How your 'money script' affects your finances

I'm an introspective person. So I spend a lot of time thinking about the many things including factors that influence my financial decisions. What I've learned about myself and most people is that the way we spend our money is a reflection of our personality and our lifestyle.

In 2011, The Journal of Financial Therapy, Brad and Ted Klontz, founders of the Financial Psychology Institute, coined the term “money scripts” to describe unconscious financial beliefs developed in childhood that are often passed down by family members.

So what’s your “money script?” We all have one. And how does your 'money script' affect your finances?

Here is my story. I'm not a paraplanner. I like using a budget to guide my money decisions. But I don't follow a very detailed system for tracking my spending or even comparing it against my planned budget. I also like reviewing my overall financial goals for the near and long term every other month, adding or adjusting individual items, as appropriate. Sometimes, I make investing decisions easily and quickly. Sometimes I rely on reading financial material or having discussions with my financial advisor before I make some larger investing decisions.

I have a friend who is a complete opposite. She usually spends a great amount of time reviewing analyst reports, market fundamentals and technical data on an individual company before being ready to make even a small investment in a company’s stock. It seems that she never quite finds all of the favourable elements present as she would like to see. As a result, cash comprises the largest portion of her portfolio.

As you can see our styles are completely different.

So what influences such decision? Have you ever taken the time to think about your own money behaviour and how you make decisions related to it?

And why is this important? It's vital because your money beliefs dictate your behaviour.

This is that experts call this behavioural finance. Basically it's a study of how you spend or invest your money. 

The Klontz were aslo able to identify four “money belief patterns,” that influence how we all view money. 

These are the four money scripts that they identified:

Money worship. Money worship is negatively correlated with income and paying off one’s credit cards monthly so as not to accrue interest and positively associated with compulsive buying, hoarding, workaholism, financial dependence, financial enabling, and financial denial.  Money worship includes beliefs such as “more money will make you happier,” “things would get
better if I had more money,” and “money would solve all my problems.” 

Money avoidance. Money avoidance has been found to be negatively associated with income and net worth and positively associated with compulsive buying, workaholism, financial dependence, financial enabling, and financial denial. This beliefs include statements such as “money corrupts people,” “rich people are greedy,” “people get rich by taking advantage of others,” and “good people should not care about money.”

Money status. Money-status beliefs are negatively associated with income, positively correlated with growing up in a lower socioeconomic household and predictive of compulsive buying, gambling disorder, hoarding, workaholism, financial dependence, financial enabling, financial denial, financial enmeshment, and lying to one’s spouse about spending. Money status beliefs include statements such as “I will not buy something unless it is new” and “your self-worth equals your net worth.”

Money vigilance.  Money vigilance has been found to be positively correlated with paying off one’s credit cards each month and lower levels of compulsive buying, pathological gambling, financial-enabling behaviors, financial denial, and lying to one’s spouse or partner around spending. It entails beliefs around the importance of frugality and saving and has been found to be a financial-health-protective factor. Money-vigilance beliefs include statements such as “it is important to save for a rainy day,” “you should not tell others how much money you have or make,” and “money should be saved not spent.”

Fascinating study! This is the best study I've seen regarding money beliefs. It's so detailed and spot on regarding my own money scripts. 

The researchers found that one person can hold multiple scripts, and these scripts can even contradict each other.

I used to believe that money was bad and that wealth corrupts. This was encouraged by the Churches that I was raised in. Now I believe that money can be given purpose so I fall into money vigilance script. However, I sometimes do see the money status script playing out in my life because of my environment. 

Dr. Klontz says being aware of your money script is the first step in implementing change to deal with destructive financial behaviour. Once you figure out your money script, you will be able to make better decisions and achieve your financial goals.

One way to break your dysfunctional money script is to keep a journal or diary by writing down thoughts that develop during a financial situation. Writing down your thoughts can help you see your scripts more clearly.  

Questions that you can ask yourself during this process is does money largely reflect your own ‘personality style’?  Does it reflect your parents’ attitude toward money?  Do you see patterns?  Which areas would you like to improve upon?

Taking small steps such as these will help you to understand your money behaviour.  This will also help you to construct new scripts that you can identify with instead of blindly following ingrained assumptions that no longer serve your needs.

What money script do you best identify with? How does your 'money script' affects your finances?