CONNECTING
FINANCIAL EDUCATION
TO LIFELONG
FINANCIAL WELL-BEING
A METHODICAL APPROACH TO EMPOWER FINANCIAL KNOWLEDGE AND DECISION-MAKING SKILLS
THE PSYCHOLOGY OF MONEY
Why do so many smart people make poor money choices?
Why some people are financially very successful while others struggle?
Money Emotions
Our relationship with money is highly emotional. Emotions in relation to money are greed, fear, anger, guilt, shame and envy. The behavior towards this are denial, stress, panic, anger and depression.
Greed and fear trigger bad financial decisions. In stock market scenario, the investors panic and tend to sell off their shares in fear of losing more money. However, due to greed investors turn to Ponzi and get-rich-quick schemes.
People treat themselves in ‘retail therapy’ in an attempt to fill an emotional void of feelings sadness and emptiness. Envy and jealousy lead many people to depression and debt as they live a more expensive lifestyle than what they can afford. These are bad decisions that can make one feel helpless, hopeless and low on self-esteem.
However, when you manage that emotion and believe money is something you’re in control of, you can become more financially successful.
If you cannot control your emotions, you cannot control your money- Warren Buffett
Take control of your money emotions
Money Personalities
POSSIBILITIES DRIVEN PERSONALITY
Our money behavior is deeply rooted in us. It is our blue print, oftentimes formed during childhood. These money behaviors are related to our money personalities.
Two partners of different money personalities (say a carefree wife and a security conscious husband), may argue on the money responsibilities each has and this can turn into unpleasant toxic fights that leave both persons feeling hurt and angry. The carefree wife wants to “live for today” and takes an ostrich approach to money while the security-conscious husband wants to put every dollar toward retirement. Obviously, something needs to change.
Identifying our Money Personality, can help fix the root cause of the money arguments and start working together. It can help shape our approach towards spending, saving, investing and donating.
There are 6 money personalities, which one are you?
Source : https://empower.me/quiz
Financial personality assessment
Take action to improve your current financial situation.
CHARACTERISTICS OF THE PERSONALITIES
1. Security
Often blame their financial situation on external factors. Tends to live in the past. May have been abused, betrayed or have suffered some great loss. Often has a self-fulfilling prophecy. Thrifty, organized, miserly and cheap. Seeks safety and security and longs to be rescued. Wisely shopping for value items on sale.
2. Spender
Looking for a windfall and tends to take financial shortcuts. Relatively fearless, often impulsive and can get caught up in the enthusiasm of the moment. May lack discipline, be restless or overly generous. Need to develop patience and to slow down their decision-making process.
3. Celebrity
Can use money to manipulate and control people, events and circumstances. Their greatest fear is loss of control. They are superficial and insensitive. They understand what is important to others. They present a strong first impression, they give expensive or unexpected gifts. May not feel at peace with themselves…money makes them feel safe.
4. Nurturer
Busy taking care of others’ needs, but often neglect their own. Tend to be self-sacrificing and long-suffering. May be financially generous but can have strings attached. Can have boundary issues. Needs to learn to receive. Often on a spiritual or artistic path. Finds the material world difficult to live in. Can be financially detached or have a conflicted love/hate relationship with money
5. Carefree
Takes the ostrich approach to money, ignoring potential problems doesn’t want to know what’s going on. Would rather not to be responsible for financial decisions or money management.
6. Conqueror
The ideal money type. Take charge, goal oriented, focused driven, shrewd, decisive, in control, and financially self-actuated. Knows how to transform and manifest their financial reality. Willing to claim their own power. Armed with the knowledge of the past, they have made peace with their personal history and have transformed their lives. They feel secure and know all their needs will always be met.
Money Behaviour
Financial behaviors are revealed in the way people manage their personal financial resources
The goal is to determine which stage of change the person is in and assist him/her in progressing through subsequent stages to achieve financial success.
With proper guidance, coaching and resources, you too can be financially successful. Identify what’s your money behavior first.
Money behavioral stages
People go through 5 money behavioral stages before achieving financial success
Which money behavior stage are you at the moment?
Stage 1 Pre contemplation
‘I am tired and fed up. People don’t understand. I work so hard but every month I have this sinking feeling that I am going deeper and deeper into financial problems that I wonder if there was any way out… I still don’t know yet…I am not ready to see anyone …I feel embarrassed”
Dr. D1072
The first stage, ‘I can’t or I won’t’ is a ‘Pre-contemplation’ stage, in which the individuals see that there is no need to change. They are unaware that they have a problem. They often feel pressured to change by people around them as they feel they can’t or they won’t (Shockey & Seiling, 2004; Xiao et al., 2008). From their perspective, other people or factors around them are responsible for the problems, and therefore are not looking for help to make a change. People in this stage will rarely seek and use information, react emotionally, or re-evaluate themselves about negative aspects of their problem. They need long-term awareness strategies to move them to the next stage. They consider making a change within the next six months (Prochaska et al., 1992).
