I've spent over two decades watching how people make money decisions, and one pattern keeps showing up. The words we use shape what we decide. And what we decide shapes what we end up with.
This isn't a soft observation. It's one of the more reliably documented findings in behavioural psychology. The same event, described two different ways, can produce two different decisions in the same person. We see it in medicine, in politics, in advertising. And we see it, daily, in how people manage their wealth.
CEO of AES
Few areas of life are shaped by language more than finance.
Markets are reported on by a media industry that thrives on drama. Financial products are designed and sold by an industry that depends on you feeling either anxious or excited. Our own internal commentary, the running monologue about whether we're doing well or doing badly, is built almost entirely from words we picked up somewhere along the way.
Many of those words don't serve us. Some were coined by journalists chasing readers. Others by industries selling products. A few are relics of traditions that no longer match how investing actually works.
They generate feelings. Those feelings drive financial decisions more often than facts do. When the results disappoint, the responsibility lies in challenging the words themselves.
A few examples make the point.
Crash
A 10-20 per cent decline in the market gets called a crash. The word suggests injury, damage, wreckage. Markets decline by this amount almost every year. Most of what gets reported as a crash is a temporary decline, a valuation reset, or a reaction to an event unrelated to the long-term prospects of the economy.
High risk
We've taken to calling an investment by what it might do in the short term rather than what it's likely to do over the period for which it was designed. A well-diversified portfolio held for 30 years is genuinely designed to produce strong long-term returns. Calling it "high risk" describes a single year of its life and obscures the rest.
Safety in cash
Cash feels safe because it doesn't fluctuate. Over time, inflation quietly erodes its purchasing power. The word "safe" does a great deal of hidden damage there. Cash, in an inflationary world, is a slow loss dressed in friendlier language.
Decades of premiums never claimed
Clients sometimes feel slightly foolish for paying life insurance premiums for decades without claiming. Twenty years of premiums without a claim is 20 years of protection their family never needed to fall back on. Every premium brought peace of mind, every month, for two decades.
The stock market
The phrase carries cold, casino-like connotations. You're an outsider, with the odds stacked against you. Step closer to it and you find something more ordinary. You're buying small shares of the great companies of the world. Real businesses, selling real things, to real people.
Drawing down your pension
The phrase sounds negative, as though money were leaking out of something. After a lifetime of work, saving and investing, you're paying yourself from your life's work. Every instalment is a return on decades of discipline.
Awareness alone takes much of the power out of the wrong words. Once you start paying attention to the language in headlines, in product brochures and in your own self-talk about money, you'll begin to see the pattern everywhere.
The second step is having someone in your corner who does this work alongside you. A central part of what a good adviser (or, as we say, financial life manager) does is translate the noise into language that reflects what's actually happening in a client's financial life.
The goal is straightforward. Make decisions based on facts, rather than on feelings someone else has chosen for you.
The advice provided in our columns does not constitute legal or financial advice and is provided for your information only. Readers should seek appropriate independent legal and financial advice from a regulated professional.
