Mind Over Money: Understanding the Psychology of Money

Jessica Quindlen: [00:00:00] Welcome back to the Sound Cents Podcast. I'm Jessica Quindlen. Today we're discussing the psychology of money. I have with us Sara Bickers, our Community Educator Lead. Hi Sarah.

Sara Bickers: Hi Jess.

Jessica Quindlen: And Emma Protsik, a Supervisor of Financial Coaching. Hi Emma.

Emma Protsik: Hi Jess.

Jessica Quindlen: So, the psychology of money, this is definitely a newer field and I was very interested in bringing you two on to discuss this. What piqued your interest in this topic?

Emma Protsik: For me personally working with financial coaching, we're really trying to figure out the best way to help individuals get to their financial goals. So, it's a very personal side of things. When we were looking into developing that program a little bit further, we really wanted to have conversations with individuals around their habits with money and how those habits can then influence their financial outcomes. So kind of a little bit of passion project I'd say definitely for both Sarah and I diving into that.

I was extremely fortunate. I was able to attend a certificate program through Creighton University. It is all about financial psychology and behavioral finance. So, with that, lots of different [00:01:00] research kind of going into the topic.

And I am actually a Certified Financial Behavior Specialist now from going through that.

Jessica Quindlen: Fancy.

Emma Protsik: Fancy, yes, but very exciting and being able to apply that to what we're doing here at end as far as financial education.

Jessica Quindlen: I love that. How about you, Sarah?

Sara Bickers: Yeah, well, I've been intrigued by psychology for most of my life.

The why behind human behavior has always really sparked my interest. And when I started working at Ent about two years ago, I saw the work that Emma was doing in financial psychology, and it really encouraged me to explore that topic a lot more. And so, in some of my studies, one thing that has really stood out is that education alone isn't enough.

To really encourage people to make changes and keep that long-term change that they really want to see in their finances and their money management. And that research has shown that one [00:02:00] thing that really does lead to that long-term change - that we're looking for in the education we provide to our communities and in the work Emma does with financial coaching - is studying the why behind our money decisions and looking at that financial psychology piece and coming up with plans to not only incorporate the education that they get about financial management into the work that they do, but incorporate that behavior change as well in looking at those pieces.

Jessica Quindlen: I love that. So, I think we've touched on this a bit, but what is the psychology of money diving a little deeper?

Emma Protsik: Yeah. So again, it's definitely a newer field, kind of getting a little bit more traction here with financial advisors, financial coaches, or, you know, just educators. But the study of financial psychology is really how our emotions, our biases, experiences really influence our financial decisions.

There is, of course, a big part of that is the childhood experience and how they often lead to lasting behaviors and beliefs that you might not even know that you have. We are taught about [00:03:00] money and how to manage it, how to feel about it even at a very young age, and that can really bleed into our adulthood.

And again, we might not be aware of those things. Financial psychology is really designed to help us understand what Sarah was talking about - that why. So again, that education piece is super important for your financial wellbeing. It's good to know how credit works, how budgeting works and all of that good stuff, but without getting to the why, it won't get you very far. I think for the most part, a lot of us are aware of those general financial wellness ideas. Save a portion of your income. Don't spend more than you can make. Put some money aside for different things. But we all know that's a lot easier said than done.

So, there's nothing wrong with you. It might just be some past experiences our brains just doing the things that they do, getting in the way and adding some barriers to achieving that financial wellbeing.

Jessica Quindlen: Fantastic. So, what are money personalities?

Sara Bickers: That is a wonderful question, Jess. So just like with any fun personality quiz out there, the [00:04:00] study of money personalities has really looked at different patterns and traits that people have when it comes to managing their money.

And there has been a good amount of research in the past few years on different money personalities and several different financial experts have come up with their own breakdown of these different money personas. Money personalities, money tendencies. They all have their own terms, but it's looking at these patterns, looking at these trends and the way that we as humans manage our money and coming up with a breakdown of some different themes.

And so there are several different ways this has been broken down, be it spending or savers, be it somebody who's really worried about money and spends a lot of time on it, or somebody who focuses on it a little bit less. But we have one of our favorites here at Ent is what we call them, money scripts.

Now Emma has worked with money scripts quite a bit, so I'm going to let her tell us a little bit more about [00:05:00] that.

Emma Protsik: Thanks, Sarah. So, the money scripts come to us from the Financial Psychology Institute. The way that the money scripts work is there are four main types.

What I think is very important to bring up too, is before we dive into what those four types look like you will kind of have a score in all of these different areas. You might show different scripts depending on the situation that you're experiencing and everything else that's going on. These scripts, I don't necessarily think they're bad any of them. It is more just kind of understanding what your default settings kind of go to when you're faced with financial difficulties and different financial situations.

So as far as the money scripts go, probably one of the most common ones of very common American money belief here is what's known as money worship. This is that general idea that more money is better and that it'll solve your problems. Money is truly that focus in your life to an unhealthy extent. Money avoidance is another very common one that I see with individuals. [00:06:00] So this can come from a place thinking that money is bad, maybe you don't deserve money.

Maybe you think wealthy people are just inherently greedy. Money avoidance can also come from financial trauma. So, if you have had very bad experiences, then you may be avoidant to money that might show up as not even opening up your credit card bills or the different statements that you see. You just want nothing to do with your finances.

Money status is the next money script up there. And this is kind of that typical keeping up with the Joneses is, if you've ever heard that reference. So how much money you have determines how good you are as a person. This is where you think your self-worth is directly related to your net worth.

And then vigilance is that fourth money script there. This is a really good script, but it can turn bad in some different ways. So with money vigilance, you realize money is an important part of your life. You might be a little bit more frugal, want to save a little bit more. You also might have some secretive tendencies about money, but [00:07:00] money vigilance again, you're on top of your finances, you know where you stand.

