Delving into the money psyche

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Business Times - 14 May 2011

Delving into the money psyche

An academic study by Brad Klontz of Kansas State University has come up with four broad categories called 'money scripts' to describe how people feel about money By Paul Sullivan

(New York)

HOW you feel about money can have a significant impact on how you save, spend and plan for your financial future - not to mention on your overall mental and emotional well-being.

This is one of the findings of a new academic study, 'Money Beliefs and Financial Behaviors: Development of the Klontz Money Script Inventory,' published in the current issue of The Journal of Financial Therapy.

The study, conducted mainly by Brad Klontz, a research associate professor at Kansas State University, and Sonya L Britt, an assistant professor there, comes at a time of high financial anxiety among most Americans. The jobless rate continues to be high. And houses, the asset that made so many people feel rich before the recession, have yet to regain their value. In fact, according to the Standard & Poor's Case-Shiller Home Price Index, home prices in 20 metropolitan areas, after some modest gains, fell again in February. For those whose net worth is largely tied to the value of their houses, it could take a long time for their nest eggs to rebound, even if jobs do come back.

Amid this financial unease, Mr Klontz said that he set out to test observations he had been gathering in his practice as a clinical psychologist in Kapaa, Hawaii, for more than a decade. He found that some people were under stress about having too little money while others were anxious about losing what they had or felt guilty for having so much. Some people immediately disliked anyone with money, while others would spend their money immediately without regard to the future.

The Klontz study asked 422 people about 72 money-related beliefs and then analysed correlations among the answers. This produced four broad categories that Mr Klontz called 'money scripts': money avoidance, money worship, money status and money vigilance.

Money avoidance

How does he define them? Those who are in the money avoidance camp share beliefs that make them distance themselves from money. Mr Klontz said this group may be worried about abusing credit cards. They may believe that they do not deserve to have money and may sabotage their own financial well-being. People in this group tend to have low incomes and net worth. They also tend to be younger.

Money worship

People who fall into the money worship camp would seem to be the opposite, but their behaviours are equally destructive. They believe that an increase in income or a windfall will make everything better and love the status derived from the things money can buy. This belief also lands people in debt because they use whatever credit they have to buy things that will impress others.

'They believe money will solve all of your problems,' Mr Klontz said. 'This is the money belief pattern that afflicts the majority of Americans.'

Money status

Anxiety about money status occurs when people's self-worth is linked to their net worth. These people often take bigger financial risks because they want to have the stories of big gains to impress their friends. (Don't expect them to tell you when those big bets do not pay off.) The only affliction that did not have an overwhelmingly negative impact on people's financial future was money vigilance. People with this disorder do not like to share information about their income or wealth, but they also do not spend foolishly.

Money vigilance

Still, excessive wariness about spending can keep these people from enjoying the benefits of what money can buy. On the other hand, while they did not necessarily have higher incomes, they paid off their credit card bills each month.

'Maybe some anxiety and vigilance around money is good for your bottom line,' Mr Klontz said.

Not surprisingly, the four money scripts illustrate problems that have less to do with money than with what money represents. But what may be surprising is that the study found few links between who held what belief and their family background, race, gender, education level or income.

The majority of the people rated their highest level of education as either a college or graduate degree. Their income was equally divided into four categories, from less than US$30,000 a year to more than US$100,000. And their childhood economic status was generally middle class, with only a few reporting that they grew up poor or wealthy. In fact, the only link to family background came from the group that fixated on money as a way to gain status: mostly, they grew up poor.

Financial trauma

A more common thread was how people remembered a financially traumatic moment in their life. Mr Klontz described a case in which a family was beset by debt and about to lose its house. In one case, the grandmother bails out the family. In the other, the family figures out a way to keep the house on its own. The outcome is the same, but the takeaway can be different.

'If grandma swoops in and saves they day, you could walk away from that thinking that you don't need to worry about money,' he said. 'Or where there was a lot of talk about losing the house, that could impact you so you live your life afraid of losing everything.'

So what is the solution? Mr Klontz said people needed to be flexible about how they thought about money and to be open-minded in thinking about money's role in their lives. 'As human beings, we're always evolving and we only have part of the picture at any stage,' he said. 'We need to identify the set of beliefs that work and the ones that don't and modify them or let go of them.'

One of the goals of the study was to use the results to create a test that therapists and financial advisers could use to quickly understand their clients' beliefs about money. Mr Klontz estimated that administering the test could save therapists hours of conversation and help them understand how a patient came to a particular belief about money. He said it could also be part of a risk assessment questionnaire for financial advisers.

This raises the question of how people's beliefs about money have been altered by the recession. Will a generation become profoundly distrustful of banks and other financial institutions as some people did after the Great Depression? Mr Klontz said the answer depended on how honest people were with themselves, particularly those who lost a lot of money or their homes. He said people needed to ask themselves what role their behaviour might or might not have played in the broader financial problems.

'The predatory lending and the greedy people on Wall Street, they've certainly played a role in this, but what led you to buy a house you couldn't afford, even if someone let you do it?' he said. 'If you're willing to look at the answer to that, the likelihood of you making the same mistakes diminishes greatly.'

Blame game

The thought of not blaming Wall Street for the financial crisis will send many people into fits of rage, but that is exactly Mr Klontz's point. Bubbles do not happen in isolation. They take many, many people to buy in, including those who are now angry about having been duped.

Realistically, he said, most people will treat financial change the same way they do lifestyle changes after heart surgery: Only about 10 per cent maintain healthier lives two years after the surgery. 'That's a little depressing,' he said. 'But then, one in 10 people do change.' -- AP

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As with all things psychological, we assume people will behave in nice cookie-cutter moulds by "labelling"; but the reality is that we are all irrational.
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