July 29, 2009 -- Chapter 1: Information is not enough
The basics of financial health aren't complicated, and they're pretty much the same, no matter who you are or your level of wealth. They are even the same whether you're talking about a person, a family, a company, or a country: Save now and invest for the future. Spend reasonable amounts of money to enjoy life and accomplish your goals, but spend less than you earn. Beware of an investment that looks too good to be true, because it probably is.
Pretty simple, right? So why is it that so many of us can't seem to make those rules work for ourselves? Especially now; at no time in recent history has our collective financial health been more compromised. No matter what measure of disaster you pick—foreclosures, bankruptcies, consumer debt, unemployment—the past two years have set records. (How many times in the last eighteen months have you heard or read the phrase "Not since the Great Depression…"?) Even if your own finances are in order, the uncertainty wears on you; if you were worried about money before, the constant drumbeat of bad news over the past two years has likely been enough to send your stress levels through the roof.
Today, many researchers agree, the biggest source of stress in our lives is money. According to an Associated Press/AOL poll released in June 2008, as many as 16 million Americans suffered from high levels of debt stress and accompanying health complaints. This was a 14 percent increase over a similar 2004 poll. In October 2008, when the American Psychological Association released their annual survey on stress, what do you think was the primary source of stress for Americans? A whopping 80 percent said it was money and the economy. That makes sense given the current financial crisis but it's nothing new. Year after year, through boom and bust, the APA poll has shown that for the large majority of Americans—over 70 percent—money is the number one stressor, ranked higher than work, health, or children. But why?
Why is money so significant?
In 1992, psychologists Dr. Joe Griffin and Dr. Ivan Tyrrell developed a new psychological framework about basic human needs. Their human givens approach combines current neurological research with earlier work by theorists such as Abraham Maslow. According to Maslow, all humans have a hierarchy of needs, beginning with the most basic physiological requirements for food and shelter and ascending through social, emotional and intellectual needs. Our needs must be met at one level before we can begin to address our needs at the next.
Griffin and Tyrell build on Maslow's work by identifying not only universal human needs but also a range of innate resources available to all people to meet those needs. Together, these are the human givens. In this model, each person, regardless of cultural boundaries, has basic needs that are both physical (such as food, sleep, exercise) and emotional (such as security, attention, connectedness). Our psychological health depends on our ability to meet these needs through the exercise of our inherent resources (such as empathy, imagination, and rationality) in effective, productive ways.
In a modern, industrialized society, money is one of the only things that touches on and impacts each and every one of our needs. The effect of money on physical needs is obvious; you can't have shelter, for instance, without enough money to pay rent or a mortgage. Take a look at the list of emotional needs on the left. Money also affects our ability to meet these, some more than others. And while it is always possible to feel a sense of competence and achievement without money, this is certainly more difficult in our culture. The same with status, or autonomy.
Now take a look at the human resources. In many cases, our access to money influences our capacity for using these as well. Of course lack of money doesn't rob us of our rationality, or our ability to observe and learn from our environment. But financial limitations can affect how we're able to act on these insights.
Finally, money is concrete and measurable in a way that our needs (love, security, attention) are not. Given these qualities, money can easily become so closely linked to our emotional needs that we can't separate the two. We come to believe that money is love, or security, or attention. Nothing illustrates this better than the story of the Christmas "fancy box."
DENISE: My father started and developed a very successful business and he uses the fruits of his labor to "reward" us kids. Every Christmas, after all the gifts have been opened, he brings out his "fancy box." That's the real centerpiece of the family gift-giving, and it's been that way since I was a child. Inside the box are envelopes with checks inside, addressed to each one of us kids. Or not. Because I'm a girl and because I'm not directly involved in the family business, sometimes there's no envelope for me. Or there might be an envelope with my name on it but my brothers each get several envelopes. As the envelopes are opened, the amount of the check is announced to all assembled. My check is always the smallest. Last Christmas, my brothers got $300,000 checks but there was no envelope with my name on it.
