Afford Anything - Four Unhealthy Attitudes Towards Money -- with Dr. Brad Klontz, Financial Therapist

Episode Date: April 30, 2018

#127: Most people know what they “should” do — save for the future. Spend less than they earn. Why do so few people follow through? The answer may have less to do with tactics, and more to do with a person’s deep-seated beliefs, fears and anxieties around money. Your income, debt, and spending habits aren't merely a function of your actions. They're a reflection of your deep-seated inner psychology around money. Dr. Brad Klontz, a clinical psychologist and financial planner, joins me on today's show to discuss four "money scripts" that may be harming us. These scripts include: Money avoidance -- We believe money corrupts or that staying poor is noble, so we self-sabotage our success. Yet at the same time, we also desperately (at the conscious level) want more money in our lives, and feel trapped between these conflicting ideas. Money worship -- We believe money will solve our problems. And even though we know that the research says that, after a tipping point, it won't, we don't internalize that idea. Money status -- We believe our net worth is our self-worth, and we overly identify with our investment and bank balances. We may display conspicuous consumption or place a high priority on making the "right" friends. Money vigilance -- We watch our money carefully, but we may also feel anxious about running out. We may also downplay the amount of money that we have, if we're outperforming our friends, because we feel guilt and imposter syndrome. In addition to these four "money scripts," we also grapple with innate cognitive biases around how we manage money. Let’s take a look at loss avoidance, for example, which is a common cognitive bias. Humans are hardwired to fear losing money, far more than we fear missing opportunities for growth. As a result, we might hold onto an investment for longer than we should. Or we might become preoccupied with penny-pinching, at the expense of earning more. In this episode, Dr. Klontz and I discuss shame, guilt, and how to implement behavioral changes. We talk about how to contextualize our beliefs based on our family history, and how to recognize whether or not our beliefs are limiting or dysfunctional. Dr. Klontz shares his story about graduating with $100,000 in student loan debt, and feeling anxious about whether or not he could repay this loan. He decided to sell his car, poured the proceeds into tech stocks, and watched this investment disappear. That’s when he started questioning why someone like himself, someone of relative intelligence, would do something so ill-thought-out. And this sparked his lifelong passion in financial psychology. How can you develop a healthy relationship with money? Find out in today's episode. For more information, visit the show notes at http://affordanything.com/episode127 Learn more about your ad choices. Visit podcastchoices.com/adchoices

You can afford anything but not everything, every decision that you make is a trade-off against something else. And that's true, not just of your money, but also your time, your focus, your energy, your attention, anything in your life that's a limited resource. And so the questions become twofold. Number one, what's most important to you? And number two, how do you align your behaviors to reflect this? Answering these two questions is what this podcast is here for. And it is a lifetime practice. It's not a one-and-done deal.

My name's Paula Pant. I'm the host of the Afford Anything podcast and the founder of afford anything.com. And today, we are going to talk about one of my favorite topics, which is the intersection of psychology and personal finance. When I first started writing about personal finance, I came at it from a very mathematical, rational, logical approach. I thought that if you could just figure out what is the most rational decision to make, then you'd be done. End of story. Go home happy. As it turns out, the way that we have money is largely emotional, and I'm not just talking about impulse spending. I'm talking about our deep-seated attitudes towards success, wealth, identity with a socioeconomic class, like very

deep scripts that we have about money. And so to further explore this topic, the topic of behavioral finance, I have invited Dr. Brad Klontz onto the show today. Dr. Brad is both a clinical psychologist and a certified financial planner. He was an associate professor of personal financial planning at Kansas State, where he ran a financial therapy clinic in which he trained financial advisors and psychologists in how to do financial therapy. He has written five books about the psychology of money. He is a founder of the Financial Psychology Institute, a managing principle of your mental wealth advisors, a fellow of the American Psychological Association, and he's been a columnist for both the Journal of Financial Plans,

and psychology today. In short, he is perfect for a conversation about the intersection of psychology and personal finance. In today's interview, we talk about four money scripts that most of us have learned. We talk about cognitive biases that are innate within us and how those affect the way that we handle money. And we discuss various self-destructive behaviors that are common among many of us with regard to how we sabotage our own financial future. So here he is now, Dr. Brad Klons. Hey, Dr. Brad. How are you doing?

I'm excellent. How are you? Fabulous. Fabulous. That's a fantastic way to be. I agree. I agree. I wake up every day, hoping and choosing to have a fabulous day. So that's why I love the word. And you're based in Kauai, right? In Hawaii? Yes, that's right. That is an enviable place to be based out of. I just went there for the first time about a year ago.

Yes, it's pretty incredible. I wanted to bring you on the show because your work is, I think, something that is missing from a lot of personal finance conversations. You focus at the intersection between psychology and personal finance. Yeah, that's right. I started as a clinical psychologist, which I still am. And I became very acutely interested in the psychology of money, mainly because I was trying to figure out my own psychology of money. and looking into the field of psychology, realizing that there hadn't been a lot of work done in that area. And so I was a bit at a loss.

Like I was trying to figure out, you know, why do I behave the certain ways or have certain beliefs around money and where do these come from? And because I realized they were sort of tripping me up in my own financial life. And I quickly became an expert in financial psychology because there really hadn't been much work done in that area. You found a void that needed to be filled. Right. And it really was my void. I was trying to fill my void, which I think lent quite a bit of passion to that exploration. It was also exciting.

Before I knew it, I was a pioneer because the field of psychology had utterly ignored the topic. And I got really interested in that, too. Why would psychology as a field ignore the number one source of stress in people's lives? And just realized that, you know, as a profession, we have a tendency to be money avoidant ourselves. And it really comes from this negative association many of us have, you know, not just mental health folks, but other groups of people too, especially if you grew up relatively poor or lower middle class. You know, sometimes we have a tendency to hold these negative beliefs around rich people and wealth. And I became really curious about that. And some of the research we've done over the last 10 years has confirmed that these negative beliefs that are very common around wealth and around rich people.

have a tendency to sabotage us. And so we'll very often be trying to improve our financial lives, but because we have these deeply ingrained beliefs, we end up sabotaging our success. What are some examples of negative beliefs that many people have around money? Yeah. So this comes from multiple studies. One of the categories is called money avoidance, and it's what I was talking about. And really specifically, the beliefs are things like rich people are greedy or money corrupts, or there's somehow virtue. in living with less money. I'm just really curious about these beliefs, too.

