Significant emotional events don’t just affect us emotionally, they can dictate how we make financial decisions and drive our behaviours. Not only that, money is a subject that elicits strong emotional responses in all of us; feelings that shape our actions for better or worse.
Let’s look at one of the most powerful influences on human behaviour: the brain!
The brain is responsible for our thoughts, feelings, intelligence, the nervous system, motor skills, breathing, heartbeat, and sleep. It facilitates almost every aspect of our lives.
Let’s break down what happens within our brain and the biochemistry around our thoughts and behaviours.
Our experiences are made up of a series of sensory functions: things we see, hear, smell, touch and taste. Every day, we collect these experiences – and over time, we collate them into learned behaviours (such as ‘I won’t touch the stove because I know it’s hot’). As this happens, neural pathways within our brain are created and conditioned (our ‘go-to’ ways of thinking and acting) and these produce the biochemicals that facilitate our emotional responses to our experiences.
Every time we have an experience, our frontal lobe (the ‘control panel’ of our brain) sends neuron signals across the brain. These electric signals tend to follow established neutral pathways – the ones we’ve created over time. They then hit our pituitary and pineal glands, secreting specific biological chemicals – such as serotonin, melatonin and dopamine. These trigger our emotions, feelings and memories.
With our thoughts so closely connected to our emotions and moods, our brain produces electrical activity in the form of waves, sent to our outer world. (Alpha brainwaves, being our conscious mind, and beta brainwaves our subconscious.) Our unique brainwave patterns virtually connect us wirelessly to the unified (quantum) field, science links this to consciousness. Our brainwave patterns and daily experiences of the world are inseparable, they essentially form our reality.
“What you think, you become. What you vibrate, you attract. What you dream, you can create.”
What does neuroscience have to do with money?
As we’ve established, money is a stressful subject for most people. Many have experienced a lifetime of sensory experiences that link money to stress, survival, short-term thinking, lack or trauma. As a result, negative sentiments such as 'it's hard to save money' or 'there's never enough money' become automatic – and we program ourselves to have a negative relationship with money, without even realising it.
Fortunately, we can reprogram our brains to align to the type of behaviour that will enable positive money relationships and support in attaining our life goals.
To change these innate biochemical brain patterns, we must begin by understanding and recognising them. From there, we can train our thoughts to focus on the exact opposite scenario.
For instance, if we believe there’s ‘never enough money’, our thoughts need to focus on an 'abundance of money'. If we live in a survival state where it’s all about ‘getting by in the now’, we need to re-frame our thinking to focus on a ‘long-term state of security’.
It may sound idealistic, but it is supported by science: the more we train our thoughts in a positive way, the more easily we can break free from our conditioned negativity.
Simply put, if you mentally embrace the future with clear positive thoughts, intentions and feelings, it is more likely to become your reality.
"Thoughts are the vocabulary of the brain, feelings are the vocabulary of the body."
Joe Dispenza
A deeper dive into the behavioural science that influences money, life goals, and our decision making framework, can powerfully influence our relationship and thoughts toward money, in ways we’re often not aware of.
Let's explore the four main influences of money relationships.
Our Money Values
Money values stem from a persons ideals and beliefs around money. For example: a person may value money by perceiving that it provides them with - freedom, status or power.
Values impact our financial decisions as much as they impact our other life decisions. Research has found that our values influence everything we say and do (Coletto, Lucchese, & Orlando, 2018; Teo, 2018) and in the financial realm, our values also influence our consumption patterns (Halim & Dinaroe, 2019).
Our money values are not too dissimilar from our general life values, and the implications of the values on our behaviour is similarly widespread. For example: someone who values ‘family’ may not only spend a lot of time on the phone to close family members, however, they may spend their holidays visiting relatives, at great expense. The implications of values are thus linked with financial outcomes.
Our values comprise of contextual beliefs and cognitive strategies (McClendon, 2019). Our contextual beliefs include; how we feel when we talk about our beliefs, and cognitive strategies are what directly influence our behaviour (McClendon, 2019).
