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This article was published 3/9/2016 (1405 days ago), so information in it may no longer be current.
If only we could stop the insanity.
Money is a major source of stress in many of our lives. According to a leading psychologist on financial management, we’re wired to feel that way whether we like it or not.
Dr. Brad Klontz is one of the world’s most renowned experts on money-related stress. The author of several books on the subject, including Mind over Money: Overcoming the Money Disorders That Threaten Our Financial Health, he is the co-founder of the Financial Psychology Institute and an associate professor at Creighton University and University of Hawaii.
He and his father, Dr. Ted Klontz, are renowned for pioneering the psychology of a basic financial management, helping people overcome essentially ‘bad thinking’ when it comes to money.
His message is this: money stress is ubiquitous. It cuts across income, ethnic background, age and religion.
Moreover it’s largely driven by our innate desires and upbringing that can sabotage our best intentions.
"That’s ultimately the key: recognizing when it comes to money, you are biologically driven to be self-destructive," Klontz said during a recent interview with the Free Press.
Underpinning this are two fairly well known concepts — perhaps so common we often overlook their effect on our behaviour.
One is the ‘keeping up with the Jones’. We know we shouldn’t compare ourselves to others financially, measuring our worth by what others have or don’t have. We do all the same, because underneath all the trappings of civilization is a strong biological drive to belong — to be part of the herd.
In our highly complex social and economic structures, money is the manifestation of successful survival. We may no longer hunt and gather, but we do need to slay and collect dollars.
Money is necessary to survive. Consuming obviously is, too.
Striking a balance between the two is essential to living relatively stress-free.
But this is often difficult.
That brings us to the second widely recognized concept that money does not equate with happiness — though it does to a point, Klontz says.
"Yet research shows that anything over a certain median income has no correlation between money and happiness."
In the U.S, studies have pegged the sweet spot at about $100,000 (in Canadian dollars) for household income.
The curious thing, however, is many households achieve that level of income, yet money stress is pervasive. In the U.S, it’s the leading source of stress, and one recent study in Canada pointed to it being at the top of the list for more than four in 10 Canadians.
"But there is no reason financially to justify these high levels because people are often making enough money," he says.
Our needs are being met in most cases. We have food and shelter. But it’s the ‘wants’ that are often a source of stress.
"There are a couple of factors that come into play," he says. "Number one, in the last few decades, there’s been a huge increase in the easy availability of consumer credit."
A few decades ago, debt wasn’t a major problem because credit wasn’t widely available.
"Financial stress wasn’t such a big deal for my grandfather because he had a pension and he couldn’t get a credit card even if he wanted one," Klontz says. "Now we have the ability to live beyond our means quite easily."
That’s where the phenomenon of ‘relative deprivation’ comes into play.
"What research has found is we don’t feel deprived based on our objective reality," Klontz says. "We feel deprived based on how we stack up next to people around us."
It’s not just keeping up with our neighbours that feeds this desire. It’s the entire culture, which is built on consumption, and marketing exploits this irrational need to keep pace with the unattainable ideal.
"Basically, your biological brain is an animal brain, and when you feel like the herd is moving and you’re being left behind, it creates intense anxiety," he says. "The slowest person running away from the threat dies."
Klontz understands this impulse well, not only because he encounters its effects on clients he works with regularly. It deeply affected his financial well-being too when he finished grad school US$100,000 in debt.
"I saw my friends were making US$100,000 over the course of the year on the stock market."
So he thought he could do the same and get rid of his debt. He sold everything he had and invested.
"Over the six months, I had lost about 75 per cent of it because I had put my money into the market at about the height of the tech bubble back in 2000."
The hard luck lesson wasn’t lost on him though.
"It was really that experience that led me to look into the field of psychology to figure out how we make decisions around money," Klontz says.
Besides coming to the realization we’re driven to make emotional decisions about finances that are often not in our best interest, he also discovered how deeply our upbringing affects our relationship with dollars.
"A lot of my research has been focused on ‘money scripts’ which are beliefs we have about money that are learned in childhood and passed down from our parents and grandparents," he says. "They often drive our financial behaviours in adulthood."
These little thought patterns we have about cash are so entrenched we often don’t recognize their effect. Generally ‘money scripts’ can be categorized into four basic themes: money avoidance, money worship, money status and money vigilance.
Each money script can serve as a benefit or hindrance depending on our awareness of its effects on our behaviour.
For example, ideas around money avoidance — that it’s the root of all evil, for example — can help us realize money is not a source of happiness. At the same time, this idea can drive us to shun the pursuit of wealth to a point where we end up self-sabotaging our financial well being by giving away more than we should to friends and family.
The key is finding balance, Klontz says, and awareness is crucial, especially so we can make informed financial choices that are in our best long-term interests.
Knowledge is our most powerful tool. We need to leverage it because money is also a power tool in its own right. We need to learn how to use it properly. That can take time, but what’s important is we do not to beat ourselves up over financial missteps.
Take responsibility, for sure, but don’t engage in self-shame.
"You’re having financial problems not because you’re lazy, crazy or stupid. It’s because you have an innate biology that is wired against you and you often have had these bad money scripts that have been passed down to you," Klontz says.
"When you understand how you’re going to biologically respond to money, and when you can understand what was taught to you may not be helpful, only then can you shift your behaviour for the better."