Loaded

Money, Psychology, and How to Get Ahead without Leaving Your Values Behind

Sarah Newcomb

• Publisher: Wiley
• Year: 2016
• Print ISBN:
  9781119258322
• eBook ISBN:
  9781119258346
• Edition: 1
• Topic: Personal Development
• Subtopic: Personal Finance

Praise for LOADED

"LOADED is that rare resource which somehow captures both theoretical and practical wisdom about money, personality, and life. Your views – and actions – with money will be much improved after reading the wonderful advice in LOADED."
—James Grubman, PhD, author of Strangers in Paradise: How Families Adapt to Wealth Across Generations and co-author of Cross Cultures: How Global Families Negotiate Change Across Generations

YOUR MOST VALUABLE ASSET...IS YOU. LOADED WILL TEACH YOU HOW TO MAKE THE MOST OF IT.

Based on decades of research and years of hands-on experience with people from all walks of life, LOADED is a must-read for anyone who finds themselves caught between the desire to thrive financially and the complex emotions and conflicting priorities that money so often brings to our lives.

Inside, you will learn to:

• Check your stories. Pinpoint and change beliefs that hold you back.
• Choose your strategies. Learn how to align your money with your needs.
• Cultivate your value. Put your unique resources to use and earn more.

Deeply researched, yet written in an approachable, conversational tone, LOADED offers insight into how your personal experiences have shaped your financial attitudes, and how you can build a healthier relationship with money.

1
When It Comes to Money, We’ve All Got Issues

WE KNOW WE have problems with money. As individuals we know it, and as a country we know it. Private and public foundations spend millions of dollars every year trying to teach people how to budget, save, invest, and get out of debt. There’s just one problem: It doesn’t seem to be working.

Everyone has a theory as to why. One camp says it’s because people are apathetic and don’t care to learn. Another says it’s because we aren’t taught about money from an early age. I think it’s because most of the financial management programs out there speak to our balance sheets, not to our minds.

Financial management workshops and investment classes feel irrelevant to many people. What does it matter how much you can earn at 10 percent interest over 40 years if you’re struggling just to pay your grocery bill? So much of the material in financial workshops is so remote, so far from our current reality, that it’s easy to check out mentally. If you can’t go home and put it to use right away, what does it matter? It’s just another math class.

That’s why I made a promise to myself as a financial educator that as much as possible, I would not use numbers. Don’t misunderstand; I love numbers. Still, learning about numbers didn’t solve my financial problems. Learning about myself did that. Of course, to manage your money well you will need to do some number crunching, eventually. Regardless, I honestly believe that for most of us money management is less about numbers and more about the stories we tell ourselves because of those numbers. Money carries deep cultural and social meaning for each of us, and we each have developed an attitude about it based on those narratives. The decisions we make concerning money are profoundly affected by the cultural, social, and emotional meaning we attach to it, yet most financial educators completely ignore these aspects. Instead, we are taught about money as if all of our financial decisions were made in the sterile environment of a classroom, with our calculators at the ready and our rational minds playing absolute commander over our passions and desires. This is not the case at all. The entire field of behavioral economics is based on the growing body of evidence that people are not always rational when making financial decisions. Despite the waves this notion made in the field of economics, it comes as a surprise to pretty much no one.

Money is probably the most emotionally meaningful object in contemporary life; only food and sex are its close competitors as common carriers of such strong and diverse feelings, significances, and strivings.

—David W. Krueger, MD¹

The reality is that we make our financial decisions in the context of our wider lives. Every purchase, payment, investment, or gift takes place within the larger picture that encompasses our work, our families, our obligations, our ambitions, and our feelings, hopes, struggles, and frustrations.

To navigate through the enormous complexity of our lives, we take shortcuts and develop rules of thumb and simple narratives to guide us. This is an adaptive trait that helps us to make quick decisions and easily understand the world around us. The problem comes when the narratives intended to guide us actually work against us, or stand in the way of reaching our goals. When this happens, we need tools to help us rewrite those stories and get back on the path to our best future.

With this in mind, we will begin by taking a look at the environment where all of our financial lives began. A person’s core beliefs and financial stories have their roots in the individual relationships, the environment, and the events they have experienced. It is certainly true that we have all had unique circumstances, role models, and experiences with money, so no book can speak directly to your background. Yet, one thing is fairly universal: Money is a loaded topic in our culture. So loaded, in fact, that it is the world’s most impolite subject.

Notes

¹ David W. Krueger, “Money, Success, and Success Phobia,” in The Last Taboo: Money as a Symbol & Reality in Psychotherapy & Psychoanalysis, ed. David W. Krueger (New York: Brunner/Mazel, 1986), 3.

2
Money Messages

Money never stays with me. It would burn me if it did. I throw it out of my hands as soon as possible, lest it find its way into my heart.

—John Wesley, cofounder of the Methodist Church

We Don’t Talk about Money

Do you want shut down conversations, lose friends, and alienate people? It’s very simple, really. Just ask someone how much money they make.

