How understanding financial beliefs can lead to better money decisions

Personal investment decisions are often influenced by how a person perceives money. AP

“We suffer more often in imagination than in reality,” – Seneca.

Picture this: Malcolm Gladwell, the renowned author and social scientist, is on the radio chatting about one of his books. The host asks a question about how he handles long queues at the supermarket checkout. While the host admits to getting frustrated after a couple of minutes, Gladwell's response is unexpected.

His answer of being unbothered by queue length leaves the host baffled.

Confused, the host presses on, trying to understand how anyone can be unaffected by waiting in a line, wondering if Gladwell values his time.

However, Gladwell simply replies, “You and I live in different universes, man.”

Same situation, wildly different reactions. Why? The answer is that it's all down to their beliefs about queues.

This scenario reflects how we respond to financial events as we all have different “Money Scripts” – beliefs about money that drive our behaviours.

Let's dive into the ABC model, developed by psychologist Albert Ellis. It's a simple yet powerful way to understand behaviour:

A – Activating event (something happens)

B – Belief about the event

C – Consequence (our behaviour, feelings, and emotions)

Often, we think events directly lead to consequences (A to C). But the magic lies in recognising that B – our beliefs – sits between A and C.

“Between stimulus and response lies a space. In that space lie our freedom and power to choose a response,” wrote Holocaust survivor Viktor Frankl.

When it comes to personal finance, the B in our ABC model represents our money scripts, which typically fall into four categories:

1. Money avoidance: Money is bad and should be avoided

2. Money worship: More money will make life better

3. Money status: Money indicates success

4. Money vigilance: Money should be saved, not spent

You might wonder where these beliefs come from. Well, you're the sum of your experiences. As you grew up, you pieced together how money works, its rules, and how to talk about it. You internalised these beliefs and act on them as if they're facts.

But here's the thing – everyone has a different upbringing, so everyone has different beliefs.

However, the trouble is that in our minds, these beliefs are not recognised as beliefs. We register them as facts and we never challenge them.

This raises the question then how can we make better decisions? The answer is that we need to become aware of the story we're telling ourselves – the financial beliefs driving our behaviour.

This is where we can add a 'D' to our ABC model: Disputing your beliefs.

Next time you're faced with a financial situation, try to spot your money script at work

Sam Instone,
co-chief executive, AES

Ask yourself:

• Is the story I'm telling myself true?
• Can I come up with an alternative explanation?
• If my best friend came to me with this scenario, what advice would I give?

By challenging these beliefs, we open ourselves up to new perspectives.

Money scripts limit our behaviour. The stories we subconsciously make up restrict what we will and won't do in our financial lives. Learning to understand and challenge these subconscious beliefs can expand our behaviour, helping us choose our responses and live more intentionally.

The first step is awareness. Once we realise we have subconscious beliefs driving our behaviour, we can get curious about the stories we're telling ourselves. This openness allows us to question our automatic thoughts and beliefs, paving the way for behavioural change.

Remember the supermarket queue scenario? It perfectly illustrates how different beliefs lead to different reactions.

Next time you're faced with a financial situation, try to spot your money script at work. Are you avoiding, worshipping, idolising or being vigilant with your money?

By recognising these patterns, you can start to challenge them. Maybe that impulse purchase isn't about the item itself, but a belief that more stuff will make you happier. Perhaps your reluctance to invest stems from a belief that money should always be saved, never risked.

Understanding your money scripts doesn't mean you have to change them all. Some might serve you well.

The goal is to make your financial decisions more conscious, more aligned with your true values and goals, rather than unconscious reactions to deeply held beliefs.

So, next time you're stuck in a queue (financial or otherwise), remember Gladwell. Your reaction isn't inevitable – it's a choice. And with awareness of your beliefs, you have the power to make different choices, leading to different outcomes.

In the end, changing your financial beliefs isn't about becoming a different person. It's about becoming more you – more aware, more intentional, and more in control of your financial life. And that's a queue worth joining. Don't you think?

Sam Instone is co-chief executive of wealth management company AES