Values are generally related to intrinsic, extrinsic, and interpersonal realms (Liu, 2017). Perspectives of money can be that money brings - protection, influence, or security. The process of establishing our values into financial behaviours include: noticing; thinking; emoting; sorting; valuing; choosing; and finally behaving (McClendon, 2019).
Boyd identified 11 core money values, these include: (Boyd et al., 2015):
Certainty
Freedom
Faith
Empathy
Family
Growth
Work
Decision making
Honesty
Openness
Knowledge
Money values are part of our decision making framework. They lie at the core of connecting wealth professionals with their individual clients, and in helping them to prioritise their life goals.
Our Money Behaviours
Money behaviours are the way a person acts and responds toward money. For example: a set of behaviours such as; self-control, motivation, optimism and present bias can often influence ones relationship with money. These form our decision making framework, and influence how we make financial decisions.
By understanding the different behaviours that impact our connection with money, we have the power to create positive behaviours that can help us to achieve our desired outcomes - our goals and life aspirations.
Below we explore the types of common behaviours that influence money relationships, often acting as barriers that hinder people from achieving their life goals.
Decision Making Framework
Fixed vs Growth Mindset
Growth mindsets generally see that intelligence, skills and abilities can learned and improved through dedication, persistence, and effort. They embrace challenges and tend to have high resilience.
Fixed mindsets believe that intelligence and characteristics are static and unchangeable. They tend to avoid challenges and give up easily. Carol Dweck (1988) "Motivation and Achievement: A Social Cognitive Perspective" established the theoretical framework of these mindsets.
Scarcity vs Abundant Mindset
Scarcity mindsets tend to have programming around lack, almost like tunnel vision, where they see limited availability of resources (economic, products or time) Haushofer & Fehr, (2014); SEAS, (2017). Scarcity can also affect a persons judgement around decisions, it can even influence irrational thoughts. A person who thinks they lack financial resources makes decisions like, excessive borrowing, getting into debt for short time money. Mullainathan, & Shafir (2013) (2018). On the positive, it can also drive goal-oriented behaviour Roux et al., (2015).
An abundant mindset looks to opportunity, they see an abundance of financial and human resources available to them Covey, (2005). They can face life's challenges, are more confident, form actionable habits, and thrive easier. An abundant mindset is more interdependent, they nurture connections with others, are willing to do research, take calculated risks, and actively pursue opportunities for growth Santos’ (2017).
The philosopher Lao Tzu said, “Only he who knows what is enough will always have enough” (2005).
Deliberation vs Action Mindset
Deliberative mindsets tend to take their time by focusing on exploring all their options, weighing up the pros and cons, and making their decision based on a comprehensive analysis. They tend to be more modest and cautious in their evaluation, and take an approach in being more open to information, objective, and less biased when it comes to decision making. Gollwitzer, (1990); Heckhausen & Gollwitzer (1987)
Conversely, action mindsets will prioritise planning toward taking action. Often they will place less emphasis on the details, alternate considerations, and filter information. They may also show bias by favouring their desired outcomes and intentions Gollwitzer & Bayer (1999). They tend to be more optimistic Gagné & Lydon, (2001), and show higher motivation and persistence in accomplishing and setting goals. Puca, (2001, 2004).
Limiting vs Liberating Mindset
Limiting mindsets tend to restrict growth by holding onto negative subconscious beliefs like fear, lack, or low self worth. While a liberating mindset will foster more openness to growth, new ideas, and experiences, as they developed positive beliefs throughout their life.
Limiting and liberating mindsets derive from a persons subconscious beliefs, adopted from either their environment, role modelling or past experiences. For example: a limiting belief of 'money destroys lives' may have been ingrained in a person from a childhood traumatic experience with money. Often these subconscious beliefs about money impact the way we 'relate to' and 'think' about money. Furnham, (1996); Kirkcaldy & Furnham, (1993).
Limiting beliefs can be destructive, often forming unhealthy relationships with money, which can leave a long lasting imprint around the role money plays within a persons life.
Klontz and Klontz (2009) hypothesised that beliefs in individuals are:
developed in childhood,
often passed down from generation to generation in family systems,
typically unconscious,
contextually bound and;
a factor that drives much of one’s financial behaviours.