And certainly I grew up in a culture, socioeconomic status where we all held those beliefs, you know, and partially it helped, I think, us feel better about the fact that we weren't wealthy. So in that sense, it helps us feel better about ourselves. But it also comes from very specific experiences that people have had, and sometimes they date back for generations. Like, we can all think of some rich person who is a terrible person. both in popular culture and, you know, like characters from books like Ebenezer Scrooge, for example,

is sort of the iconic example of a terrible rich person. And so we can go on these searches to basically reinforce these beliefs, which is really common, and then push away evidence to the contrary. So when we see somebody who is wealthy doing great things in the world, we have a tendency to discount it. And ultimately, it helps protect our own self-image. And the big irony here in the research that we've done is people who endorse these beliefs that are anti-rich people, anti-money, are also much more likely to strongly believe that having more money will improve my life will make me happier. Wow, what a conflict, right? Like, we hate rich people, but we desperately want to be one.

You mentioned money avoidance as one of four money scripts that you've talked about. What are some of the other money scripts that are. common among people. Right. So the other category that I was briefly introducing there is what we call money worship. This is the pattern of beliefs where we believe that, you know, money is the key to all of our problems. It'll make us happier. So I would say actually it defines to a large extent much of our culture in the United States, like this belief that if we just have enough money, then we'll be happy. And I know you're aware of this too, but there are many studies that have. have basically shown that not to be true. However, come on, Paula, we don't really believe that,

though, do we? I mean, I've read the studies, but it's different for me. Like, if I had more money, I would certainly be happier. And, you know, over the course of the years and in my work in this area, I've worked with really, you know, many, many ultra wealthy people who basically confirm that fact for me. And certainly in my own life, you know, as my net worth has increased, you know, you eventually realize that, you know, wherever you go, there you are. You know, it's just you and you have, you know, bigger numbers in the bank account. But it doesn't fundamentally change who you are because happiness is really an inside job. And so people who have these, you know, money worshiping beliefs have a tendency to have, you know, higher credit card debt, to overspend, and end up

having less net worth. And then you also talk about money status and money vigilance. What are those two? Yeah. So money status is a belief set where we equate our self-revellinger. worth with our net worth. In the research we did, I didn't go out to sort of confirm the existence of the keeping up with the Jones's set of beliefs, but ultimately that's one of the way to look at it. So people who are money status seekers will tell you that they make more than they actually do. They want to buy things that only new. They don't want to buy use things because they feel like that would diminish their status somehow. These beliefs are really, really anchored in as much of our relationship with money is on our sort of like tribal brain, you know, the part of us that

has been around for thousands and thousands of years. And if you think about it, you know, in terms of your status in a tribe and in a group and actually your ability to survive, status can be closely linked to that. So the pursuit of status, some of us, you know, might think it's a selfish pursuit or we somehow denigrate people for doing that. But really, they're being driven by their animal tribal brain, and it's really an attempt to increase their survival. That makes sense. That's right. And I think it's become more challenging, though, because before we would, you know, thinking back to our development as a species, you know, if your tribe is 50 people or 100 people, chances are you're not that far off in terms of net worth as a group. So you'd be making

an effort to increase your status a bit. However, with what we see in the media, what we see all around us, we get these examples of status that are totally unachievable for most of us, if not all of us. And we get this really gross distortion of how people actually got that way. And so our media really likes to focus on people who are lavish spenders. And in all the research we've done and others have done, that's just not the case. Like to become ultra wealthy, you have to actually not spend your money. You actually have to save it and invest it wisely because that's how you increase your net worth. When you spend your money, it's gone. Is it possible to have the experience of money status, have the experience of equating your

net worth with your self-worth without being a lavish spender? I think it is. You know, people will do it in sort of outward displays. And you can actually do it in any more frugal fashion, too, right? So I think there are many different ways to do that. You know, one way that we try to increase our status is by education, by the groups we're affiliating ourselves with. So it's not entirely financial. But I think it's a drive that, you know, many of us have. And the real key around money scripts and around our relationship with behavior is really recognizing that these impulses are hardwired.

They drive all of us. If you can understand these beliefs, it'll make your financial choices will make total sense. And it also empowers you to make different choices. So I think a big part of it is recognizing these beliefs, where you got them. You know, typically it's from our parents or grandparents, you know, our neighborhood. Like, where did these beliefs come from? And then being able to challenge them and evaluate them and basically see if they're getting

you what you want. And if they're not, then it's the opportunity to actually challenge them and change them. So it's one thing to have an awareness of what scripts we have learned or what our hidden or unconscious beliefs about money are that have formed from our society or from our childhood. It's another thing to actually implement behavioral change. How do you bridge that gap? Yeah. So for many people, you know, since money is a taboo topic, now when I say it's a taboo topic, people will sometimes say, yeah, but we talk about money all the time, but we actually don't talk about our relationship with money. You know, it's a bit of a taboo topic. So many of us feel so

ashamed about our financial situation. And the shame works like this. The basics are pretty simple. I've yet to meet somebody who doesn't know the basics on personal finance, which is, you know, save for the future, don't spend more than you make. And so it's obviously much more complicated in terms of the intricacies, but that's where most Americans are having problems. And so there's a tremendous amount of shame that gets heaped on us and we heap on ourselves because we all know better, you know. And so we have a tendency to beat ourselves up. We have a tendency to sort of go into hiding around our relationship with money, which, you know, is very, sort of shame focused, which keeps us stuck. You know, shame is like this emotional glue trap, and we just get mired down in it. It's really tough to take action. So one of the great things I think,

and one of the big reliefs for me, was to realize that my self-destructive and idiotic financial behaviors when I was younger made total sense when I realized that I am coming from generations of poverty, and I wasn't really taught the mindset that I needed and the beliefs I need and the behavior patterns I needed to be more successful. And so when I saw that, and when I actually looked into my grandparents' lives with some compassion, like, for example, I realized and I found out when I started to become interested in financial psychology, one of the things I did is I went home and I interviewed my family members. So I got interested in this area when I got out of graduate school. I owed about 100,000.

