Your Worst Money Problems Are All In Your Head

Emotional baggage can sabotage your financial goals -- here's how to recognize it.

Most dieters can recite the calorie, carbohydrate and protein counts for hundreds of foods. And they know how many calories a half-hour on the treadmill will burn. Never before has there been such an abundance of knowledge about nutrition and exercise in this country, and yet, as a nation, we’re obese. Because it’s never—ever—just about the food.

It’s the same for money problems. For some people, financial know-how goes only so far. They’ve got every budget app there is but can’t seem to get control of their spending. Or their financial adviser drew up an estate plan ages ago—but they fail to execute it year after year. Or they’re so paralyzed by their fear of running out of money that they’re unable to deploy their assets into wise investments.

Such money hang-ups can run the gamut from minor glitches to full-blown disorders. But they have this in common: You can’t cure them simply by studying up on finance or investments. You have to address these dysfunctions in the part of the brain that deals with emotions. For some people, says Rick Kahler, a certified financial planner in Rapid City, S.D., “the emotional baggage is screaming so loud that they can’t even hear information objectively. Sometimes financial literacy doesn’t work.”

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A holistic approach

The financial-planning community is starting to recognize this truth. Planners are teaming up with coaches, psychologists and counselors, or they’re adding therapy skills to their own credentials. A recent survey of financial planners found that approximately 25% of their time with clients is spent on nonfinancial issues, such as spirituality, death, family dysfunction, illness, divorce and depression. A more holistic practice, say those who offer it, can lead to breakthroughs with the worst self-saboteurs, or at least to self-aware clients who are more motivated to follow through on the advice they’re given.

Amy Champeau, 60, struggled with money issues for much of her adult life but didn’t know why. Champeau, a psychotherapist in Racine, Wis., signed up a few years ago for a workshop called Healing Money Issues because a local financial planner was looking for a therapist to refer clients to. “I thought it would be a good career move,” says Champeau. “But when I got there I realized I had all these money issues—I was stressed out all the time.” Left destitute after a divorce several years earlier, Champeau had clung tightly to her money for some time afterward, trusting it to no one. She later built a successful practice, only to squander what she earned. “I swung from being so careful to just going wild.” She amassed some $40,000 in credit card debt.

The workshop taught Champeau to take the emotional side of money seriously. “It wasn’t that I was oblivious or didn’t do any work. I did. I read books about managing money. At one point, I went to consumer credit counseling. But I didn’t connect the emotional dots.” That happened when Champeau, who had been raised in an affluent community, examined the conflicting messages she’d received about money as a child. “On the one hand, the message I got was that I was always going to have plenty. On the other hand, there was never enough.” As she became more aware of her story, she says, she could see how she had engineered her swing from one money extreme to the other.

Champeau began seeing Brentwood, Tenn., certified financial planner Melissa Hammel, who is also licensed as a professional counselor and mental health service provider. “One of the biggest things I can offer a client is a safe place to talk about this stuff—and no judgment,” says Hammel. Champeau was able to address things that she’d been too ashamed to deal with before, and she is now on track with a retirement plan and the savings to fund it. The credit card debt will be paid off in two more years.

Money scripts

We’re all motivated by money beliefs, many of which we form in childhood. In the same way that a script informs an actor in a play, these money scripts inform our financial life. Some scripts are accurate and functional, says Brad Klontz, a clinical psychologist, certified financial planner and pioneer in the emerging field of financial therapy. But many contain only partial truths or get twisted somehow. For example, “You should work hard for your money” becomes “Money not earned is not worth having,” with potentially disastrous results. “I’ve had clients come in with a $5 million inheritance, depressed and despondent, says Kahler. “Left to their own devices, the money would have been gone in five years.”

Just how dangerous a script becomes depends on what it is and the intensity of emotion surrounding it. “Everyone has money scripts worth examining,” says Klontz, “but not everyone has a gambling or compulsive-buying disorder.” Not all scripts mushroom into disorder, and disorders may have a mishmash of scripts underlying them. One person can even harbor conflicting money scripts—say, “Rich people are pretentious” and “I’ll never be happy until I’m rich.” It’s a sign of health if you’re not rigidly or emotionally attached to a particular belief but are open to new information and able to entertain other possibilities.

