The Carr Report: Money Psychology

Personal finance is more personal than it is math. In fact, personal finance is 80 percent personal and 20 percent finance. In other words, our decisions revolving around money are more influenced by our attitudes and behaviors towards money than it is the numbers.

I recall doing a financial coaching/planning session with a client. She came prepared with all of her financial statements including bank statements, credit report, investment statements, and a list of all of her income and expenses. She handed the paperwork to me as I was logging into my computer. I placed them to the side without looking at them. I began asking her questions. After she answered my fourth question, she asked me if this was a financial planning session or a counseling session? We both laughed. When doing a comprehensive financial coaching session, my first five questions were as follows:

  • What prompted you to reach out to me to schedule a financial coaching session?
  • What are your financial goals?
  • What are your financial concerns?
  • Financially speaking, are you where you want to be? Without fail, the answer is no. The real question behind this question is:
  • Financially speaking, in your own words, what do you think is holding you back?

I ask these questions before I delve into the numbers because I’m trying to better understand their money psychology. If I can understand what motivates them, what scares them, and what their self-proclaimed bad money habits are, I’m more aptly prepared to address the personal side of personal finances.

Money isn’t just about numbers and transactions; it’s deeply intertwined with our emotions, beliefs, and behaviors. Understanding the psychology behind our financial decisions can help us navigate our relationship with money more effectively. From working to spending, saving, giving, and investment habits, our financial mindset influences every aspect of our financial lives.

In this article, we delve into the psychology of money to help you gain insights into your financial behaviors and attitudes.

The Influence of Childhood Experiences: Our attitudes toward money often stem from our childhood experiences. Observing how our parents managed money, their attitudes toward spending and saving, and the financial struggles or successes they encountered can shape our own financial mindset. For instance, if we grew up in a household where money was tight, we might develop a scarcity mindset, always fearing a lack of resources. Conversely, those raised in financially secure environments may be more comfortable taking risks with their money. Growing up with a single mom on a fixed income, I loathed at the fact that we had to wait an entire month to get a paycheck. My mother was paid on the 1st of the month, broke by the 5th of the month. We lived the rest of the month with too much month left at the end of the money. My childhood experience inspired me to create multiple streams of income as an adult so that I never had to wait a month or even two weeks for my next paycheck. Can you think of a childhood experience that has influenced your money psychology as an adult?

Money Scripts: Money scripts are unconscious beliefs or attitudes about money that individuals develop early in life, often influenced by their childhood experiences, family dynamics, cultural background, and societal messages about money. These scripts shape how people think, feel, and behave regarding their finances.

These scripts can be categorized into four main types:

  • Money Avoidance: Money is inherently bad. It’s a source of anxiety and fear.
  • Money Worship: Money will solve all my problems and bring happiness and fulfillment.
  • Money Status: My self-worth is determined by social status, possessions and net worth.
  • Money Vigilance: Tend to be secretive and cautious discussing money. Think it’s impolite to talk about money for fear of being judged.

Understanding our money scripts can shed light on our financial behaviors and help us challenge unhelpful beliefs. Do any of these money scripts apply to you?

Emotions and Money: Emotions play a significant role in our financial decision-making. Happiness, sadness, anger, love, jealousy, guilt, pride, greed and envy can all impact how we manage our money. For instance, we spend more than we have when we feel less than others.  Fear of loss may prevent us from taking necessary risks for financial growth. Greed can lead to impulsive buying and risky investment decisions. Love will make you spend blindly. Sadness can lead to shop therapy. Pride will encourage you to keep up with the Joneses. Understanding the emotional triggers behind our financial behaviors can help you make more rational and balanced decisions. At all costs try not to allow emotions to sway your money decisions. Have you ever made an emotional purchase that cost you dearly?

Cognitive Bias: Cognitive biases are inherent flaws in our thinking that can lead to irrational financial decisions. Below are three common cognitive biases:

  • Confirmation Bias: This bias involves seeking out or interpreting information in a way that confirms pre-existing beliefs while ignoring or dismissing evidence that contradicts them.
  • Overconfidence Bias: This bias involves overestimating one’s own abilities, knowledge, or judgment, leading individuals to be overly confident in their decisions or predictions.
  • Bandwagon Bias: Also known as the bandwagon effect or herd mentality, is a cognitive bias where individuals are influenced by the actions or beliefs of the majority. People tend to adopt certain behaviors, opinions, or trends simply because others are doing the same, rather than independently evaluating the situation or information.

By being aware of these biases, you can take steps to mitigate their effects and make more objective financial choices. 

Understanding the psychology of money is essential for achieving financial well-being. By recognizing the influence of childhood experiences, emotions, cognitive biases, and money scripts, individuals can develop a healthier relationship with money. With self-awareness, self-control, and the willingness to seek guidance when needed, anyone can cultivate a positive financial mindset and work toward their financial goals.

(Money Coach Damon Carr can be reached at 412-216-1013 or visit his website @





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