There's interesting research that shows that positive subconscious beliefs about one’s self-worth, positively correlates with financial satisfaction and positive perceptions of one’s past, present, and future financial situation, and in contrast negative subconscious beliefs, negatively correlate with overspending and financial worry (Hira & Mugenda, 1999).
The Klontz -MSI research on money beliefs provides an update to Yamauchi and Templer’s (1982) Money Attitude Scale and Furnham’s (1984) Money Beliefs and Behaviours Scale.
The Klontz-Money Script Inventory (Klontz-MSI) assessed potential problematic attitudes and beliefs of individuals that may interfere with them achieving their financial goals.
The analysis revealed four distinct money beliefs:
money avoidance,
money worship,
money status and;
money vigilance.
An individuals limiting beliefs and ideologies around money can be rewired through positive internal self talk. Replacing 'old limiting beliefs' with 'new liberating beliefs'.
Self-control
Self-control is a persons ability to self regulate their emotions, thoughts, and behaviour in the face of cause and effect. Self-control is a cognitive process that is necessary for regulating one's behaviour in order to achieve specific outcomes (or goals). Baumeister, Heatherton, & Tice, (1994).
People with high self-control tend to be more 'disciplined', have a high likelihood of sticking a plan, can delay gratification, and achieve their goals. They tend to be able to maintain regular savings, have control over their spending, have higher wealth accumulation and retirement savings, and remain objective and rational investors - not ruled by temporary emotions.
Maintaining a high level of self-control also prevents overexposure to risky assets during bullish markets or reacting with panic and selling during downturns - preventing unnecessary losses. There is less concern around an individual with high self control, as they are less likely to harm their financial outcomes. Vohs and Faber, in press, Vohs and Faber, (2004).
Conversely, those with low self-control are 'impulsive' and are less likely to follow a plan and achieve their goals. Although they may work hard for their money, it seems to disappear just as quickly through impulsive spending Achtziger et al. (2015). They are more likely to suffer from over-indebtedness. Gathergood (2012) They then to have less wealth accumulation, and are less likely to save enough money for retirement. Biljanovska and Palligkinis (2015) Choi et al. (2011) This type of person benefits greatly from mentoring.
Optimism
Optimism is a persons capacity to positively influence their life outcomes, like having the ability to see opportunity within adversity. People who are overly optimistic tend to be linked to being high risk takers, entrepreneurs, they work less, have less saving and likely to retire earlier. These people are not overly concerned with fees, costs, or interest rates, they tend to be able to see the long-term benefit of upfront expenses for long-term financial gain.
Conversely, people who are pessimistic have a more realistic and a negative expectation of their future world. They tend to be sceptical of future success, unlikely to take risks, they're very hard working, good at saving towards a goal, however, worry they won't have enough and they're more likely to retire later.
Optimism plays into a persons fixed or growth mindset. Having a fixed mindset, as the name implies, increases the limitations you have in your life. Optimists believe the glass is half full, whilst pessimists believe it’s empty.
Motivation
People generally move either toward reward (life goals), or away from pain (life events).
Toward Reward
Those motivated by reward or gain have been found by researchers to have higher performance (McClendon, 2019). The approach to communicating with those who are motivated by gain or reward is to offer encouragement and rewards (McClendon, 2019). When a client is identified as being motivated by reward, positive goal-achievement language can ensure the client is engaged in the communication.
People who have been exposed to seeing money in a positive light are more likely to seek out more positive feelings and experiences. They will attract people with similar belief systems and values around money, and they will work ‘towards’ achieving outcomes and goals, as long as it provides them with positive emotions and its pleasurable. This ‘toward response’ means they’ll prefer to set goals related to the things they desire and want to have in their lives.
Away from Pain
While those who are motivated by gain have higher performance, those who are motivated to avoid pain often illustrate lower performance. This is intuitive given that the avoidance of pain is somewhat finite, measurable, definable, and achievable. On the other hand, seeking reward and recognition can include goal-creep and continual striving for success. When a client is identified as being motivated to avoid pain, negative pain-avoidance language can engage the client in the approach and the communication.