Money scripts fall into these four categories, says Klontz:

Money avoidance. These scripts sound like the following: Money corrupts people, or It’s not okay for me to have a lot of money when others don’t. Money-avoiding behavior can be as simple as letting 401(k) statements pile up unopened. It can also lead to overspending. Or you might become an easy touch for kids and others—at its extreme, a disorder therapists call financial enabling. Money avoiders may be just as prone to underspending (even on essentials) or excessive risk aversion that prevents them from earning decent returns on their money.

Money avoidance is common among therapists and others in helping professions (like Champeau), who often have a hard time setting reasonable fees and then collecting them. It’s also fairly common among the affluent, who may be more likely to blame money for an unhappy family life.

Money worship.These beliefs often boil down to variations of Money can buy happiness and You can never have enough money. Such thinking can lead to workaholism or lots of credit card debt—and possibly to compulsive spending, hoarding or unreasonable risk-taking. The irony is that research shows there is no significant correlation between happiness and money once household income rises above $75,000 a year.

Money status. Such scripts equate self-worth to net worth: Success is measured by the money I earn, or If I live a good life I’ll be taken care of financially. Financial status-seekers pretend to have more money than they have, are okay with keeping money secrets from a partner, and might be drawn to high-risk investments with the goal of striking it rich quick. Extreme status-seekers might be compulsive spenders or pathological gamblers. Both money-worshiping and money-status scripts are common among those who are financially dependent on others—a condition that in itself can lead to resentment, anxiety (about being cut off) and a stifling of motivation or drive to succeed.

Money vigilance. Many of these money scripts are helpful, not harmful. Indeed, we advocate plenty of them at Kiplinger’s. They include It’s important to save for a rainy day and You should always look for the best deal before buying something—even if it takes more time. But remember, when money scripts become too rigid, it’s a red flag. Some supersavers are so focused on accumulating money that they can never enjoy the fruits of their efforts. Think of someone 65 years old with $1 million in the bank who can’t entertain the thought of retiring or won’t take a vacation.

When misguided money beliefs stem from childhood trauma or are laden with emotion, the combination is especially toxic. Sheri Grant, 46, grew up outside Detroit, the only daughter in a family that runs a successful business supplying rubber parts to the automotive industry. Her dad, three brothers and former husband were all active in the business and rewarded handsomely—but Sheri, who now runs the family foundation, much less so. “All the relationships in our family are built around money. My dad used money to show love and as a means of control,” she says. The result is that she feels both insecure and powerless when it comes to money. “I’m crippled by anxiety when making decisions about money—buy a house, don’t buy a house, buy a car, don’t buy a car, go on a trip, don’t go. Everything is riddled with anxiety, which makes it difficult to make decisions.”

Grant has been working with Kahler, the South Dakota planner, with whom she meets by phone monthly and visits annually. For Kahler, who frequently works in tandem with a therapist, the decision to integrate financial planning with financial therapy was a no-brainer. Make that an all-brainer: “When I’m with a client together with a therapist, both the right and left brains are in the room,” he says. “Sometimes you’d think we’re talking about two different clients. I’m all numbers, annual income and spending; the therapist talks about body language and feelings.”

Get me rewrite

For many people, simply recognizing a problematic financial belief or behavior is enough to change it. Others need to work at rewriting dysfunctional money scripts. One way to raise your awareness is to keep a journal, jotting down thoughts that pop up in any given financial situation. The scripts are there, subconsciously driving behavior. Journaling slows the process, and it captures patterns in your thinking. Once you’re aware of the patterns, you can work on changing them. Say you’ve had a bad day at work and your first impulse is to go shopping. Journaling puts some time between the impulse and the action, allowing you to make a conscious decision to, say, spend time with friends instead.

The next step is to edit the harmful money scripts. If you tend to panic when the stock market plunges, for instance, one of your scripts might be something like I’m going to lose everything! Instead, remind yourself that stocks rise and fall, and while you may lose some money, you have a plan and a diversified portfolio. Instead of selling in a panic, plan to call your financial planner or adviser in the morning.

