“The big lie about personal finance is that your difficulties are your fault,’ he says, ‘that they stem from your being lazy, crazy or stupid. But our experience is that self-defeating financial behaviours aren’t driven by our rational minds, but lie outside our conscious awareness and their roots run deep into our past.”
If this sounds like passing the buck for our actions, Klontz continues that “a critical element to overcoming your money disorders is getting honest about your relationship with money.” To help us achieve this, he identifies four main psychological profiles, which he calls ‘money scripts’ – money avoidance, money worship, money status and money vigilance. Even when core attitudes aren’t entirely of our own volition, pinpointing those most dominant within us is the first step to curbing the associated negative behaviours.
Those with the ‘money avoidance’ script are inclined to think money is wicked, that rich people are greedy, money corrupts, good people shouldn’t care about money, or it’s not OK to have more than you need. Klontz’s research reveals that many educated people in caring professions conform to this script, which can lead to them being both overly generous and prone to avoiding dealing with financial issues.
The ‘money worship’ script results in people thinking there will never be enough money, and that more will make you happier and solve your problems. Those under the influence of this narrative are often overachievers who fixate on wealth accumulation and show a reluctance to spend. They can also experience difficulties developing close relationships.
Personalities adhering to the ‘money status’ script tend to equate success with outward signs of wealth. As a consequence, they will often spend too much and save too little. They’re also more likely to be influenced by marketing and the views of others.
Finally, people under the sway of the ‘money vigilance’ script tend to live a more frugal lifestyle, favouring saving over spending. Although probably the most useful script of the four, adherents can, however, become prone to worrying about financial matters in ways that make it hard for them to enjoy their wealth.
A caveat to such neat categorisations is that we perhaps transition from one to another at various stages in our lives. Some younger executives might, for example, start out blowing their salaries on status symbols and fast living before becoming more diligent about saving in later years. They may move over to the ‘money vigilance’ script due to losing much of their desire to consume, despite now having more means to do so.
Klontz doesn’t propose a moniker for an ideal money script that describes those who are mindful earners and spenders, but awareness of money disorders brings us closer to this goal. Financial and emotional wellbeing are about knowing how much is enough, and about the relationships and activities that make us happy. They’re about understanding our own essential needs without constantly checking to see if we have more or less than others. Mastering money is about making it your servant, not your master.
Have you attended a meeting where you’ve reluctantly bitten your tongue rather than spoken your mind? This can be particularly frustrating when you realise later you were right to question the consensus opinion. Your silence has made you complicit in a poor decision that could have been avoided.
In many groupthink scenarios in business situations or a social context, individuals genuinely agree with each other both privately and collectively, their confidence perhaps bolstered by the evidence of past successes.
A lone dissenter might choose to remain quiet out of a desire to avoid conflict as the critic of popular plans. Cognitive dissonance can involve personal risk to relationship or career.
However, there’s another scenario whereby dysfunctional outcomes can be avoided when at least one person speaks up in the right way. The Abilene paradox describes a situation in which group members privately disagree with the collective decision, meaning it was never unanimous after all. Unlike groupthink members who are voting according to their conscience, Abilene ‘paradoxers’ are following the herd against their better judgement. Had they been in an environment more conducive to open debate, they would have realised others shared their reservations, thus inviting discussion of preferred alternatives.
The term Abilene paradox was coined in 1974 by Jerry Harvey, then professor of management at George Washington University. It originates from a short story he published about visiting his in-laws in Texas with his wife.
They’re all on the porch of the remote house on a swelteringly hot day when his father-in-law suggests they drive to Abilene to eat in a cafe. It’s a 100-mile round trip without air-conditioning, there’s a dust storm, and the meal is mediocre. They return exhausted, and generally unhappy with the experience. But it’s not until they’re back home that it’s revealed none of them really wanted to go in the first place – they just thought everyone else was eager to go. The excursion might have been avoided had one family member said: “I’ll go if everyone else wants to. But honestly, I’d be just as happy to stay here and relax.”
When behavioural economist Richard Thaler published his book, Nudge, in 2008, he shone a light on one of the more subtle methods employed by marketers to influence consumers. The ‘nudge theory’ he popularised is a concept whereby we’re encouraged to make a decision by indirect suggestion. For example, supermarkets know that those products placed at eye level will sell better than those on the top or bottom shelves.
Corporations and governments have since increasingly embraced the behavioural sciences to sway our decisions. Think of the policy to raise saving rates by introducing a default pension scheme that takes away the onus on individuals to opt in. Or the scheme where homes are given two bins, a smaller one for regular waste and a larger one for recyclable materials – the hope is that by limiting space in the former, people will recycle more.
The trouble is, now these tactics are better known, there’s more chance of them being used with cynical intent. Thaler has taken to dubbing the misuse of nudge theory ‘sludge’. While nudge aims to make choices easier, sludge often deliberately complicates matters. Examples include product rebates that require difficult procedures, subscriptions that can only be cancelled by a phone call, and prohibitively long government aid application forms.
As a powerful tool that leverages unconscious biases, nudge needs to be approached with caution. When practitioners have your back, it can be a positive force; when it turns to sludge, someone else is likely to be benefitting at your expense.