More than religion or politics, more than personal health problems, more than taxes, and even more than death, people rank money as the single most uncomfortable topic of conversation. According to a survey published by Wells Fargo in 2014, nearly half of the people polled said that money was the most difficult topic to talk about. It’s not surprising, really. In the modern Western world, a society that highly values independence and personal success, we know that as soon as a number is spoken, judgments will follow. What’s more, we seem to understand intuitively that a person’s views about money are deeply linked to their overall value system, and differences in opinion about how much is enough, or too much, can quickly create a cavernous divide between friends.¹

Contrary to popular belief, the rich don’t talk about money any more than the poor. Quite often when I speak to groups about financial psychology and money management, people bemoan the injustice that children who grow up in wealthy households are far more equipped to handle money when they are grown than their lower-income peers. There is a popular misconception that wealthy parents do a better job of teaching their children about money management than the poor. Beloved books such as Rich Dad, Poor Dad capitalize on this fallacy, but it is simply not true. In June 2015, the New York Times published an article² by Ron Lieber reporting the results of a survey of wealthy parents that debunks this popular myth. In fact, only 17 percent of the parents surveyed said that they have told or would tell their children about their income or net worth by the time they reached 18 years of age. When asked why, nearly a third simply said it was “none of their business.” That doesn’t sound like open financial communication to me.

If the wealthy were really better at discussing money with their children, then we might not see as many instances of the famed “shirtsleeves to shirtsleeves in three generations” phenomenon. As far back as anyone can tell, there has been a cycle of wealth: One generation earns it, the next generation spends it, and the third generation is left to start over. Nearly every culture in the world has a term for it, showing that this is not a new or American experience. In Italian, they say, “From stalls to stars to stalls.” In Japan, it’s, “The third generation ruins the house.” In China, they simply say, “Wealth does not survive three generations.” The pattern of wealth created and wealth lost in three generations has persisted across cultures and time. Yes, there are some families who have managed to carry wealth through many generations, but there is far less “old money” in this world than many think. If wealthy parents were truly better at teaching money management to their children, I doubt very much that this pattern would have persisted. The truth is most people simply don’t talk about money.

If nobody is talking about money, then how do we learn about it? The evidence suggests that on the whole we really don’t learn very much. Annamaria Lusardi, arguably one of the most prominent experts on financial literacy in America, created a simple test of basic financial concepts called the Big Five Financial Literacy Questions. These five questions cover several very simple financial concepts like interest, inflation, and risk. As simple as this little quiz may be, when the Treasury presented it to a cross section of Americans, only 15 percent answered them all correctly. Think you can do better? You can take a look at the Big Five as well as a simple explanation of each question in the self-assessment section at the end of this book (Appendix A). Even a three-question version, which covered only the most basic concepts, had a dismal pass rate.

Our general lack of financial knowledge may be due to our reluctance to openly discuss financial matters, or it might be the other way around; maybe we hesitate to talk about money because we don’t want to reveal our lack of knowledge. Either way, the problem remains. In polite society, we simply do not discuss money.

Or do we?

We Talk about Money Constantly

Discussing money and class may be taboo, but we actually do it all the time. We don’t do it with words, exactly, but through thousands of little unspoken social cues. Where we live, what we wear, what schools we attend or send our children to, what we drive, where we shop, what words we use, what causes we support, and to what extent we give all send messages to others about where we fall on the socioeconomic ladder.

Children pick up on these money messages quickly, and incorporate them into their own personal narratives. One man I spoke to told me about his experiences with class growing up in an upper-middle-class town in Maryland:

I vividly recall my experience riding the school bus in grade school where early on I was exposed to the stress and anxiety of wanting to fit in and being accepted by my peers. I was raised in a small trailer, and on my street there were lots of rich kids with big homes. I would see the pools, designer clothes, and dirt bikes, and at that early age I decided that I would be wealthy one day. My family was not poor by any means as my parents worked long hours at a family-run printing business to make a respectable income, and we always had more than we needed. On Christmas, our living room would be overflowing with gifts, so that what we lacked in a home was made up in other ways.

As a young child I remember being fearful that the kids would find out that I lived in a trailer, and that word would get back to my classmates. Our trailer was fifty feet from my grandparents’ house. It was an older, modest farmhouse. So, if anyone on the bus asked, I would pretend like that was where we lived. It was a daily stress riding the bus that my secret would one day be revealed.

This little boy lived with daily stress based on unspoken money messages that told him he would be rejected if people knew he lived in a trailer. What strikes me the most about this story is the fact that, given his fear of his classmates learning where he lived, he probably didn’t invite his friends from school over to play. Money messages were already shaping his behavior, and the financial narrative he ...

Table of contents

• Cover
• Title page
• Copyright
• Dedication
• Acknowledgments
• Introduction
• 1: When It Comes to Money, We’ve All Got Issues
• 2: Money Messages
• 3: Poverty, Privilege, and Prejudice
• 4: The LOADED Budget
• Appendix A: Self-Assessments
• Appendix B: Interventions and Exercises
• About the Author
• Index
• EULA