in student loan debt. And I was raised in a very sort of frugal poor family where, you know, the idea of debt was terrifying to me. Here I had accrued all this debt to become a psychologist and I was desperate to get out of it. And so over the course of a year, I saw a friend make $100,000 trading stocks. And this was another psychologist who had no idea what he was doing. Like, I knew that. But I knew that he was made $100,000. I thought, okay, this is a way for me to get out of debt. Doesn't that sound like a logical thing to do? And so I sold it. And so I sold, basically what I had a value, which was a truck, and I put all the money in stocks, and I put it all in tech stocks. It happened to be three months before the tech bubble burst. And so, you know, I made

some money for a couple months, and then I just saw all my money just basically melt away. That got me really interested into the idea of why somebody of relative intelligence would do something so incredibly stupid with his money. And so I actually, I'd like, you know, I blame my mother, right? I'm a psychologist. It has for fault. I say that jokingly. Mothers get picked on a lot. But I went home and I interviewed my mother and I interviewed my father and I interviewed my aunt. I wanted to get an idea of like what it was like for them growing up around money. And I was really looking for these beliefs. Like I have this belief around money. Where did it come from? And I found out this incredible story of my grandfather, which I had never heard before. But he lost all of the family money in the Great Depression. And it wasn't much, but it was everything. It was gone. Went to the bank one day. There was no money there anymore. And what a performance. profoundly traumatic experience that would be. Imagine that. You know, you've saved your money and all a sudden it's all gone and it's none of it's your fault. So that story I'd never heard. And then the second thing that I didn't know is that my grandfather never put a dollar in the bank again his whole life. So he lived to in his 90s and he kept all his money in a lockbox in the attic. This story was

so profound for me because I realized why my mother had so much anxiety around money, around not having enough. And then I realized why I would flip, I call it a dysfunctional pendulum swing. So I was like, look, I don't want to be poor like my family. And so they're way too conservative. So what do wealthy people do? Well, they invest in the stock market. And so without sort of knowing what to do, without knowing the culture, without knowing the rules, because this was an entirely different way of, you know, a different socioeconomic tribe, if you will. I didn't know any of the rules, but I saw somebody make money. And so I put all my money in tech stocks to try to change my family legacy. So I just became really curious on why I would do something like that. And so to, you know,

hear these stories and to understand where this came from, back to your question around, what do we do about it? Well, for many of us, it's really linking these beliefs to these stories to put it in a context to make sense. Because for me, that made me feel less shame. I was like, well, of course, you know, anyone who grew up in the family I did would have these thoughts and would end up right here. So now, what do I need to learn? And it really stopped me from feeling shame and moved me in the direction of trying to get more information. It allowed you to forgive yourself. Absolutely. which got me unstuck. And so this is the problem that I see many of my clients and people I've

worked with and people that we've researched over the years is the shame keeps you stuck because you're embarrassed because, oh my gosh, I did something really stupid. Tell me about money vigilance. You've also talked about that as a script and you've mentioned that of the four scripts, that's the healthiest one. What is it? It is. You know, and in identifying these money scripts, we collected beliefs around money from, you know, hundreds of people. And then we put it into a test and gave it out to, at this point, it's thousands of people. And these were the patterns that emerged. So we actually tried to put every money belief that we knew or that people had given us.

And so one of the categories that came out, and there's great news. You know, there's so many beliefs that are actually good for you. And that's money vigilance. And these are beliefs like, it's important to say for a rainy day. And one of the things that was sort of profound for me is there's people who really don't believe that, you know? There's people who don't believe it's important to say for a rainy day. And it's easy to sort of go, what?

what are you talking about? But there are situations where people who have, you know, have saved money and then it gets stolen from them. And this is a common experience. And so, yeah, no, don't save for rainy day because someone's going to take it from you. And when you can understand, you know, that that belief comes from a very true experience. And the problem is it gets generalized, though, to someone's entire life. Or, you know, for my grandfather's example, think times change, but his beliefs didn't. And that's when they became dysfunctional. So the money vigilance is the belief that, you know, it's important to save a rainy day. I'd be a nervous wreck if I didn't have enough money. There's also some secrecy where people will actually say that they, you know, if someone asked me how much I made, I would say I made less than I actually do, which is a hint that for some people and certainly people who are in sort of the ultra wealthy category can attest to this, we do have negative beliefs as a culture to some degree around people who have more than we do. And so they have a tendency as a group to many of them to sort of diminish or sort of pretend that

they have less than they actually do in an attempt to fit in and in an attempt to be less vulnerable. Too much money vigilance can cross over into anxiety, right? Yeah, that's absolutely right. Money vigilance is sort of a combination of some anxiety and some secrecy and this desire to save. And certainly you can see how a desire to save is strongly correlated with people saving more. So that's pretty obvious. However, if you are so afraid of not having enough, then you can swing into a very dysfunctional vigilance where we've seen many clients like this, where you've been an incredible saver. You've sort of dedicated your life to making your life better. And so you save everything and you're very frugal and you do a lot of

shopping, comparison shopping and you're an incredible steward with your money. And then when it comes time to spending money, you can't do it. It becomes a source of incredible anxiety. And, you know, back to Ebenezer Scrooge as an example, great example of somebody who's living a life of abject poverty while having a ton of money. And that's the thing that you want to avoid. And for some people, it's really difficult to shift gears. If you can imagine saving for retirement and then you have to shift from money going into the bank account to money coming out. And that can be a really terrifying experience for somebody, especially if they come from, you know, a poorer background growing up. Yeah, you are absolutely describing me in my early

20s. So let's say that you've figured out by listening to this interview, you figured out what money script you most closely identify with or what combination of scripts you most closely identify with. What next? So if you're aware that, you know, for example, you have the belief that they'll never be enough money and you realize, oh my gosh, that's me. I have this belief. They'll never be enough money. I think it's really important to put that into context. Like, you know, you came by that belief honestly, right? This isn't something you just made up. And there are certain circumstances in which that belief is very helpful. And that's true for all money beliefs. And it's totally accurate. But you have to sort of unpack it a little bit and say, in what circumstances is that true? And when is it not true? Another way to look at it is to take that sentence and make it into a paragraph.