But be careful with that. You can sometimes become too frugal. You can become secretive around your money with that. You might avoid purchasing things you truly need, because you want to make sure you're having that savings and that's where everything's focused.

Jessica Quindlen: Interesting. Awesome. So let's just do a quick round table between the three of us. Are you a spender or a saver? I'm a spender. I fully own that. I'm working on it. I'm working on being a saver, but I am, I'm a spender for days.

Sara Bickers: Thank you for sharing. Jess. You know, working in this field of finance, sometimes it's a little embarrassing to admit that I am also a spender.

Growing up that was definitely a habit that I had. If I got any sort of allowance, any sort of income from a job I was working, I was going to spend it and often on something that was kind of frivolous, like a soda or candy or something, right? Like just had those impulse buy habits as a child.

And the more work I did on recognizing [00:08:00] my own habits and my own money personality led me to being able to make better decisions about my money, but still acknowledge that that is kind of the habit I'm going to default to. It took a lot of self-reflection to be able to come up with a plan that was going to work for me.

But one thing that has really helped being a spender is to come up with a spending plan. I know Emma likes to put it that way instead of saying a budget, but having that plan for what I'm going to spend my money on can really help me frame that future plan that I have into something that works with the way my mind thinks and what I default to.

And so, when I am working on something like savings, which doesn't come quite as easily to me, having tied to that savings exactly what I plan to use it for in the future can really help me reframe that into something I'm going to stick to rather than something where I'm like, “Oh, it's just savings. I could [00:09:00] use this on something else.” Instead, I know, “Okay. In several years, right? I'm going to use it for a vacation I'd like to plan for, or a down payment on a house or some other goal I have where I know where that money's going and then for things like emergency funds.” Just having that label there and having that reserve there and having the comfort to know that, like if something happens, that's when I would use that money.

Jessica Quindlen: Great. Emma?

Emma Protsik: Well, that makes three of us. I am actually a spender by nature too. Jess, I know you and I have had conversations about the shoe problem. But Sara's exactly right. She's kind of hitting home on what we want everyone to be able to do. We all have tendencies with money. We all have those default settings that'll Just naturally come up.

I have been able to take a step back and realize those impulses I have. You know, when am I overspending? When do I want to reach for the credit card? Is it those good days? Is it those bad days? And again, it's figuring out what works exactly for your brain. So, Sarah talked about some ways that helps her save. It's a little bit of trial and error. We're all very unique in what [00:10:00] works for us, just based on those past experiences.

Jessica Quindlen: Great. Fantastic. I'm glad we're all on the same boat here.

Emma Protsik: You are not alone.

Jessica Quindlen: So, we've talked about you know, childhood playing a key role in this. How can folks really lean into that?

Sara Bickers: That is a wonderful question. One way we can lean into that is considering what's called your financial flashpoints. These financial flashpoints are moments typically in your childhood that really shaped your view on money. They're memories you have that created those attitudes, those beliefs, those behaviors that all go into your overall financial psychology.

And in order to figure out your financial flashpoints, there are a few questions you can ask yourself. One might be, what is your first money memory? When you think really far back, what is the earliest thing you remember about money and what might be the lesson you learned from that? The next one is, what is the most stressful financial situation you have been in or seen somebody been in because especially in thinking [00:11:00] about how childhood is playing a role.

Those role models that we have, especially when it comes to money like our parents, our guardians, the people around us can really shape the long-term attitudes and beliefs we have about money. Another question you might want to consider is, what is your happiest money memory? These financial flashpoints are not all negative things.

A lot of the times we can learn positive or happy things about money growing up and just doing some work to recognize those different experiences that we have had and the attitudes that we have as a result of that. The beliefs we have can really go a long way in helping us identify what might be going on in the now and how we can take those lessons and work toward reaching our goals in the future.

Jessica Quindlen: That's fantastic. All right. Anything else to add about the psychology of money for at least this episode?

Emma Protsik: I think an important point to mention here again there is financial psychology and then there's that behavioral finance side of things.

So, the financial psychology piece is that [00:12:00] personal. It is what Sarah was talking about with those flashpoints. It's our past experiences. It's those behaviors we've gained from those experiences. The other side of that is the behavioral side.

So, there are certain things that we kind of fall into habit of doing just simply because we're humans. It's the way our brains work. These are known as biases. If you are unfamiliar with biases, these are tendencies that our brains have kind of evolved and adapted to navigate the very complex world that we live in, some of those fight or flight responses.

So, a situation appears our brains are going to have a default response to that. And it's kind of across the board for everyone.

Sara Bickers: I love the way you put that, Emma. One thing that I have been reflecting on recently, just because I have a coworker who says this all the time, is, especially with adults, our brains are full.

There is a lot of information we're getting from all sorts of places. And when we're trying to navigate the world with all of this information, it can be really [00:13:00] easy for our brains to create shortcuts and see patterns when either there might not be any or we don't have enough information to create the real pattern.

And that's what creates these cognitive biases in our brains. And while there are over 150 cognitive biases out there, there are several that can really influence our financial behaviors, and we're really looking forward to talking about that in a future episode.

Jessica Quindlen: Awesome. I love it. Well, that brings us to the end of our show. Sarah, Emma, thanks so much for being here. It was great to have you.

Sara Bickers: Thanks Jess.

Emma Protsik: Thank you.

Jessica Quindlen: Thank you for listening to Sound Cents from Ent Credit Union. Be sure to follow our podcast as well as rate and review us. I'm Jessica Quindlen. I will see you next week. Same time, same place.