Financial Psychology Center

facebook
Linkedin
twitter
instragram

media

By

The Psychological Trick Scammers Rely on and How to Protect Yourself

Journalist’s name: Simmone Shah

There’s one simple and effective trick many scams rely on: emotional manipulation. “They use fear-based tactics to get us into our primitive brain, which is always on alert,” says Alex Melkumian, founder of the Financial Psychology Center.

Scams range from impersonations of federal offices or banks to AI voice cloning that impersonates a family member or friend to pretend romances. The situations scammers create often involve high pressure emotional stakes and tight deadlines—such as claiming a family member has been kidnapped and asking for ransom—which are meant to encourage the individual to spring into action and make choices they wouldn’t normally make. “The emotional part of the brain really just hijacks our ability to rationally think through the situation,” Melkumian says. “It’s no different from the bully on the schoolyard. There’s this immediate pressure to hand over your lunch and you feel like you have no outs, no exit to run away.”

Continue reading your article…

By

My Parents Have a Lot of Stuff in Their House. I Don’t Want Most of It.

Journalist’s name: Allison Pohle

Publication: Wall Street Joural

Many of us have belongings that meant a lot to our parents and grandparents. How do we decide what to keep—and what to throw away?

On a recent visit to my parents’ house, I took a closer look at six Beanie Babies that long took up a spot in my childhood bedroom. Unlike my other Beanie Babies, these six, including a special-edition Princess Diana bear, weren’t played with.

Publication: Wall Street Journal

Journalist: Allison Pohle

Continue reading your article…

By

Your unconscious beliefs about money have a significant impact on your behaviors.

Journalist’s name: Jason Stauffer

Publication: CNBC

Being good with money isn’t just about knowing the correct information, but having the right attitude. Financial decisions are heavily influenced by unconscious emotional impulses, and sometimes these impulses lead to an unhealthy relationship with money. “If we’re not aware of what the issue is, we cannot change it,” says Dr. Alex Melkumian, a licensed marriage and family therapist and founder of the Financial Psychology Center

Dr. Bradley Klontz, financial psychologist and a co-founder of the Financial Psychology Institute, has spent years researching unconscious patterns driving financial behavior, which he calls “money scripts.” CNBC Select talked with Klontz and other financial therapists to get their advice on identifying and addressing these behaviors.

The 4 money scripts

Money scripts are a way of putting a name to a cluster of underlying beliefs about money that tend to lead to certain financial behaviors. “It’s really important for people to understand these are not personalities,” says Natasha Knox, Certified Financial Behavior Specialist and CFP®. People often have a mixture of all four money scripts humming in the background, but certain scripts exhibit themselves more strongly in different individuals (and in different situations).

These unconscious mindsets are typically tied to what we learn and experience as children and how we react to those experiences. “You could have children growing up in the same household experiencing the same thing. But where it goes for them is totally different,” Knox says. One child might grow up to model the financial behavior they observed, while another will adopt a completely different mindset. But in both cases, Knox says, the response is driven by emotions.

1. Money avoidance

Those who show traits of money avoidance view wealth with some level of disgust. “It’s a general negative association with money and with wealthy people,” Klontz says. Money avoidance beliefs include:

  • Rich people are greedy
  • It’s not okay to have more than you need
  • There’s virtue in having less money

Why this can be a problem

Having an unfavorable view of money may make you more likely to unconsciously self-sabotage your finances by neglecting anything related to money management. “If somebody has a mindset of money avoidance, there’s going to be quite a bit of financial anxiety, financial fear, and financial stress,” Melkumian, says.

How to hack the script

To address money avoidance beliefs, Klontz suggests creating a more balanced view of wealth and the wealthy. While some people get wealthy by taking advantage of others, that’s not a universal truth. It could be helpful to find people you can relate to that you consider wealthy (even if they’re not famous) who live in a way you consider virtuous and to find out how they make money and what they do with it.

2. Money worship

Money worship is the belief that money is the answer to all your problems. These beliefs put money on a pedestal and include:

  • Money makes life better
  • Money buys freedom
  • You can never have enough money

Why this can be a problem

A strong money-worship mindset drives people to pursue happiness through purchases, which can reduce your enjoyment of life to a number in a bank account. Part of the reason this money script can easily get out of hand is that money undoubtedly makes many things easier — it’s stressful when you have trouble paying your bills or putting food on the table.

“But it doesn’t solve all of life’s problems,” Klontz says. “Does buying stuff actually make you happier? And if it does, how long? Because typically people then have buyer’s remorse.”