There'll never be enough money if I continue to not save money or if I continue to live in an environment in which, you know, what I do save isn't safe. it's to really flesh it out and put details on it because these beliefs all have an element of truth. They all have an element of truth. And I think it's really important to honor that and to look at where that came from. But then they also can really interrupt our ability to reach our financial goals and to live in sort of harmony in our relationship with money. And so looking at ways to make it more accurate in more contexts. That's sort of the cognitive way to look at it. And emotionally, if you have really strong emotion attached to it, those are the ones that are really difficult to change.

For some people, understanding that, you know, oh, I have this belief that rich people are greedy because this thing happened in my family and somebody was really mistreated. And I realized that this belief isn't helping us. And actually, when I think about it, there are a lot of really wealthy people who do really good things. So I want to be one of those wealthy people who do really good things in the world. Like, I think you can make that shift. I think you can make that shift by just having that awareness and sort of getting out of your comfort zone. And I'm going to go sit down with some people who have more than me and get to know their culture and how they look at the world. If you have really intense emotion attached to it, though, it becomes really difficult to change your belief just doing that sort of cognitive exercise.

So for my grandfather, trauma. He was traumatized by losing all his money. He never shifted his belief. You know, meanwhile, the federal government came in and guaranteed banks. accounts up to $100,000, you know, when he was alive, and he still couldn't shake the belief. Then it becomes very dysfunctional. And so in those circumstances, I feel like if you are aware of your money beliefs, you know that there's a better way of looking at it, but you can't seem to integrate that into your life. Then I think it's time to probably look into seeing a therapist or a counselor, to really look at how you can sort of heal that wounds, how you can process that emotion so that

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Again, to get three months free after you run your first payroll, go to gusto-G-U-S-T-O-com slash Paula. That's gusto.com slash paula. Tell me about some cognitive biases that people use to sabotage their financial health. Yeah. Not necessarily money scripts, but other cognitive biases that you found within your research. Yeah, so, you know, cognitive biases are very interesting. They're different than money scripts.

So money scripts are these things that you've gotten as an individual based on your upbringing, based on the things you were taught, the things that were modeled for you. They're very different. You know, it really depends on the individual. Cognitive biases are very different. Cognitive biases are the things that we're all inborn with. Like, this is how the human brain works. And so it's important to know these because they can really trip us up because it's how

your brain's automatically going to function. For example, loss aversion. We have a tendency to want to avoid the feeling of loss. You know, you can see this play out in many ways. Have you ever been in a relationship that went a little bit too long? Like, you probably shouldn't have got out, but you're, It was really tough to do that for several reasons. One of them is that, well, you know, I'll probably experience some regret.

You know, I have to really kind of look at the decisions I made. So this loss aversion is something that plays out on a relationship with money. The way I see it play out, sometimes people will hold on to a business too long where a more savvy business person would realize based on, you know, profit and loss statements, how it's been going over the years. Well, I just need to shutter this business and start over. That would be the rational thing to do. but since we have this natural desire to avoid pain and avoid regret and to sort of seek pride, because we will stay in it too long. Same thing with an investment.

So just to know that you have this hard wiring that you want to avoid this sense of loss. And one of the things that we found in a study where we looked at over a thousand people and we separated them into the middle class versus ultra wealthy. And I did this study with Paul Sullivan of the New York Times. We did this study looking at the financial psychology of the ultra wealthy. And one of the things we found is that the ultra wealthy people were less likely to be suffering from this loss aversion. So they found ways to overcome it. They found ways to not to sort of detach their sense of self and their sense of pride and make more logical, conscious decisions around letting go of a losing investment before that losing investment took them down.

What else do you find in your research with Paul Sullivan? What other attributes did the ultra-wealthy exhibit? Yeah. So as a review of money scripts, they actually had less money avoidance. They were more money vigilant. But we also found that another fascinating concept that I'm always looking to help people with, and actually in my own life, too, is this concept of locus of control. Locus of control basically means that locus is the location. So where do you put control of your financially, you know, psychically? Where do you see control of your financial life happening? Is it internal? Is it because of you? Or is it external?

Is it because of other people and the world outside of you? Why are you where you are right now? What we found is that the ultra wealthy are much more likely to take an internal locus of control. So I am where I am because of my choices, because of my beliefs, because of what I do. And what's so interesting about that is that an internal locus to control allows you to change. So the other thing that's interesting is that the average millionaire has had about two or three major financial catastrophes where the average non-millionaire has had, you know, almost one. And so there's something about an internal locus control that allows you to unpack your failures.

