Money, money, money - we worry about it, we enjoy it, we struggle with it, we sing songs about it, we can’t live without it. Jane Phare looks at the psychology of money, how it shapes our lives and how to change habits that land us in debt.
I was
Money troubles: Why we spend the way we do and how to change it
Save or splurge? That's the question. Photo / 123rf
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On the other hand, my mother, whom I thought was simply mean at the time, watched every penny and, after decimal currency day in July 1967, every cent.
She clothed me in hand-me-downs from family friends; rarely bought us treats or biscuits; and padded out food for dinner when there was obviously plenty of money to be more generous. I was 13 before I was given my first (second-hand) bike; one of my chores was to grate Sunlight soap so that we didn’t have to buy Lux flakes. My mother simply couldn’t shake the fear of money running out.
It’s those money stories that Lynda Moore, who calls herself The Money Mentalist, is interested in. She, and others in the money coaching industry, say they shape our attitudes to money and our spending or saving habits. They permeate our lives and our relationships – both with people and money - almost from the time we are born. The psychology behind our money beliefs is as important as the numbers, money coaches say.
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As people become adults they’ll either challenge beliefs and habits they’ve grown up with, or reject them, Moore says. And sometimes they’ll do a mixture of both.
I seem to have done a mixture – both embracing and rejecting a childhood of having plenty mixed with signs of intergenerational poverty. Once living away from home, I would demolish an entire packet of chocolate sultana biscuits after work, and splurge on clothes and shoes, simply because I could.
Then I’d lurch back to frugality, sorting vegetables at a Grafton co-op on a Thursday night - $4 for a paper sack of vegetables – and living on French onion soup and cauliflower cheese for a week because caulis and onions were cheap.
Quite normal behaviour Moore says reassuringly. Everyone has a money story and often they’re unaware of how it has shaped their behaviour. Her job is to coax those out of people and figure out their money personality – a spender or hoarder, a money avoider or a “money monk” - someone who is not comfortable having money - or a combination.
Moore trained as an accountant and did a graduate diploma in arts, majoring in psychology. She worked with US-based former psychiatrist and now business coach David Krueger who wrote The Secret Language of Money, and became one of his certified coaches specialising in the psychology of money.
She doesn’t advise people on how to invest or what to buy. Instead, she tries to change ingrained spending habits that prevent people from having any money left to save, invest or spend. Start small, she says. Don’t scare yourself to death with a complicated Excel spreadsheet. Instead, try just buying a coffee and not the $6 muffin. Put that $6 in a savings account, get a kick out of seeing it grow and then decide what you want to do with it.
“So you reward yourself with good behaviours.”
Changing the dopamine hit
Changing the dopamine hit that people get when they splurge on something they want - but don’t necessarily need – is what licensed financial adviser Paul King wants clients to work on.
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He uses a slightly more shock-tactic approach than Moore, asking clients to print out their credit card and bank statements for the past three months and highlight everything they bought that they didn’t need. After dividing the amount by three to work out a monthly spend, he’s had clients shocked to find the amount is $500.
“That’s $6000 a year. It takes you $10,000 in gross earnings to have that and you’re giving it away, and not noticing it.”
It’s no one’s fault, King says. Advertising, social media and peer pressure from others persuade people that they need to spend money to be happy. Expectations go up and they become normal.
“We’re conditioned (to believe) that leisure and happiness equals consumption. That’s where the therapy comes in.”
King, who has a post-graduate degree in psychology, likes clients to get “a little angry” when they realise how much they are conditioned by advertising and marketing.
Once people have worked out they don’t need to keep spending, extra money will start mounting up. He encourages people to open a bank account with an emotive name – like ‘Bugger off,’ or ‘It’s mine.’
“Just put money in it and watch it grow. Then you can get the dopamine hit from not giving somebody else your money and from having control over it.”
The tactic doesn’t always work, he admits. Through his contract work with employee assistance programme (EAP) provider Telus, King has access to a wide range of Kiwis, some who are distressed about money and others who just want free, independent financial advice.
He talks to Kiwis in their 20s who think artificial nails and Botox are a “need” and he has a hard time convincing them otherwise.
“And it’s hundreds of dollars a month.” He tells them they don’t need to look like the filtered images on their Instagram. And do they listen?
“Yeah, ah no,” he laughs. He has more breakthroughs with parents than young adults. “They tend to start listening when they have children of their own and they think ‘What am I modelling to my children?’”
Both King and Moore are members of the Financial Therapy Association - founded in the US in 2008 - that takes a holistic approach by combining behavioural therapy with financial coaching. Practitioners focus on cognitive, emotional, behavioural, relational and financial aspects as part of the therapy.
A money genogram
Money coach Sarah McMurray agrees that people’s money stories are key to understanding why they encounter difficulties with money.