How to hack the script

The solution is to shift your mindset to focus on what brings you joy. “It’s not really the money that makes you happy,” Klontz says. “It’s what you do with it.” To focus your spending on what will give you the most positive, long-term benefits, make a list of what you frequently spend money on. Then review that list and identify what made you feel fulfilled even after the initial endorphin rush from the purchase wore off. This can help you prioritize your spending in meaningful ways

3. Money status

Money status beliefs tend to link personal value to financial value. These beliefs include:

  • Your self-worth is your net worth
  • People need to see your wealth
  • I only buy new things

Why this can be a problem

The money status script is personified by social media influencers flaunting expensive watches, cars and clothes. “It’s approval and love … that’s what we’re seeking,” says Melkumian. Money status behaviors can lead to severe lifestyle creep, where you end up living paycheck to paycheck even as your income increases.

How to hack the script

Before you make an expensive purchase, ask yourself why you’re buying it and how it fits into your budget. Do you have to take on debt (even if it’s in the form of a credit card balance you have to carry month-to-month) to make the purchase? If so, that’s a big red flag you can’t actually afford what you want and should strongly consider passing — no matter how good it looks in a photo.

4. Money vigilance

The money vigilant tend to keep their financial lives to themselves and avoid frivolous spending. Beliefs associated with money vigilance include:

  • Money should be saved
  • You shouldn’t tell anyone how much you have or make
  • It’s extravagant to spend money on yourself

Why this can be a problem

In many ways, money vigilance is the opposite of money status. This money script can help you build healthy financial habits like having less credit card debt and a higher net worth. But there’s also a dark side to it that may not show up in any balance statements. “People can become so anxious around money that they can never enjoy it,” Klontz says. “Ebenezer Scrooge had some money vigilance, as an extreme example.”

How to hack the script

One way to address a money vigilance problem is by making controlled purchases of things you normally would consider too expensive. Exposure to what you fear decreases anxiety, Klontz says. “I will actually give them the assignment of spending money on something ridiculous.” This could be as simple as an $8 latte or a $15 turkey sandwich. Of course, you want to make sure you’re budgeting for these purchases so you don’t swing too far in the other direction with extravagant spending.

For real change, you can’t just scratch the surface

If you’re struggling to make progress or identify hidden beliefs, you may benefit from working with a professional therapist. An outsider’s perspective may be just the thing to help kickstart the changes you want to make. “It’s not about being judged,” says Judith Gruber, a certified financial therapist. “It’s about finding the best in you and … how do you want to live your life? What do you want to experience?”

Once you’ve identified the beliefs and behaviors you want to change, Melkumian suggests forcing yourself to do something that goes against those financial instincts. Having some practical experience with the new habits you want to build can boost your confidence and make it easier to gradually adopt a new money mindset.

As you take steps forward, have patience with yourself and be open to adjusting along the way. Changing what you believe about money and how you approach it isn’t about getting fast short-term results. “It’s really about committing to getting healthier and committing to … a new financial journey,” Melkumian says.

Subscribe to the CNBC Select Newsletter!

Money matters — so make the most of it. Get expert tips, strategies, news and everything else you need to maximize your money, right to your inbox. Sign up here.

Bottom line

The four money scripts are research-backed categories of beliefs about money that tend to shape your financial decisions. You can exhibit tendencies of more than one script and how these mindsets affect your behavior can even be situational. The emotions that drive these behaviors are often unconscious and by identifying the root cause, you can begin to steps to change your situation.

Why trust CNBC Select?

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of personal finance. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics.

Meet our experts

At CNBC Select, we work with experts who have specialized knowledge and authority based on relevant training and/or experience. For this story, we interviewed:

  • Dr. Alex Melkumian, author, Licensed Marriage and Family Therapist and founder of the Financial Psychology Center.
  • Judith Gruber, Certified Financial Therapist, Licensed Clinical Social Worker and founder of Money and Self-empowerment Co™.
  • Dr. Bradley Klontz, financial psychologist, author, CFP®, Associate Professor of Practice at Creighton University and co-founder of the Financial Psychology Institute.
  • Debra Kaplan, author and licensed clinical therapist specializing in financial disorders, sex addiction, trauma and relationships.
  • Natasha Knox, CFP®, Certified Financial Behavior Specialist®, Financial Therapy Association board member and founder of Alaphia Financial Wellness.

By

How to Keep Revenge Spending From Ruining Your Retirement

Journalist’s name: Juli Fraga

Publication: NY Times

In the first couple of months this year, thousands of American workers at companies like Google and Twitter have lost their jobs. Interest rates on car loans, credit cards and mortgages are higher than ever, and inflation keeps rising. And the talk of a recession in 2023 hasn’t gone away.

All of this uncertainty can lead to what personal finance experts call a scarcity mind-set, said Megan McCoy, a professor of financial therapy at Kansas State University. “We become hyper-aware of how much things cost and stop buying things we love,” she said.

By

Dealing with Post-Pandemic Financial Upheaval

The pandemic’s daunting psychological challenges are largely behind us. Now it’s time to deal with the financial challenges. These are uncertain, upsetting, unprecedented economic times. Savings are being eroded by inflation and stock market losses. Credit card debt is growing more costly due to rising interest rates. Just keeping a roof over one’s head is harder due to skyrocketing rents and home prices. And many businesses still struggle with tight labor markets and troubled supply chains.

