, you may have a strong belief that more money will make you happier. Your partner, on the other hand, may view rich people as evil. For another pair, it may be that one partner is insecure without having a huge amount of secure savings, while for the other partner money is to be enjoyed right now. How such partners end up together is beyond me, but it’s not surprising, really, given that money problems between couples are among the leading causes of marital breakdowns.

 

November: Financial Literacy Month

November has several month-long events or observances. My friend, Robert Chazz Chute, who is a writer, has mentioned NaNoWriMo, which is National Novel Writing Month. If you are an aspiring writer, this is the month to attempt to bang out a 50,000-word manuscript. November is also known as Movember, which is a portmanteau of moustache and November, and is also the name of a charity intended to raise awareness of, and raise money for research into, health issues that are prominent among men, specifically prostate cancer, testicular cancer and mental health/suicide. At a personal level, this is somewhat close to me as I had surgery for prostate cancer in 2009. Finally, and apropos of this post, November is Financial Literacy Month in Canada.

 

I will confess that I have been somewhat cynical about this observance. Although backed by the federal Financial Consumer Agency of Canada, it has had strong support from financial institutions in this country. My concern about that support stems from suspicion that engagement in this annual event is intended to absolve those same institutions from responsibility for incentivizing their employees to act in the best interests of their employers rather than of their customers. I like to believe that is slowly changing, but caveat emptor (Latin for “Let the buyer beware”) continues to be the watchword when looking for a financial product or service.

 

“Financial Consumer, Know Thyself”

Here is where I attempt to tie the psychology of money and financial literacy together…. Successful sales representatives not only know the product or service they are selling; they also know their customers. They are often very psychologically astute. This is not necessarily a bad thing; it is important that they understand their customers. That makes it equally important that consumers of financial services know themselves, too.

 

A psychologist and financial planner, Dr. Brad Klontz, led in the development of Money Scripts^®, unconscious beliefs about money. Typically, these scripts are rooted in our childhood and have a significant impact on our attitudes about money. People are often divided into savers and spenders, although the picture is much more nuanced than that. Ask yourself where you fall in that spectrum? Do you tend to focus on saving, or do you spend money as soon as it comes into your hands? It is often said of retirees who have successfully saved throughout their working lives that they find it difficult to spend the money that they have accumulated. They end up dying with more money than they started their retirement with. That may be great for their children who can look forward to a substantial inheritance, but it is not really the idea outcome, is it?

 

I invite you to find out your Money Script by following this link: Your Money Script.

 

You will be required to enter your first and last name and email address to get the results. The questions can be answered in about five minutes. At the end, there is a page that asks you to set up an appointment with one of the associated financial advisors, but there is no obligation to follow through. You will find your results emailed to you in short order. If you are in Canada, this US-based firm cannot have you as a client, anyway.

 

The results will score you in four categories:

• Money Vigilance
• Money Avoidance
• Money Worship
• Money Status

 

Here are my results:

• Money Vigilance – 3.63
• Money Avoidance – 2.64
• Money Worship – 3.5
• Money Status – 1.29

 

Once you have completed the assessment, this same website provides some basic guidance about how to respond to your scores. None of mine are particularly extreme, although money worship does at least somewhat trouble my Mennonite soul.

 

Financial literacy is often promoted as an opportunity to learn more about what types of investment accounts or insurance you might need, but gaining insight into your own money belief system also has significant value for helping you to make positive changes in relation to your finances.

 

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In these uncertain economic times, you may be interested in a half-hour no-cost, no-obligation financial planning conversation with me. It’s called FINPLAN30 and the range of topics is wide open. Click here to sign up for a free session.

 

Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, tax, or legal decisions.