People who have had exposure to a negative environment when it comes to money, they will tend to dislike or even avoid thinking or talking about money. They will tend to be driven to take action ‘away’ from pain and negative emotions, and this ‘away response’ means they tend to set goals linked to the things they’re afraid of happening (or losing).The good news? Everyone is capable of setting goals, whether they’re motivated ‘toward’ or ‘away’. It’s just a matter of firstly understanding their motivation system.
Present bias
Time horizon is closely linked with the propensity to spend versus save, because of prioritisation of the present (ie. strong present-bias) means the future (and savings) receives less attention.
People are either past, present, or future focussed (McClendon, 2019) and they are generally aware of their time preference.
Research has shown that mental time horizon correlates with more than just savings behaviour; it has the same affect on investing and debt management. People who think ahead are more likely to keep track of their personal finances and spending, and promptly pay their bills – they’re even more likely to carry low to zero balances on their credit cards.
A person who thinks short-term may prefer to receive twenty dollars today over receiving twenty five dollars tomorrow (instant gratification). Whereas a person that thinks long-term may prefer to hold out for twenty five dollars tomorrow.Getting people to think long-term has many empirical benefits.
Our brains are hard-wired to give more weight to immediate needs, and to discount the future. The shorter a person’s mental time horizon, the more they will find long-term saving to be a challenging and painful task. The below graph shows the correlation between those with higher retirement savings, had long-term mental thinking.
Retirement savings by income and mental time horizon
With this in mind, it’s always easiest to start with short-term goals (1-2 years) and extend outward toward long-term goals (5-20 years). We must always anchor this with a person's retirement age and life expectancy. The further ahead a person thinks, the better their financial behaviour, and the less they’ll worry about their future.
Financial Knowledge
Financial knowledge, or financial intelligence, has the potential to impact consumers financial decision making at all stages of the financial life cycle. This is because financial intelligence is not simply financial literacy, it is also the ability to monitor one’s own money motivations, money behaviours, and money cognition (Tang, 2016; Tang et al., 2018).
These are skills which are far more difficult to acquire than simple financial literacy and even financial capability. This means that money intelligence includes the ability to reflect on one’s own motivations regarding money. In an ideal world we would be able to ask people for their motivations regarding money, but in reality this research indicates that some people will not even be aware of their own money motivations, and hence will incorrectly answer.
In addition, this research highlights that financial intelligence involves monitoring one’s own financial behaviours. We know from research, that people seek financial advice because monitoring one’s own financial behaviours is demanding. Furthermore, this research emphasises the importance of thinking about money, and about the way consumers think about money.
It is our thoughts about our thoughts that can play a critical role in framing the way we approach money.
Learning Style - Visual, auditory & kinaesthetic
There are a number of approaches to learning style, including the visual, auditory & kinesthetic approach and the big-picture vs detail approach (McClendon, 2019).
Some people learn by first understanding the big-picture, and after they understand that, learning about the details.
On the other hand, some people learn about details first, how they fit together, and finally the big picture (McClendon, 2019). Understanding a clients learning style has powerful implications for all communication, both in digital, written, and face to face form.
In order to get people to ‘understand’ financial advice, we have to deliver it in a way that connects to people’s preferred leaning styles.
As outlined in Howard Gardner’s Multiple Intelligences Theory, people are capable of learning in a range of ways: via words & language (linguistic), via numbers (logical-mathematical), through sound (auditory) or through images, diagrams or videos (visual).
Interestingly, if we break down peoples learning styles we find that:
65% of people are visual learners, learning through visual aids - infographics, pictures, maps and diagrams
30% of people are auditory learners, learning through listening, speaking, language and discussion
5% are kinaesthetic learners, they need to act in a 'hands on' way
Empowering clients is key
People who feel empowered in their financial lives experience more joy, peace, satisfaction, and pride in their financial lives. Those who felt dis-empowered (helpless, hopeless or stuck) were, overall, less happy.
By enlightening people through understanding their behavioural blueprint, we can empower them to play an active role in their futures. Rather than feeling like a victim at the mercy of their financial circumstances, they see the impacts of their actions and decisions – inspiring them to step up, take responsibility, and actually relish the improvements this brings about.