Stage 2 Contemplation
”I always drag, drag and drag to come here…actually I could have made it for the appointments but when there is some small work then I will think… ahh …what am I going to learn from them? …they are going to tell me something that I already knew… then at one point, I came here (coaching session) sat down and realised how important that session was…it took away the insecure feeling I had …” Ms. S3563
The second stage in the change process is ‘Contemplation’ or the “I may” stage. Individuals realize and acknowledge that they have a problem and beginning to give it a serious thought by seeking to solve it. They are struggling and looking for sources of help, seeking information fearing that they might not be able to handle the situation on their own. They are open to educational processes, and they begin to re-evaluate themselves concerning the rational thinking and emotional aspects of the problem and how this change is going to affect them. (Prochaska et al., 1994, 1992; Prochaska & DiClemente, 1982; Shockey & Seiling, 2004; Rajna 2018). They need encouragement, motivations, and strategies to assure that the benefit of the change is far greater than the fear of change. People in this stage are taking ‘pre-action’ steps to move forward yet not ready to take action (Xiao et al., 2008). They intend to take action within the next six months (Xiao et al., 2004).
Stage 3 Preparation
…now I monitor my spending, … I’m doing budgeting and I go according to the plan,…how much should I spend on certain things and not do the spontaneous spending which I normally used to do … and now I started to invest small amounts…-Dr. G6104
I was curious… I was in debts…I was contemplating ….It actually showed me where I stand … it’s a reflection…It gave an opportunity for me to review my current financial status … it was actually an eye-opener … what needed to be done … what is important and what I have neglected … it gave me awareness… MDM. D4095
The third stage is ‘Preparation’ and is known as the “I will” stage (Xiao et al., 2008). The individual in this stage are motivated and are determined to take action. They are enthusiastic to start the changes within 30 days. As they are beginning to prepare for the changes, they are making commitments and trying different strategies like setting goals and making plans to achieve targets set. They will be seeking information and support as they are concern that they might fail (Prochaska et al., 1994). People in this stage may sound like this: “I am going to cut up my credit cards;” “I am going to see a credit counsellor this week;” “I am avoiding shopping online” (Xiao et al., 2008, Rajna 2018). At this stage, guidance and knowledge can provide the impetus for participants to begin moving forward. Since many people simply lack direction, financial literacy training can offer step-by-step directions aimed at instilling confidence in their skills as they work toward their personal financial goals. The individual intends to make a change, has begun taking behavioral steps, and expects full action within the next 30 days. (Prochaska et al., 1994).
Stage 4 Taking Action
…I wanted to settle my financial problems … as long as I don’t go into further debts… I still need my future secured… I have done changes in my money allocation …my only goal was to settle my debt… I would say I am in a partial action stage…MR. K 7248
The fourth stage is the “I am” or the ‘Action’ stage. This is the stage in which the positive thinking and starting of good behavior begins. The action stage is the one that most people begin to see the changes. The changes are felt within oneself. This is the most critical stage where much motivation and praise are needed. Since serious change involves hard work, the initial excitement may give way. For example, in budgeting, writing daily expenses need commitment and discipline. Daily tracking expenses takes energy and effort to form habit. Therefore, people in this stage need support from family members and peers to motivate to believe that they can implement the changes (Rajna 2018). Once participants reach this stage, continued reinforcement for their efforts through ongoing training and support is crucial. A quality financial education program that has enough time will push participants to next level. The process of changing within 6 months or less. Rewards and appraisal boost their confidence (Prochaska et al., 1994)
Stage 5 Financial Success
Now I’m financially successful…I solved my financial problems…I managed to settle all my debts … I am saving a lot more now…-Dr. D 3090
I’m happy now…I have financially improved…I set goals… now a days I do budgeting…I go according to plan …I have enough money allocated to go for a holiday…I have started an investment plan … Ms C 2044
The final stage of the change process is reaching ‘Financial Success’ stage. It begins about six months after the action stage take control. It is a struggle to make the change permanent. Lapses and relapses are common, and awareness and commitment to change must be great. It is a long term effort till the temptation to go back to the old behavior is no longer there. Self-assessments on possible relapse and planning ahead for challenging situation with coping strategies help to maintain the changed behavior and move forward to financial wellbeing (Prochaska et al., 1992).