A frequent stumbling block planners see is a sense of financial entitlement. I work hard. I’m entitled to spend my money. Modify the money script to I work hard. I’m entitled to a stress-free retirement. Another common scenario is a sense of obligation on the part of parents to help kids financially—to save for college at the expense of retirement, for instance, or even to enable financially destructive behavior. Change The one thing I can give my kids that can’t be taken away is an education to My kids will better appreciate an education that they help pay for.

And recognize that enabling children can create a harmful dependency, says Kahler. He recalls a couple who fought like cats and dogs over money the father was doling out to adult children. With some warning, $20,000 a month was whittled to $3,000 as the father modified his beliefs about how best to provide for his children—and the kids found jobs and prospered.

Adopting money mantras can help you keep resolutions. A workaholic will feel less guilty leaving the office at dinnertime after identifying a core value and repeating it often: My priority is to spend time with my family.

Help with the transitions

You don’t need to be a complete money mess to benefit from examining the emotions that motivate you financially—particularly at times of transition in your life. No one would call Elizabeth Kautz, the mayor of Burnsville, Minn., a shrinking violet. But Kautz, 65, took it hard when her investments sustained losses in the financial crisis—and then her husband died. “We’d lost so much,” says Kautz. “Layered on top of my grief was fear. I wanted to take what I had left and put it all in the bank.”

Instead, Kautz met with Susan Zimmerman, of Mindful Asset Planning in Apple Valley, Minn., a chartered financial consultant and licensed marriage and family therapist. Zimmerman gives clients an exercise that helps illuminate the motivations underlying financial behaviors, as well as the intensity of the motivation. Kautz learned that she was conser­vative, yes, but also a calculated risk-taker. The insight gave her the confidence to maintain a healthier balance in her portfolio.

Career transitions are obviously integral to one’s finances but loom large in other areas of life, too. Certified financial planner J. Mark Nickell in Brentwood, Tenn., sees people at a fork in the road on a regular basis. He’ll do a makeover of their finances, but when it comes to clients who are dealing with the blow of being fired, untangling a partnership that didn’t work out or wrestling with the relationships of a family business, Nickell calls in a consulting psychologist.

For client Kris McCain, 52, it was a matter of aligning her personal priorities with her work. A few years ago, McCain, a gynecologist, quit her job despite her husband’s qualms and looming college costs for their son. “I’d always viewed being a physician as having more of a personal relationship with a patient as opposed to a financial one, but I was getting financial pressure at work.” When McCain and her husband met with Nickell to map out their finances as a one-income family, he suggested a psychologist who could assess McCain’s career strengths and interests to help her pinpoint what she needed in order to gain job satisfaction. Last November, she found it in a health care practice that encourages her volunteer work in India, Haiti, Guatemala and elsewhere, where she provides cancer screening, surgery and other services.

Financial psychology isn’t always about overcoming obstacles. At Aequus Wealth Management Resources, in Chicago, psychologist William "Marty" Martin, who is on staff, views his role as facilitating financial wellness rather than addressing financial dysfunction. Martin, author of The Inner World of Money: Taking Control of Your Financial Decisions and Behaviors, assists clients in formulating goals, coaches them through the steps required to meet those goals and, occasionally, helps someone deal with success when it arrives. "I help them make decisions about how to enjoy life," says Martin. Now that’s a money script we’d all like to learn.

This article first appeared in Kiplinger's Personal Finance magazine. For more help with your personal finances and investments, please subscribe to the magazine. It might be the best investment you ever make.

Anne Kates Smith
Executive Editor, Kiplinger's Personal Finance

Anne Kates Smith brings Wall Street to Main Street, with decades of experience covering investments and personal finance for real people trying to navigate fast-changing markets, preserve financial security or plan for the future. She oversees the magazine's investing coverage,  authors Kiplinger’s biannual stock-market outlooks and writes the "Your Mind and Your Money" column, a take on behavioral finance and how investors can get out of their own way. Smith began her journalism career as a writer and columnist for USA Today. Prior to joining Kiplinger, she was a senior editor at U.S. News & World Report and a contributing columnist for TheStreet. Smith is a graduate of St. John's College in Annapolis, Md., the third-oldest college in America.