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Monday, 03 April 2017 19:59

Barbara Daroca: Are your Emotions in Control of your Money?

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Did you ever face this embarrassing situation? You are going to make an important purchase in a retail shop – a gift for someone you love or something valuable to you -, the cashier swipes the card through the machine and it returns an error message. What is your first reaction? Wil you react emotionally – panic, shame, anger, or all three at the same time – even if the causes are rational (the card is damaged, the expiration date is past, ...)? Yes, probably!

For many of us, money is an emotional currency linked to our sense of self-respect, our sense of self-confidence and our sense of security. Money evokes strong emotions that can deeply, and often negatively, affect our financial decisions. But where do our feelings about money come from?   Our thoughts about money come mainly from childhood. Most of school curricula do not include financial education and the only financial roadmap we have is what we have learned from our parents. Very often, the way we handle our money is based on the way our parents handled their money, and chances are great that they did not receive any training either. Unfortunately, these money attitudes and skills may not be helpful if our parents did not have a healthy relationship with money.

According to the American financial psychologists Bradley Klontz and Ted Klontz, each of us has an unconscious money script, transmitted by our parents, running in our head. In recent research, they have identified four categories of money scripts: money avoidance, money worship, money status and money vigilance.

- Money avoiders are convinced that money is bad and that they do not deserve money; for them, money is often seen as a force that stirs up fear, anxiety or disgust.

- Money worshipers believe that money brings power and happiness and will solve all their life problems; for them, there will never be enough money.

- Individuals who believe that money is a status symbol are locked into the competitive stance of acquiring more than those around them.

- All three of these money script profiles are associated with poorer financial health, including lower net worth and lower income. In contrast, people who have a money vigilance approach are focused on frugality and saving but their excessive wariness or anxiety regarding pending financial danger keeps them from enjoying the benefits that money can provide. For them, money is a deep source of shame and secrecy.

The truth is that the problem is not the money, but the way we approach, we think and we handle, money. Of course, money does make life easier and more comfortable and gives us access to better services, but it must not be the centre of our lives, to the detriment of health, family and quality of life. The best way to change the money script running in our head and to develop a healthier relationship with our finances is to clear out negative things and to educate ourselves – and our children! - about money. Financial intelligence is the key for growing wealth.

Barbara Daroca

Barbara Daroca is the Head of Corporate Services at ING Luxembourg.

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