So here you are. You started this business. It failed. Wow. So what is it about me that led to that failure? For some people, that's a scary thought. For the ultra wealthy, it's a wonderful thought. Because if I can unpack where my thinking went wrong, what I didn't know, a mistake I made, like, who did I not have on my team that I should have on my team, who would have seen this coming?

they are much more able psychologically to handle that feeling of, you know, the feeling of guilt or remorse or, you know, of course that's going to hit you. You're going to be embarrassed. But they can get on top of that and look at what they did wrong, where they went awry, what was wrong with their thinking, et cetera, so that they can create a new reality the next time they do it. They can create a different experience and have more success. If you have an external locus to control, it gives you some short-term relief because, you know, well, I lost my house because of, you know, predatory lending. Okay, well, yeah, I mean, there's a lot of evidence to support the concept of predatory lending and that that happens. I lost my house because the market turned down. Well, yep, there's truth to that too. However, you're very likely to set yourself up to lose your house again if you're always looking at external factors, because if you can look at yourself and look at perhaps you got a loan that wasn't on very good terms, perhaps you overbought, I mean, geez, I really hope for the people I work with that they can find a way to blame themselves for some of it, because if they can't, they're almost doomed to repeat failure. How do you balance having that sense of

responsibility and taking that internal, embracing the internal locus of control? How do you balance that against being too self-critical or too self-flagellating? That is such a fabulous question. And it really comes down to the difference between guilt and shame. Guilt is actually really good for you. guilt says, hey, I did something wrong, and I'm going to fix it. One of the reasons that I like to talk about money scripts and I like to talk about cognitive biases is because, you know, if you've really screwed up your financial life, well, congratulations, you're a human being. Welcome to the club.

Three out of four Americans say money is the biggest stressor in their lives. So welcome to the club. So this shouldn't be a source of shame for you. Shame means that there's something wrong with me. So guilt is I did something wrong and I'm going to make it right. Shame says there's something wrong with me, so why bother trying? And so it's really separating those two. And so that's one of the reasons I love having conversations like this with you, Paula,

is because it's just such an important message that your financial problems are not the result of you being crazy, lazy, or stupid. They're totally predictable if you can understand your financial psychology. So please try to understand it because everything will make sense to you, and it'll also give you a roadmap to get where you want to go. And so how does a person develop shame resilience? I think part of it is related to putting it into context and understanding, you know, that if I took a random human being and I put them into your family and I put them into your neighborhood and your house and I gave them all the experiences you had, they would turn out exactly like you. I mean, chances are they would.

And then secondly, understanding that if you want to become financially successful, you're going to have to override all of your, impulses as a human being because we're not wired to save. That's such a fascinating concept. Like, we are all descended from highly successful hunter-gatherer roaming tribes. And guess what? You can't save. And if you tried to hoard all your possessions and save, you were left behind and you died. And so the whole concept of saving for the future is something that requires an override of your natural conditioning. And if you weren't taught that as a child, of course you don't know it. Of course, she wouldn't be doing that. So I think the more that you can sort of embrace and accept the tragedy of being a human and having a human brain in modern society around money, the easier it is to sort of,

you know, rise above that shame and instead look at it like, yeah, you made some mistakes. And it's something that you have the power to change. Let's talk about the quiz that's on your website. Because I think this is a, it was a very interesting one. And a lot of the questions that were on there were not ones that I I anticipated. First of all, for the audience, can you give an overview of this, the Klantz money behavior inventory? Sure. So, as I mentioned, when I got interested in financial psychology, you know, there really wasn't much done. And so as part of our mission to really try to understand financial psychology, there were a couple tests that we created. And one of them is the Klant's

money behavior inventory. The purpose behind that test was to really try to give a quick measure of where we get tripped up behaviorally in our financial lives. And so what we did is we looked at, you know, sort of scoured the research and looked at various categories of destructive financial behaviors and put that into a test where we could give people a quick sort of like checkup around their financial behaviors. Some of the categories are compulsive buying, hoarding, workaholism, financial dependence, gambling disorder, financial enabling, financial denial. Like, there's a lot going on here. Yeah, there really are. And, you know, in psychology and in financial planning research,

we're getting more and more information about, you know, how common many of these dysfunctional money behaviors, we call money disorders, are and how they really have a profound impact on the lives of many people. So let's talk about a couple of them because, so financial enmeshment, for example. I thought that was an interesting one. and I've never heard that phrase before. Can you define it and explain it? Sure. And that came from, you know, the work we had done with clients over the years. And financial enmeshment is basically a blurring of boundaries between kids and typically parents around finances. Wow, what do I mean by that? Well, another way to look at it is too much financial information.

Some parents are so stressed about money or their lives are in some financial chaos or, you know, it can happen for other reasons. Like divorce is a common example where this thing plays out where they share too much information with their children around their financial lives, which leads to anxiety in children. You know, so for example, the way it can play out in some highly conflictual families are your child will come to. a parent and ask for some money to go, you know, to the zoo or whatever. And the parent says, you know, go ask your father for money. He doesn't pay his child support. It's like, okay, well, that's too much information for a child to deal with or to show a child how anxious you are because you're, you might lose your house. To do that to a six-year-old is emotionally devastating to that six-year-old. And so that six-year-old will then grow up with a lot of anxiety around money.

And those are the clients that we've worked with that sort of had us dive down into where does this come from? Where does all this anxiety come from? And some of these stories around parents who are giving too much information to their children that are above that developmental level that they can handle. And what's interesting about that is that oftentimes you see the, as you call it, the dysfunctional pendulum, right? There are some households in which money is never discussed and other households with TMI. And it seems to me, as I think through this, that it's entirely possible to have a household with a blend of both, TMI in the wrong places and not enough and no conversation in the right ones. That's right. That's right. So yeah, the other message is,

you know, please, please talk to your children about money because the other big mistake is not talking to your children about money. But, you know, therein lies the rub and therein lies the, you spend a little bit of time thinking about how you're going to talk to your kids about money. So for example, you know, if you lose your job or if you're losing your house or if you have to move because of some financial stress, you know, your kids are going to know that. You know, they're going to know that something's happening. But you just have to think about their age and their capacity to help. So don't share with your kids things about money that they can do nothing about. For example, I might want to share with, first of all, share with your therapist or your friends,

your emotional distress around these things happening. And when you're done doing that, share with your children in ways they can help. So for example, kids, you know, dad lost his job. You know, don't worry about it. Mom and dad are going to take care of it. But I'm telling you this because we're not going to be eating out for a while. And so instead, we're going to be eating out for a while. And so instead, we're going to be make cooking together. And what I want us all to do is do this together. So, you know, Joey, like, I want you to pick a meal each week and we're all going to cook together. That's a great way to tell kids just as an example that, you know, we're going to be cutting down.