She asks people to write a “money autobiography”, starting with their first memory of money and working through their lives. And she’ll get them to create a money genogram, layers of stories that have permeated families sometimes for generations.
A family member could have been scammed therefore the lesson is “Don’t trust anyone”; or a disastrous experience with a rogue business partner leads to a warning, “Never go into business with anyone else”.
McMurray says children growing up in the same family can react differently to the family geograms. One might become frugal; another might reject the notion. To some, money will represent security; to others, it will represent the freedom to spend.
King says New Zealanders are generally not good savers, don’t understand debt or investment, and are underinsured – including life insurance, income protection and household and car cover. And he thinks they don’t diversify their investments enough.
“Outside Kiwisaver most Kiwis don’t have anything apart from property.”
He thinks KiwiSaver savings should be kept for retirement as originally intended, and not used to buy a first home. And he wrote, somewhat bravely, on LinkedIn, that the so-called cost of living crisis is, for many, more of a lifestyle crisis.
“There is a crisis of debt and expectation,” he says. “It’s how people are choosing to live which is highly indebted which is causing that.”
He could be right. As a nation we now owe $827.3 billion, up from $709b last year. Consumer debt sits at $14.5b. Our housing debt is $362b, business debt is $135b and students owe $12b in loans.
Figures from credit bureau Centrix show financial stress levels for those between 30-49 years have been climbing since May, most likely as a result of mortgage commitments.
Simply not enough money
Apart from paying clients, McMurray also works with Kiwis on a benefit on a pro bono basis, and she says for them the cost-of-living crisis is real.
“Often it’s not about budgeting better but that there’s simply not enough money coming in. At those times money represents security or even life or death (in their minds).”
She finds her pro bono clients are often better at budgeting and handling money than her paying clients.
“Because there isn’t enough money they know exactly where every dollar is going.”
Once people start earning money, the stress dissipates and they relax. The money just disappears because they’re not tracking it, McMurray says.
“They operate under the illusion they know where their money is going.”
She gets clients to jot down from memory what they spent over the past week, what purchases they made and what those cost. Once checked with reality, they’re rarely accurate.
“It’s always underplayed.”
McMurray, who has a background in teaching before becoming a money coach 11 years ago, draws on her own experience with her clients.
She admits to impulse spending in the past, being unable to stick to her budget, and finding herself at a check-out counter with armfuls of clothing for her three children that they didn’t really need.
“I was frustrated with my own stupidity around money.”
She tracked down a mentor, American money coach and author Karen McCall who founded the Financial Recovery Insitute. With McCall’s help, McMurray discovered that one of the reasons behind her illogical spending was her need to feel like a good mother, hence the clothes-buying sprees. Once that need was identified, she could bring the spending impulse under control.
Moore, too, has faced money struggles in a past life. She had an accountancy business yet found herself $600,000 in debt - a mixture of poor decisions and lack of communication with her then-husband - a shock that imploded her marriage more than 20 years ago.
“I was an accountant and I was supposed to be the expert.”
Figuring out how the debt mounted was part of what led Moore to her current role, and she later wrote a book, Conversations with Money, a Love Story, about the experience and the lessons learned.
What are those coffees costing you?
King points out to clients that buying lunch and coffee at work every day can cost thousands of dollars a year, money that could otherwise be saved. And if someone is paying interest on a mortgage and other debts, that daily bought lunch and coffee is in fact costing much more, he says.
McMurray, who works online with clients in New Zealand, Australia, Europe and the US, isn’t quite as stringent in her advice.
“If you take a purely mathematical look at money, anyone carrying any debt should immediately be as frugal and throw everything into that debt. But I don’t want to live like that, " she says.
What’s the point of being miserable and leading a “really small life” in order to become rich, she asks.
“I’m not a fan of that. I can live really frugally, I’ve done it in the past but I wouldn’t choose to do it again.”
In addition, a person may need to consider the wants and needs of a partner and children, she says.
“Your life is happening now. Tomorrow isn’t promised to anyone. To me, we need to find a balance between looking after ourselves today and looking after ourselves in the future.”
Ten money tips
- Think about your relationship with money, your beliefs and triggers
- Start saving as early as you can, even a small amount each week
- Do a simple budget and try to stick to it
- Set goals, be it a holiday, paying off the mortgage or funding a child’s education, to make saving worthwhile
- Know how much you earn and how much you spend each month. Be honest about it
- Communicate with your partner or spouse about finances
- Talk to your children openly about money
- If you owe money, know the size of the problem; quantify the debt
- Spend time thinking about how to reduce spending and, if necessary, increase your income. Ask friends and family for input
- Put a little aside each week for the unexpected big expenses - car repairs, a tax bill, major pet expenses
Jane Phare is a senior Auckland-based business, features and investigations journalist, former assistant editor of NZ Herald and former editor of the Weekend Herald and Viva.