Of course I've taken a few lessons from this: Money equals love and whoever gets the most money is loved the most. I also learned that money can be used to control and humiliate others. Those lessons have affected my life, all my life.
Given that money is both essential and so emotionally loaded, it's no wonder it takes up so much of our attention, nor is it a surprise that so many people have such tumultuous and self-destructive relationships with it. As financial planning pioneer Dick Wagner says, "money is the most powerful and pervasive secular influence in the world."
More money: not necessarily the answer
But even though money is essential, the cruel irony is that more of it doesn't automatically solve our problems or relieve our stress. In fact, many studies have shown that at or above the average American's income, there's no predictable correlation between money and happiness. In his book Stumbling into Happiness, psychologist Dr. Daniel Gilbert says, "Americans who earn $50,000 per year are much happier than those who earn $10,000 per year but Americans who earn $5 million per year are not much happier than those who earn $100,000 per year." And that's in keeping with what psychologists Dr. Ed Diener and Dr. Martin Seligman found in their research. They analyzed more than 150 studies on wealth and happiness and concluded that money is less important to one's level of happiness than factors such as maintaining strong personal relationships and feeling a sense of accomplishment in one's job.
So if money is the biggest stressor in our lives, yet having more of it doesn't solve the problem, what is the solution? If we want to improve our psychological and financial health, we shouldn't just focus on making more money, but instead, on developing a better, healthier relationship with it. By facing and resolving the complicated emotions and unfinished business that underlie our financial stress, we can not only radically improve our current psychological and financial health, we can also learn to better manage and cope with future stressful or traumatic experiences. Remember the human givens? Here's where those innate resources come in. By consciously and deliberately drawing on our empathy, imagination, emotions, and rationality—all our inborn strengths—we can not only change our relationship with money but also defeat the power money holds over us.
One financial planner we work with has discovered that for himself:
STUART: I realized what had controlled my life the most was fear, and now I'm freeing myself of that. I have a sense of serenity about all this. My portfolio may have shrunk by 50 percent but I'm not 50 percent less than who I was a year ago. I actually feel like I'm bigger—more expanded, more peaceful, more grateful than I've ever been. I really feel, for the first time ever, that my net worth as a person has only a little bit to do with my financial net worth. I am more at ease with my disease. I know there's still work for me to do but I'm headed in the right direction.
Stuart didn't come to that place easily, or without struggle. None of the people we've worked with have. Most of them spent years fighting their own inability to change and even after they faced the unpleasant realities of the past and began taking productive steps to right themselves, they experienced episodes of the old, unhealthy ways of thinking and behaving. Yet they were able to stop themselves, readjust and move on.
When we understand the changes we need to make and yet find ourselves unable to follow through on them, we often add self-abuse to the emotional baggage we're already carrying, and that often just adds to our stress. "Why can't I stick to my budget? I'm such a weakling!" "I know I need to add more to my IRA but I never do it. How can I be so stupid?" And even if you don't say those things to yourself, you'll hear talk-show hosts shouting them, and worse, at people just like you. Whether it comes from ourselves or others, a big dose of criticism just ends up making us feel worse, and erodes our motivation to change: "If I'm such a loser, why bother?"
The fact is, you are not stupid, crazy, or lazy. You are a highly evolved human being behaving exactly like a person who has come from where you've come from, witnessed what you have witnessed, and experienced what you have experienced would likely behave! So we invite you to let go of the shame. And don't beat yourself up for having a hard time not beating yourself up, either. You'll just put yourself into another shame spiral, and that won't help at all.
What will help is getting to the real source of the problem. When you truly understand what has gotten you where you are, it all makes sense. There are deep-seated, complicated, and adaptive reasons why changing your money behaviors is so difficult. Once you understand and accept those reasons, you can learn ways to overcome the roadblocks standing in your way.
Excerpted from Mind Over Money by Brad Klontz and Ted Klontz © 2009 Brad Klontz and Ted Klontz. Reprinted by permission of Broadway Business, an imprint of the Crown Publishing Group.