Understanding Psychological Barriers to Money
There are many ways that we can get in our way when it comes to money. Understanding the psychology behind these barriers can help you overcome them and take control of your financial future.
Like dieting, maintaining behavioral change takes time and persistence. But it gets easier over time and is essential to achieving success.
The Brain’s Perception Of Wealth
Money words such as dough, wonga and greenbacks can have a psychological effect that makes you feel more independent, less likely to assist others, and creates a sense of moral entitlement. It is interesting to note that upper-class people are just as blind to the effect as poor people. In one study, UCSF scientists gave participants the chance to earn and save cash by responding to color circle and performing a time perception task. Those who had more money performed worse in both activities. Similarly, researchers have found that simply thinking about money leads to unethical behavior. A recent study, for example, showed that drivers of luxury cars were more likely than other drivers to cut off pedestrians.
In the same way that the amygdala warns us of threats real and imagined, money triggers fears and irrational behaviors. Studies have shown, for example, that poor people who are preoccupied with money problems perform worse in cognitive tests and that thinking about it can deplete the willpower.
You can overcome these obstacles by focusing on your goals and values. You can also identify passive barriers which prevent you from changing habits and take action. You can also build a supportive social circle, or find an online community that will hold you accountable to your savings goals.
Cognitive Biases and Financial Decisions
Cognitive biases can lead to systematic deviations away from a standard for rationality or good judgement. These can be very costly. For example, investors are often prone to risk aversion and the sunk cost fallacy — they’re too afraid to abandon past investments that have lost value. They also suffer from herd mentality and status quo bias, which limit their upward economic mobility.
A number of these biases have been shown to affect financial decisions, including recency bias, familiarity bias, confirmation bias and overconfidence bias. These biases influence financial decisions in a variety of ways, for example, by encouraging people to consider only recent information and by making decisions based on their preconceived notions and beliefs.
Investors can also be influenced by anchoring bias, which involves sticking to their original estimate of an object’s value even when new information becomes available. They may also be influenced by narrative bias, which involves interpreting information in terms of a larger story or pattern. They may also be affected by the ambiguity effect. All of these factors may contribute to irrational decisions during Covid-19. This has made it difficult for investors to find the best investment opportunities.
Neuroplasticity and Financial Growth
In addition to addressing financial biases, neuroplasticity can help us develop new skills and improve our ability to make sound decisions. Learning is a great way to boost neuroplasticity because the more we use our brain the stronger and healthier it gets. It is also helpful to surround ourselves with inspirational people and engaging activities like meditating or exercising.
Our beliefs and perceptions influence our behavior, which shapes our financial outcomes. When a client has misguided beliefs, it can lead to self-defeating behaviors and prevent them from reaching their goals. Often these beliefs are rooted in past experiences that influence a client’s values, expectations, and fears around money. If someone grew up in the Great Depression they may have frugal behaviors, strong beliefs and salient fears that impact their current financial beliefs.
Fortunately, these beliefs can be changed by real-life experience, as well as the use of visualization and imagination. Using these techniques along with a solid coaching and implementation plan can be helpful in overcoming a client’s mental barriers to wealth.
The Emotional Brain and Money
Our emotions can take precedence over logic when it comes to money. Whether it’s a desire to shop and spend or the worry that you won’t be able to afford retirement, these emotional states make it hard to stick with long-term goals.
When we’re faced with a decision, our brain evaluates the trade-off between immediate and delayed gratification using two different processes. The nucleus, which is similar to the gas pedal of a car, accelerates the drive for rewards, while the prefrontal cortex acts as a steering-wheel, directing the reward-seeking towards specific goals.
Consider the classic Ultimatum game. Participants are given $10 to split between themselves and a stranger. According to fMRI research, most people will accept fair splits, but if an unfair offer is made, their brain will react with anger and disgust.
Keeping your emotions in check can help you make financially sound decisions. Understanding these psychological barriers will help you commit to achieving financial goals and kick self-sabotage out of the way. It can be challenging to maintain behavioral change, but with time it becomes easier. In Episode five of the Huddle Up with a Financial Coach! podcast, Julie and Jackie discussed some of the challenges to maintaining consistency when it comes to saving and investing.
Neurological Foundations of Scarcity vs. Abundance
If you have a scarcity mentality, you may feel that there is never enough money and that other people are richer than you. You may find it hard to be content with what you already have and to spend time doing things that make you happy. You may also find it difficult to connect with yourself and others. This results in an underlying anxiety about being loved, valued and supported.
In addition, having a scarcity mindset causes a lot of stress. This is because our nervous system and bodies are constantly mobilized. If we have too many mobilizations (think of flipping your lid), cortical function is inhibited. This inhibits the part that supports creative problem solving, learning, focusing and decision-making.
Growing up with scarcity (food, shelters, income, love, time) is a major traumatic experience that changes your brain and behavior. It is unlikely that you will be able to overcome this problem without addressing the root cause. Getting help from a financial therapist or re-examining your past experiences is a great start. This can help you learn why you were raised with scarcity and how to retrain the brain for abundance.
Harnessing the Brain Reward System
If you want to improve the state of your finances, it is important to identify and remove barriers. Whether you’re spending too much, buried in credit card debt, or keeping cash in bank accounts earning near-zero interest, there are often hidden motivations driving these behaviors.
The brain has a primary rewards system that releases dopamine and other neurotransmitters to reinforce positive stimuli. This encourages us to repeat the behavior. This system is called the mesolimbic path and includes brain structures like the ventral tegmental region (VTA) of the midbrain and the amygdala.
These structures are activated whenever we experience a rewarding stimulus such as food, money, sex, or drugs. The VTA sends the dopamine to striatums, amygdalas, and hippocampus to influence behavior. The accumbens processes this reward signal to determine if we should avoid or seek out the stimulus.
External incentives can give you a boost. However, relying on these can reduce your intrinsic motivation. They can also cause you to focus on the prize too much and miss important steps. This can make it harder to reach your financial goals in the long term.
Neuronal Strategies in the Money Mastery Program
The Mind Over Money Mastery Program is designed to help people overcome self-destructive money behaviors that prevent them from reaching their financial goals. Participants learn how to understand and over come 12 common money barriers. The course is taught by Myron Gold, a best-selling speaker and author with 38 years’ experience in corporate life. It covers everything from money management strategies to the psychology of wealth.
The course consists of 49 downloadable audio and video lessons. In the first module, participants get clear on where they are currently at in their money game and what they want to achieve in order to thrive. Then they create measurable, attainable goals, such as paying off debt and creating an emergency fund. The course then moves on to more masculine strategies, such as investing in diversified assets or generating a specific return on investment.
The course also addresses active barriers that can prevent people from taking action, such as a lack of support or time constraints. It teaches the principles of effective communication and provides tools to manage one’s own time and energy. It teaches leverage, which is the key to success. If a person can get their money to do more than it’s doing on its own, then they will be able to build wealth much faster.