We all have heard the phrase ‘Humans are creatures of habit’. However, do habits help or hamper us when we think about money?
Habits are behaviours and preferences we develop based on our views and belief systems. They are mental shortcuts or scripts that help us to navigate the world. We all have developed numerous habits such as when we go to bed, how and when we eat, and our exercise regime.
Often, we develop these behaviours when we are young, and this can sometimes mean they are not always helpful.
What are financial habits?
Financial behaviours are no different to standard habits and develop when we are young. An example would be children of parents who are savers becoming savers themselves. Conversely, in an act of rebellion, they may develop a casual attitude to debt.
An academic financial study carried out in 2011 on Money Beliefs and Financial Behaviours coined the term money script. The study aimed to help people accurately identify money beliefs that can have a negative impact on financial health. Based on a survey the study identified four distinct money belief patterns or scripts. These were money avoidance, money worship, money status and money vigilance.
Understanding which money scripts apply to someone’s financial thinking can reveal simple ways they can improve their overall financial health.
1. Money avoidance
Money avoiders believe money is bad they do not deserve it. They often link wealth and immorality and tend to self-sabotage their finances. They are afraid of debt so worry about using credit cards and overdrafts, which is not a terrible thing. However, they may avoid making necessary purchases or unconsciously spend or give money away to minimise what is in their control.
Money avoiders often avoid thinking about money leading to unpaid bills, difficulty in budgeting, and having no financial planning. They tend to be younger, suggesting money habits can change as we get older.
Some helpful actions money avoiders can take include:
- Tracking spending habits and working to a budget using a budgeting tool.
- Setting aside a specific time every month to look at bank and credit card statements, sort out bills, and review budgets.
- Opening all those discarded and unread bills and setting up a filing system.
- Researching the financial basics to increase financial confidence.
2. Money worship
Money worshippers believe money is central to happiness and that you can never have enough. This means they are on an endless quest to build wealth. They seek contentment through retail therapy, sometimes leading to overspending and debt. They often put work above family and relationships and tend to lend money even if they cannot afford to. The fact that money cannot buy happiness means they often end up frustrated and miserable.
Some helpful actions money worshippers can take include:
- Redefining money as a means to an end rather than the goal itself.
- Focusing on goals rather than money itself.
- Spending more time on loved ones and hobbies.
- Implementing a period between seeing something and buying it which gives more time to think about whether a purchase is necessary.
3. Money status
Money status seekers tend to link their self-worth with their net worth and prioritise outward displays of wealth. Their desire to ‘keep up with the Joneses’ could lead to overspending. They often take on too much debt to buy a house or justify expensive purchases as ‘self-care’. They may also gamble, rely on others financially, and hide expenditure from their spouses.
Some helpful actions money status seekers can take include:
- Understanding that money does not define anyone.
- Creating financial balance by tracking spending and working out a savings plan.
- Saving before spending.
- Considering whether every purchase is necessary.
- Being more accountable to loved ones by discussing finances with them.
4. Money vigilance
The money vigilant often has many healthy financial habits. They are likely to work hard, save diligently, and live within their means. However, the money vigilant can take this too far. This means being in control of money can cause needless anxiety and sleepless nights rather than peace of mind.
This script can be the most financially stable and healthy of the four. However, there can be a lack of balance between saving and spending. There can also be a caginess surrounding talking about money, potentially leading to poor financial decision-making.
Some helpful actions the money vigilant can take include:
- Striving for balance between spending and saving to live for today while saving for tomorrow.
- Setting up a ‘fun fund’ to pay for fun activities without any guilt.
