Tim, Anna and their two children were a typical expatriate family. Home ownership seemed smart and Tim caught a touch of property fever.
His paper net-worth boomed but market volatility and an unforeseen job loss started a debt mountain that ended in bankruptcy and feelings of disgrace.
Stories of others who caught wind of the “next big thing”, entrusted their savings to someone they played golf with, made millions on cryptocurrencies or became overnight “do-it-yourself’ investment gurus invade our lives and social feeds.
This “noise” contributes to the decisions we make each day, but evidence also shows that many of the stories we hear as children radically shape our lives.
Fictional characters such as King Midas, Ebenezer Scrooge and The Simpsons' Mr Burns all cared for money above all else.
Meanwhile, the humble Aladdin, Oliver Twist and Charlie Bucket from Roald Dahl's Charlie and The Chocolate Factory are tales of going from rags to riches.
The money messages we absorb, the role models we observe and the circumstances in which we’re born and raised all combine to shape the stories we tell ourselves about money, its role in the world and in our own lives.
For some of us, these messages are critical, defining moments that instil within us certain core financial beliefs. For others, these narratives grow slowly and imperceptibly as they age. Everyone has a narrative, but often we don’t realise what it is until we’re asked to articulate it.
Even though our personal narratives are often based on many years of experience and may involve a large cast of characters, they can usually be distilled to one simple word, such as worship, avoidance, vigilance or status.
Our ability to reduce larger experiences to core beliefs and takeaways helps us to make sense of an incredibly complex world.
This is the fascinating point where social psychology (our experiences) and cognitive psychology (our brain) combine. When events happen to us, we take them into our store of experience and unconsciously look for patterns to develop rules of thumb.
Behavioural economists call these “heuristics” – mental shortcuts that allow us to solve problems and make judgements quickly and efficiently. They can be wonderful and make our lives easier by reducing the cognitive load we have to bear when our brains make decisions or enter into unchartered situations.
The flip side is that shortcuts or biases can often lead to wrong decisions. This isn’t unusual, just human and a consequence of how our brain has evolved.
For example, a coin toss that lands on heads three times in a row does not make tails any more likely on the fourth toss. The probability of future events such as this does not depend on what’s happened in the past.
Another shortcut is “confirmation bias”. This is our tendency to pay more attention to information that supports what we already believe. No one likes being wrong.
Rewriting our personal narratives can be aggravating and requires mental and emotional effort. We’d prefer to be reassured that the conclusions we’ve already drawn about our decisions are correct. This can disrupt our financial lives and beliefs by making us feel that our personal money views are not just opinions, but deeply and profoundly true.
Once we form a personal narrative based on the money messages we believe, we’ll pay far more attention to the information and events that support it and ignore examples that challenge it.
Mental shortcuts take hold of our personal narratives and help to turn them into core beliefs. The decisions we make are heavily influenced by these. If you want to positively change your financial behaviour, you have to examine your core beliefs.
You might think core beliefs are obvious to us, but this isn’t always the case. Often, they are deep within our unconscious understanding of life. If your beliefs about money are not immediately obvious to you, how do you go about uncovering them?
According to Sarah Newcomb in her book, Loaded: Money, Psychology, and How to Get Ahead Without Leaving Your Values Behind, writing your financial story can help.
These questions can help to guide you:
- Up to this point, if money were a character in your life’s story, would it be a friend, enemy or frenemy?
- What were your parents’ attitudes about money?
- Who were your greatest financial influences (good or bad)?
- Have you had any defining moments that triggered strong emotional responses around money?
- How do you feel when you think about the money in your life?
Your money story already influences your financial decisions because it’s based upon your core beliefs.
By finding and articulating your story, you become more self-aware and one step closer to uncovering your unconscious thoughts about money. Then, and only then, can you decide if your beliefs are serving you well, or if you need to challenge or even change them.
Sam Instone is co-chief executive of wealth management company AES