Shared financial biases and a big syndrome could prevent you from developing a successful “money mindset.” But you can move on once you know what they are and how to address them.
For most of us – and for better or for worse – ours Financial Education begins long before our first savings account or credit card. In fact, by age 3 we can grasp money concepts, and by age 7 we have money habits. And certainly no research studies are needed to tell us that by the time we’re fully formed adults, these behaviors will be much more difficult to change.
Perhaps that’s not a problem for the kind of person considered “good with money”—broadly, someone who knows how to create and grow wealth. But for those on the other end of the spectrum, an unproductive “money mindset” can lead to professional and personal struggles.
This mindset is developed over years, takes many forms, and even the negative behaviors that influence it can be well intentioned when misguided.
Changing your mindset to one that positions you for success begins with recognizing inherent money biases and then creating a plan to move forward with new behaviors.
Most people have at least one bias that hurts money decisions
The vast majority of Americans have at least one cash advance (opens in new tab) — an ingrained but ultimately limiting behavior — that interferes with their financial decision-making.
These are some of the most common misconceptions:
- bias present. Those of us with this bias tend to live in the present, which means we prioritize immediate rewards over long-term goals that can yield greater returns. Think of it as a “keep up with the Joneses” mentality—and it’s only gotten worse in today’s social media age. For example, a lavish vacation or an unnecessary home project will likely feel better and bring more instant gratification than investing money in one 401(k) or pay off debts. However, the latter goals are certainly better for a person’s or family’s financial health.
- neglecting the base rate. Investors often miscalculate probabilities. When someone sees the market going up, there is an impulse to believe that it will always go up – and the same is true when the market is going down. Market trends are particularly noticeable during the first investment attempts. Many millennials just as the recession was peaking in 2008, they entered the labor market and started investing, giving the impression that the market was always on the brink of collapse and possibly making them risk averse. Even experienced investors can fall victim to this bias.
- loss aversion. The feeling of winning is simply not as strong as that of losing. When we walk past a store or receive an email from a retailer that says in big, bold letters FINAL DAYS OF OUR BIGGEST CLEARANCE SALE OF THE YEAR, we’re more apt to walk in or click through — and then buy something unnecessary. On the other hand, fear of losing money can cause investors to miss a big opportunity or sell at the wrong time.
- Mental Accounting. Often people make money decisions based on source. Biweekly income from work? A portion goes to the 401(k). Found a $20 bill in an old pair of jeans? Time to treat yourself to ice cream. These are small-scale examples, but when you think a little larger, this behavior partially explains why 70% of lottery winners go bankrupt (opens in new tab) within a few years.
Not all of our money-sound obstacles are necessarily biases, but they’re also worth a lengthy discussion here—and a fix.
Also, don’t ignore impostor syndrome
“Imposter Syndrome” is a common term among professionals, but its origins date back decades. First coined in 1978 after a study of successful women in the workplace, researchers found that many of the subjects felt inadequate or undeserved of the reward for their success — or rather, they felt like cheaters.
Today we recognize that impostor syndrome is hardly limited by gender, while its effects are psychologically damaging and financial health. High levels of anxiety, stress, and depression negatively impact decision-making, discouraging people from taking risks that might be necessary to achieve a financial goal or demanding a deserved raise.
Overcoming impostor syndrome is not always easy, and internal problems often require outside help, such as mentoring, professional coaching, or traditional therapy. However, these are some basic tips that someone can handle on their own:
- Acknowledge that you are not alone. There’s strength in numbers, and while it varies by measurement, up to 82% of the population suffers from Impostor Syndrome. according to a 2020 review (opens in new tab).
- Track victories. Success doesn’t lie. Reviewing – and documenting – career highlights can serve as a reminder that someone belongs in their position.
- recognize natural talents. Very few of us are experts at everything, but most of us have skills that come naturally that help us thrive personally and professionally.
Creating an abundance mindset
Another way of describing successful money thinking is “abundance thinking,” which allows an individual to see more possibilities, options, and resources. It is the opposite of “scarcity thinking,” the belief that there aren’t enough of these things, that is holding many of us back.
Switching from the latter to the former isn’t as easy as telling someone to embrace the power of positive thinking. Changing beliefs is difficult, but not impossible. For many, it’s a series of small steps that eventually add up to a giant leap:
- Set yourself a goal/challenge. Go big. Pay off that student loan that takes a monthly check out of your checking account, or finally commit to going to the gym four days a week for a year.
- make a plan Great goals are not achieved in a day, so think of solutions. The student loan? What about adding an extra $100 to the monthly payment? The gym promotion? Ask a friend to join for extra support and motivation.
- Recognize strengths and weaknesses. Like the note above on recognizing natural talents, it especially helps to know where we are not strong. While we can always improve and improve our skills, surrounding ourselves with people who compensate for our weaknesses will create a more cohesive support system.
- Replace “but” with “and”. It’s no longer, “I’d love to take that two-week vacation abroad, but I can’t afford it.” People with an abundance mindset say, “I’d love to take a vacation, and this is what I’m going to do.”
Recognizing money bias, eliminating imposter syndrome, and building an abundance mentality are all part of developing a successful money mentality — not the be-all and end-all. However, these measures show that a large part of growing wealth stems from self-reflection and not external influences.
In fact, our success is in our hands.
Please remember that past performance may not be indicative of future results. Different types of investments involve different levels of risk and there can be no assurance that the future performance of any particular investment, investment strategy or product, including investments and/or investment strategies recommended or implemented by Waldron Private Wealth (WPW), or others, will not be guaranteed investment-related content directly or indirectly referenced in this article is profitable, meets a relevant stated historical level of performance, is appropriate for your portfolio or individual situation, or proves successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer reflect current opinions or positions. In addition, you should not assume that any discussion or information contained in this newsletter is intended to be a receipt or a substitute for personalized investment advice from WPW. To the extent that a reader has questions as to the applicability of any of the specific points discussed above to their individual situation, they are encouraged to consult a professional adviser of their choice. WPW is not a law firm or a licensed accounting firm and no part of this content should be construed as legal or accounting advice. A copy of WPW’s current written disclosure brochure, which discusses our consulting services and fees, is available upon request or at www.waldronprivatewealth.com (opens in new tab).