We're going to be doing it as a family and we're going to have some fun while we do it. Now, that's a message that a kid can get behind and that can actually help you with and feel part of the solution. Whereas too much financial information and what we would get into the financial enmeshment would be, you know, telling your kids, you know, using your kids as your therapist, if you will. You know, you're stressed about money, so you're going to talk to your kids about money. And, you know, I feel a sense of relief after I just shared with them what's happening. And meanwhile, your child goes off with a lot of anxiety because he or she can do nothing to help this situation and they feel really out of control. We'll come back to this episode in just a minute. But first, when you're selling

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and they've taken simplicity and speed to a totally new level. You can send a branded invoice in under 30 seconds. You can enable online payments in just two clicks. You can have invoices that aren't paid auto reset. There's also a new projects feature where you can invite employees or contractors to collaborate with you, and you can easily share information files and updates with one another. If you're not using FreshBooks yet, now is a good time to try it. FreshBooks is offering an unrestricted 30-day free trial for all my listeners, no credit card required.

All you have to do is go to freshbooks.com slash Paula. and when they ask how you heard about us, say, afford anything. Again, for a 30-day free trial, go to freshbooks.com slash Paula. And when they ask how you heard about them, type in, afford anything. You also talk about financial enabling. Can you tell us about that? Yeah, so financial enabling is a very, very common money disorder. And one of our studies showed that people who are,

come from lower socioeconomic backgrounds. So you grew up, you know, middle class, working class, or poor, and you're making a lot of money right now. Those people have a tendency to be more vulnerable to this. But basically, financial enabling is financial help that hurts. It hurts the person who's enabling, and it hurts the financial dependent who is getting the money. Financial enabling happens in many different ways.

It's loaning friends money when you know they can't pay it. It's giving money to people who are mishandling money. It's basically giving money you can't afford to give to people who it's not going to actually help. It might reinforce a money disorder. Why do people become financial enablers? Well, they do it because they're good people, you know, and they want to help, and they want to be supportive, and they have a close connection to family. They perhaps feel a sense of guilt about where they are financially compared to their family and friends and family members. So, you know, financial enablers are people who are wanting to help. They want to do good. Sometimes people are enabling because they feel guilty. A common example of financial enabling

are parents who are giving financial support to adult children in sort of a chronic fashion, paying their rent, you know, over the years or giving them cash infusions when the child is mismanaging it or not, you know, isn't working, or it's basically reinforcing a bad behavior. So the thing to really understand around money and giving is, well, think about it in your own life. Money is a very powerful reinforcer. There are days that you go to work, probably you don't feel like going to work. You know, it might be a much better day to go surfing or go to the beach or whatever that means for you where you live. But, you know, you're going to drag yourself to the office because, you know, you need the money. And so money has a tendency to reinforce work. Well, money will reinforce

all kinds of things. Money will reinforce not working. Like if you get money for not working, I mean, it's only human nature for you to not work. Like, why would you put yourself through, you know, the pain and suffering of, you know, having a bad day at work if you don't need to? Absolutely. How does hoarding, hoarding is also one of the things that you test for on the inventory, how does that relate to your scripts and attitudes towards money? Yep. So hoarding, you've perhaps seen it. There's a TV show on Call the Borders, which I'm not a big fan of actually, because the attempt there is to go in and like rid people of all their stuff, you know, and you see them crying in a lot of distress. And then inevitably, they just go back and fill up their house again

because it's not really addressing sort of the core wound that's underneath hoarding. And if you have anyone who in your family or recently in your family who lived through the Great Depression, there's a really good chance that they had some elements of hoarding. And hoarding very often comes from this belief, a very strongly held emotionally intense belief that they'll never be enough. And so it's sort of a natural response and predictable response to growing up in abject poverty or with this fear that it's all going to be taken away from you. And so it becomes this psychological need to acquire things. And then we become really attached to these things beyond what you would expect is reasonable to be attached to an item that is basically not worth much financially. And so in its extreme, hoarding can lead to being houses filled with stuff.

It can lead to health problems. It can lead to injuries in a home where people are tripping over things. These are all things that have been research is confirmed. And so a little bit of hoarding is good. Saving. It's an element of savings that gets out of hand because of this emotional. drive in this fear of not having enough. The flip side of the financial enabler is the money disorder of financial dependence. And this is something to be thinking about. And this is one of the ways that

you help a financial enabler is to think about the financial dependent money disorder and how that's getting created. And financial dependence is a reliance on non-work income to fund your life. you know, one of the classic examples we have in our culture is, you know, quote, the trust fund babies, right? But I also see this in multi-generational welfare recipient families. So what's interesting about these two people, if you can imagine, you know, a trust fund baby or somebody who's, you know, multi-generational on welfare, they have a very similar psychology. So it might look totally different. They might live in very different areas and have very different daily experiences, but their psychology can be very similar. The financial dependent often feels resentment about the money they're receiving.

So they'll have feelings of resentment because ultimately it's somehow disempowering, right, to get money like that. They also have a tendency to have less drive towards success, less passion towards their life pursuits, less creativity. And so getting money for nothing, you know, reinforces the concept of doing nothing. It's just very natural. Like, it's really easy to throw stones at, you know, the financial dependent person who's, like, greedy and selfish and doing nothing. But it's actually a very predictable result when you give people money for doing nothing. It reinforces doing nothing.

