We are constantly told to budget wisely, save instead of spend and work on an investment strategy. Many of us don’t do this – even though we are warned we are heading for dire straits if we don’t.
Organisations like the Association for Savings & Investment South Africa pour huge amounts of money into consumer education, yet we don’t reform our bad money ways en masse. There’s a whole body of international research devoted to trying to understand our financial behaviour, but we mostly seem to ignore the scientists.
Why aren’t we responding to all these warnings and a constant bombardment of personal finance information? Or paying heed to our financial planners’ suggestions?
I came across an interesting pop psychology-type book this week that theorises that money disorders may be behind our inability to follow prudent advice. In Mind over Money, authors Brad and Ted Klontz have compiled a list of disorders to cover all the reasons we don’t build wealth or develop a savings plan.
In the introduction, the father-son team say: “We believe that scolding you about the risks of not having an emergency fund, or the benefits of budgeting, or how much you should be saving is like trying to treat a brain tumour with aspirin: It addresses the symptom while ignoring the disease.”
Financial advice, they argue, is not enough to change destructive financial behaviours. You have to understand what you are doing wrong.
The authors are psychotherapists with many years of experience working as counsellors. They founded a business called Your Mental Wealth. Their video testimonials reveal that they went the route of financial psychology after exploring their own money problems and realising there was a real need to offer help.
A single, isolated or rare financial mistake does not qualify as a money disorder, say the authors.
There are some obvious problems, like gambling, in their list of disorders. There are other patterns of behaviour that you might not think of as a disorder, but are getting in the way of you growing assets and improving your financial circumstances.
“Money disorders are persistent, predictable, often rigid patterns of self-destructive financial behaviours that cause significant stress, anxiety, emotional distress, and impairment in major areas of one’s life.” So, if you feel like this about money, the chances are you have more than a passing problem to acknowledge and work through.
Here’s a snapshot of the main types of dysfunctional financial patterns the Klontz team reckon they have identified. Can you spot yourself?
Money avoidance disorders
- Denial. This is a classic defence mechanism, they say, designed to reduce our anxiety and shame over our troubles. “Financial denial is when we minimise our money problems or try our best to avoid thinking about them altogether rather than face financial reality.” In other words: you have your head in the sand and there’s a problem building up ahead of you.
- Extreme underspending. This can keep you just as poor as overspending. You can have plenty of savings but you refuse to use and enjoy what you have because you have a compulsive need to be self-sacrificing, say father and son. So, you’re tight with your cash – and it makes you unhappy.
- Excessive risk aversion. This is “an irrational unwillingness to take any risks with one’s money”. If you keep your savings in an interest-bearing account and shy away from investing in growth assets, like shares and property, this could easily be you. You need to take on some investment risk to build your wealth.
- Excessive risk-taking. “Here we are defining excessive as putting one’s financial well-being at unnecessary risk in the pursuit of large, but unlikely gains – like taking your rent money or your child’s college fund to the race track, or the (stock) broker’s office.” Doesn’t sound very sensible, but it happens.
- Pathological gambling. This is the addictive variety, on the same level as alcohol and drug addiction. This is when you gamble to make yourself feel better or escape from problems and need to gamble with more and more money to “keep it exciting”.
- Workaholism. This is when you are so involved with your work that you have little time for your family, leisure and even sleep. You get into a state of anxiety, depression and can suffer health problems. They’re obviously not talking about people who are working long hours to make ends meet.
- Overspending. You will see lots of people with a compulsive buying disorder in your local shopping mall. “If overspenders are often worried about money, compulsive shoppers are constantly consumed by their money worries. Ironically, one of their only escapes is the act of shopping itself and so they obsess about it, experience irresistible impulses to do it, and lose control of their spending,” say Klontz & Klontz.
Relational money disorders
- Financial infidelity. This is when you “deliberately and surreptitiously” keep a secret about your spending or finances from your partner. This can lead to the end of your relationship, warn the authors. Bear in mind, too, if your partner is hiding money facts from you, this could be because you are being unkind to them in the financial department. “Many times, financial cheaters feel the need to lie about or hide perfectly reasonable expenditures because they are married to a financial bully – someone who uses money to control and intimidate his or her partner.”
- Financial enabling. Find it impossible to say “no” to requests from your children or grandchildren for money? You have a problem and the person you are enabling is becoming more dependent. “The classic example is parents financially taking care of their adult children who should be able to support themselves, often to the detriment of both parents and children.” Financial enablers “use money in an attempt to assuage guilt over past wrongs or slights, to feel close to others, and to continue feeling important and useful,” say Klontz senior and junior.
- Prince Charming Syndrome. Are you waiting for a knight in shining armour, the government, the lottery or a benevolent universe to provide for your financial needs and dreams? You’re probably suffering from this one, then. “Many people choose to remain financially dependent on others because it protects them from having to take on their own financial education, preparedness and planning,” write the authors.
Some of the Klontz team’s theories sound a bit woo-woo. But there are some themes in there that I recognise in people around me. Do you?