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Study: 4 “Money Beliefs” That Can Wreck Your Finances

Kelly Dilworth

May 20, 2011

You can read all you want about credit scores and IRAs and say that you’re going to do the right thing with your money, but according to psychologists, your financial actions are more likely to be governed by an irrational, haphazard belief system you developed as a kid.
Luckily, it’s possible, say these psychologists, to fight back against the lizard brain that drives your worst financial choices — as long as you come to terms with the financial beliefs that are subconsciously driving your decisions.
According to a recent study published in the Journal of Financial Therapy, there are four common money beliefs that often cause us to make poor financial choices. These include:  
1. “Money should be avoided”: Consumers who believe this “money script” see money as evil and dangerous, say researchers – or they see it as something they don’t deserve. A person with this belief system may think that if they accumulate too much money, they will become corrupted by it — or they will compromise their values by overspending.
Researchers say these consumers tend to sabotage themselves by excessively under-spending (including on items they really need) or by giving away large amounts just to get rid of it. These consumers may also be so negative or risk-averse toward cash that they worry excessively about “abusing credit cards or over-drafting their checking account.”
If you fall into this group, the following beliefs may be familiar to you:
  • “People get rich by taking advantage of others.”
  • “It is not OK to have more than you need.”
  • “I do not deserve a lot of money when others have less than me.”
2. "Money is power": These consumers see money as a saving grace – if only they had more, they tell themselves, their lives would be better off. They often glorify the rich and romanticize what it’s like to live with a lot of wealth.
They also tend to overvalue material objects and set themselves up for serious disappointment. Once the initial high of a purchase or a sudden financial windfall wears off, researchers say these consumers often find that mo’ money means mo’ problems.   
If you fall into this group, the following beliefs may be familiar to you:
  • “Things will get better once I have more money.”
  • “It is hard to be poor and happy.”
  • “Money buys freedom.” 
(Another interesting, albeit not surprising, tidbit about this group: Consumers who worship cash also have a higher likelihood of carrying around revolving credit card debt.)
3. "Money must be guarded": These are the most anxious consumers, say researchers — the ones who hide money under their mattresses or stash it away in a low interest savings accounts. Some of the consumers in this group see money as a “source of shame or secrecy,” no matter how much they have, while others see it as something they need to carefully guard from others.
Researchers say these consumers are more likely to hide money secrets from their spouses, and they are also more like to sabotage themselves by avoiding risky investments, such as stocks. They are less likely to apply for credit, and they tend to live in such a state of high anxiety about money that they are unable to enjoy it.
If you fall into this group, the following beliefs, used in the study, may be familiar to you:
  • “You cannot trust banks.”
  • “If you loan money to someone you should not expect to get it back.”
  • “Taking risks with money is foolish.”
4. "Money is a status tool": You know this group. These are the consumers who parade around in fancy cars or buy the most lavish homes on the block. These consumers measure their self-worth by how much money they accumulate – or at least, by how much they can show off.  
Researchers say that consumers in this group tend to sabotage themselves by placing too much emphasis on external yardsticks for success – such as money — and too little emphasis on personal growth. They are also more likely to suffer from anxiety and unhappiness and often find that no matter how much you actually accumulate, someone else will always have it better.
If you fall into this group, the following beliefs may be familiar to you:
  • “Your self-worth equals your net worth.”
  • “I will not buy something unless it is new (e.g., car, house).”
  • “If someone asked me how much I earned, I would probably tell them I earn more than I do.”
So what do you do if you fall into one of these four groups? Use the information to identify what beliefs have been most harmful to your finances and challenge them, said Brad Klontz, one of the study’s authors, in an interview with NBC. “If we can identify our money scripts [and] have insight into the early experiences of our childhood and multigenerational patterns of money beliefs in our family, we can challenge and change financial beliefs that may be causing us financial harm or limiting our potential.”