You know, human beings are wired to actually do as little as possible to maintain calories, you know. It's part of our survival. It's how we got here. Don't do more than you have to do. And so that's part of our natural cognitive bias, if you will, or psychology. And so it can get really reinforced and created. And so that's the flip side. of the financial enabler. And so ultimately, it's learning that if you're feeding a financial

dependence, which is that lack of drive, lack of creativity, lack of responsibility, then you're actually hurting. So it's financial help that hurts. Tell me about compulsive buying, because that seems to, you say that affects 5.8% of Americans. Yes, that's right. And just to give you some perspective, that's the same number of Americans in a year that are having like a major depressive episode. So it is extremely common. Like, I mean, I mean, I think we all know somebody in our life who's had or in the past or currently has had depression. So this is a money disorder that is very, very common, but it's also very hidden because of the

shame associated with it. But for a compulsive buyer, it is somebody who's addicted to buying. Like, it's a bona fide addiction. They build up this anticipation and anxiety, and then they go release it by buying something. And then when they're done buying it, they then sort of crash and they feel. feel a sense of guilt and remorse, and very often they'll go ahead and try to return what they bought. As a matter of fact, retailers lose millions and millions of dollars every year from compulsive buyers who are returning items out of a sense of guilt and remorse for engaging in a compulsive buying act.

And so it really, you know, with compulsive buying, it's more than overspending. It's an addiction akin to like a drug addiction. So they have the same chemicals being released in the brain as they're thinking about shopping and then they have the same crash as they would on somebody who's like coming off a drug. So with all of this information, we've covered a lot of money scripts, we've covered cognitive biases, we've covered various ways that people have dysfunctional relationships with money. What should a person who is listening to this take away from this?

Well, I think one of the messages that, you know, I hit on and that I really want to reinforce and say again is that. is that having stress around money is a, seems to be a universal American experience. Much of it has to do with what we're taught about money and our beliefs around money and where they came from. And so the financial stress you're feeling in your life, the financial mistakes you've made in your life are very common. And it's something that we don't talk about. So you're going to feel very alone in this experience. But just knowing that three out of four Americans are, you know, experiencing the same thing is a really important message.

Secondly, knowing that, get some help. Chances are that you pay somebody to do your family's dental work. I mean, I know you have some pliers in the garage, you know, and I know you know how to use them, but you outsource your dentistry. And I think it's really important if you realize that you're not where you are and where you want to be, that you need to look at money in a different way. You need to have different beliefs around money. you need to have different behaviors around money. And there are people that are in your life right now that can help you on that path, whether it's sitting down with a financial planner and just having a meeting or an estate

planning attorney, for example, just paying for an hour of their time to try to get some ideas on where to go next in your financial life. Or a therapist, if you realize that, you know, you're constantly tripping yourself up around money and you know better, but you can't do better. Or how about a friend or a family member who is a step or two ahead of where you want to be somebody at work who has a position that you aspire to have someday or you know almost any goal like you want to write a book someday so maybe find somebody within your network that has written a book and ask that person out to lunch pay for their lunch of course and pick their brain you know if if they're further

head in business like have them tell you their story like how do you look at money how do you save money what did you do how did you get where you are and just become a really curious observer because all of our research shows that we can predict your income, your net worth, your susceptibility to these financial money disorders that we've talked about, all of that can be predicted based on your beliefs around money. And so if you can become a student of your beliefs, recognize where they came from, and see whether or not they've been working for you. And if not, seek to challenge those beliefs and get more information and more knowledge and different ways of looking at things. then you're on the course to changing your financial trajectory. Excellent. Well, thank you, Dr. Brad, for spending this time with us.

And I will link to your website, the Clance Money Behavior Inventory, and your books within the show notes. That sounds great. Thank you, Paula. Thank you, Dr. Brad, for this awesome interview. What are some of the key takeaways that we got from this? Well, first of all, I think the four money scripts are fascinating. Now, remember, a script is an interesting. ingrained or deeply held belief that you formed about money often from your early childhood.

And oftentimes these scripts are subconscious. These are the four money scripts. Number one, you may have a certain amount of money avoidance. This happens when you deep down believe that you don't deserve to become rich. You don't deserve to be wealthy. To a certain extent, you view poverty as nobility. You think that there is something evil. that's inherently associated with either wealth or the wealthy.

So when we see somebody who is wealthy doing great things in the world, we have a tendency to discount it. And ultimately, it helps protect our own self-image. And the big irony here in the research that we've done is people who endorse these beliefs that are anti-rich people, anti-money, are also much more likely to strongly believe that having more money will improve my life, will make me happier. Wow, what a conflict. So a money avoidant person may on the surface have goals such as get a higher paying job, get a promotion, start a business. You might outwardly believe that you have these goals of becoming wealthier. But when push comes to shove, you start sabotaging yourself in little ways.

You start procrastinating on projects. You start doubting yourself. You avoid making particular phone calls that may be a little bit uncomfortable, but that are not. necessary for your growth. These subtle self-sabotaging behaviors could be a reflection of the fact that you are money avoidant. And that money avoidance might come from either not feeling worthy enough to have money or having some very negative association around money, the belief that rich people are evil, which we covered in a money myth's episode previously. So that is one of four money scripts, money avoidance. The next script is money

status. Now, money status happens when you equate your net worth with your self-worth. And often, people who have a script of money status, the script that more money equals higher status, are often people who make displays of conspicuous consumption in order to impress others, and in order also to feel better about themselves. They're people who want to loudly proclaim their successes. However, status displays don't always have to be consumption-oriented. They could also be status displays such as having lots and lots of degrees. You know what I'm talking about. You've got one friend who's got that whole alphabet soup of credentials, you know, more than they actually need.

That's another type of status display. So I think there are many different ways to do that. You know, one way that we try to increase our status is by education, by the groups we're affiliating ourselves with. So it's not entirely financial. But I think it's a drive that, you know, many of us have. And the real key around money scripts and around our relationship with behavior is really recognizing that these impulses are hardwired. They drive all of us.

If you can understand these beliefs, it'll make your financial choices will make total sense. At the end of the day, this script says that if you have status markers of success, whether that's riches or degrees or friends in high places, or a nice car or a nice house, this script says that as long as you have those. things, you are valuable. You are a worthy person. And if you don't have those things, then you're not. And of course, you can see based on that, the inherent problem with internalizing a script like that. The third script is money worship. And in money worship, you believe that money will solve your problems. You think that if you have more money, you'll be happier. You've read the studies that say that the correlation between money and happiness reaches a tipping point, after which point it plateaus. but you don't actually apply that to your own life.

So I would say actually it defines to a large extent much of our culture in the United States, like this belief that if we just have enough money, then we'll be happy. And I know you're aware of this too, but there are many studies that have basically shown that not to be true. However, come on, Paula, we don't really believe that, though, do we? I mean, I've read the studies, but it's different for me. Like if I had more money, I would certainly be happier. Those are examples of the money worship script where you put an undue amount of importance on money with regard to achieving happiness.

Remember, as Dr. Brad said, happiness is an inside job. And finally, the fourth money script is money vigilance. With money vigilance, you feel secretive and anxious about money. You're afraid of losing money. you're afraid of not having enough, regardless of how much of a safety net you've built. And so your downplay your successes in order to feel less vulnerable. And you'll hoard more of your money because you're afraid of losing it. These are beliefs like it's important to save for a rainy day.

And one of the things that was sort of profound for me is there's people who really don't believe that. You know, there's people who don't believe it's important to save for a rainy day. And it's easy to sort of go, what? What are you talking about? But there are situations where people who have, you know, have saved money and then it gets stolen from them. Being vigilant about money is better than not. Of the four money scripts, this is arguably the healthiest. But it can cross over into a dysfunctional territory. And that happens when your money vigilance crosses into money anxiety. And no matter how much you have, you fear that it may never be enough.

So those are the four money scripts. money avoidance, money status, money worship, and money vigilance that I thought were great takeaways and frameworks to use that we got from today's conversation. The final thing that I want to leave you with is a concept of the dysfunctional pendulum swing. Dr. Brad talked about how that affected his own life, and I'd invite you to think about how that might play out in yours. I would flip, I call it a dysfunctional pendulum swing. So I was like, look, I don't want to be poor like my family. And so they're way too conservative. So what do wealthy people do? Well, they invest in the stock market. And so without sort of knowing what to do, without knowing the culture, without knowing the rules,

because this was an entirely different way of, you know, a different socioeconomic tribe, if you will. I didn't know any of the rules, but I saw somebody make money. And so I put all my money in tech stocks to try to change my family legacy. Essentially, with a dysfunctional pendulum swing, if you find yourself too far over to one end of the extreme, you might swing way over to the other end of the extreme in order to balance out. The problem, however, is that neither of those extremes are healthy. And if you imagine the pendulum swing within the context of money scripts, you might oscillate between the behavior of somebody who's money avoidant

and the behavior of somebody who worships money. It's entirely possible that you find yourself ping-ponging between those two ideas and displaying a conflicting set of behaviors that represent both arenas. Don't worry, that's not only possible, that's normal. All of us operate with deeply held internalized money scripts that we learned as children that we have to become aware of in order to improve our relationship with money today. One of the things that I got out of our conversation with Vicky Robin a handful of episodes ago was that Vicki Robin, she's the author of Your Money or Your Life,

She mentioned that she doesn't talk about managing money. She talks about your relationship with money. And really beyond money, your relationship with resources. And that's a concept that I want all of these interviews to reflect. These conversations go far beyond the tactical. Tactical questions involve things like, should I put my money in treasury bonds or in a savings account or in a CD or in a savings alternative? Those are tactical questions.

We can talk about those all day long, but at the end, those are very surface level and simple questions, really. I mean, they may have a variety of factors to consider, but they're still at that surface level of what we take action on. Their tactics. And those tactical questions involve the management of money. When we discuss the psychology of money, when we discuss community as a source of wealth, as we did in the Vicki Robin interview, what we're really talking about is our relationship with money. And that's something that goes much deeper. And so the takeaway that I hope that you get from today's conversation is to re-examine your relationship with money and to think about the scripts that you hold based on the lessons

that you learned about money early in your life. Which of those scripts are serving you? And which of them do you need to let go of in order to improve your financial situation? And in order to lead a better life. So I will leave you on that thought. Thank you so much for listening. A couple of announcements. First of all, the afford-a-anything store is up. If you go to afford anything.com slash store, you will be able to see three different types of t-shirts that we are selling. We've got a shirt that says you can do anything as soon as you stop trying to do everything. We've got a shirt that says eat, sleep, invest, repeat. And we've got a shirt that says take radical responsibility, which was the theme of episode 66

with my friend Emma. Every single penny of profit that we make from the sale of these shirts will be given as a donation to Charity Water. That's $5.38 per shirt. So again, check them out at Afford Anything.com slash store where you can pick up your favorite shirt. Coming up on future episodes of the Afford Anything podcast, we have an interview with Laura Adams, the host of the Money Girl podcast, where she talks about her own struggles with debt. We also have an interview with Scott Rickens, who's putting together a documentary about financial independence. All of that is coming up on future episodes of the Afford Anything podcast, plus remember every other episode, I answer questions that come in from you, the community. If you enjoy today's episode, please do three

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so much. Matthew P.E. says, I really enjoy the show. Paul is sharp as attack, brings on great guests and teaches me a lot. Love the shows that don't focus on real estate investing, but more in personal finance and index fund investing. Awesome. Thank you, Matthew. I make sure that 75% of our episodes are not about real estate investing. Tuesday, Jane, says, Fast Becoming My Favorite Podcast. Listen to this podcast. You won't regret it. Thank you. And Granted 27 says, simply fabulous. Paula is a thoughtful interviewer with a fresh take on FI and Fire, real estate investing and financial matters. Thank you so much to everyone who left a review on Apple iTunes. And again, we've had 451 ratings so far. Please help us get to 500. Thank you so much to everyone who's tuning in. My name is Paula Pant. This is the Afford Anything podcast. I appreciate every single one of you. I will catch you next week.