Financial advisers are full of advice for weathering today’s challenges, but Bottom Line Personal asked Alex ­Melkumian, PsyD, financial psychologist and founder of the Financial Psychology Center, how to handle the psychological impact of 2022’s economic upheaval…

Inflation

Inflation eats away at the value of our savings, leaving us all worried about whether we’ll be able to pay our bills in the future. It can seem like an unstoppable, invisible force that is robbing us and potentially putting our survival at risk. That’s why inflation causes widespread anxiety and even outright panic.

What to do: Break down your budget into needs and wants. You need to pay your utility bills…you want to take a trip to Europe. If you’re middle class or wealthy, there’s a good chance that even steep inflation won’t truly threaten your ability to pay for your needs. Do some quick calculations to prove to yourself that your needs are safe. Just doing that can help you overcome inflation-driven anxiety and panic. Inflation that forces you to scale back spending on your wants might make you unhappy, but unhappy is very different from anxious and panicked.

Next, consider whether there’s anything you could do to boost your earnings until inflation eases. If you’re retired, maybe you could take a part-time job…if you’re still working, maybe you could apply for better-paying jobs—hiring remains strong in many sectors—or earn some extra money on the side. Remind yourself regularly that you’re earning this money to offset inflation’s erosion of your savings. This should give you a sense that you’re taking control of the situation—a lack of control is a big part of the reason inflation can trigger such powerful anxiety and panic.

Rising Interest Rates and Credit Card Debt

The Federal Reserve has increased interest rates repeatedly in 2022 as it attempts to confront inflation. Rapidly rising rates can be a big financial blow to anyone who has significant amounts of credit card and other variable-rate debt. Just one year ago, you could find credit cards with rates below 15%, but these days many charge 20% or more.

The financial solution to rising interest rates is obvious—pay off variable-rate debt quickly. But the psychological solution requires greater nuance.

Aggressively paying down credit card debt can be like going on a crash diet—most people who attempt it make progress for a while, then backslide and end up right where they started or worse. The crash-diet approach to paying down debt often fails because most people who are deep in credit card debt got there due to a long-term overspending habit. Shifting suddenly from this chronic overspending to extreme frugality triggers a sense of deprivation…and that only increases the drive to overspend.

What to do: If you’re a chronic overspender trying to pay down debt, include a “mandatory splurge” in your monthly budget. In other words, require yourself to spend some predetermined amount, perhaps 2% to 5% of your budget, on something that you want but don’t need. This monthly splurge can prevent the deprivation mindset, similar to how a “cheat day” is helpful for many dieters. Potential exception: Avoid mandatory splurges if you have credit card debt not due to chronic overspending, but because of a single unexpected event, such as uncovered medical bills.

Stock Market—and Maybe Real Estate—Losses

The S&P 500 lost nearly 20% of its value in the first half of 2022, and many analysts are predicting further declines ahead. Like inflation, a bear market is a force that threatens our savings. Unlike inflation, there’s an obvious option for investors who want to take control of these losses—they can sell their stocks and leave the market. Trouble is, that can be a costly mistake—investors who flee the market often miss the subsequent rebound.

Meanwhile, home values are showing signs of weakness and could fall in value in many parts of the country as well.

What to do: Take psychological control of declining stock values by deciding to not take your money out of the markets until stocks rebound. When you’re tempted to abandon stocks, remind yourself that selling locks in recent losses…while not selling means short-term losses can’t affect you. Since World War II, the average bear market has lasted less than 12 months, so patient investors usually can simply wait it out.

If you’re retired or unemployed and must tap your investments to pay your bills, trim your budget so that you don’t have to sell more stock than absolutely necessary. Tell yourself you’re making a choice to live frugally for a year or two as a way to contain your stock market losses—framing frugality as a personal choice helps avoid the deprivation mindset mentioned above.

If falling real estate values are a major worry, tackle a relatively inexpensive DIY home-improvement project that will make your house a more pleasant place for you to spend time. This can provide a useful reminder that our homes are, first and foremost, a place for us to spend our lives with the people we love. Their resale value is secondary.

Unfair Division of Economic Winners and Losers

There are winners and losers in any economy, but the line between those groups has seemed especially stark lately. Some sectors and businesses that could easily transition to remote work flourished during the pandemic and its aftermath…others floundered because they were forced to shut down during the worst days and/or they couldn’t obtain the employees or supplies they needed in the aftermath. It’s perfectly understandable if people who find themselves on the wrong side of that divide look at their neighbors who prospered and think, This isn’t fair. Interacting with people who are doing well financially adds to the pain of those who are struggling. There’s a saying in the world of financial psychology—“compare and despair.”

What to do: When you catch yourself thinking, It isn’t fair, tell yourself, No, it isn’t fair…but it also isn’t over. The pandemic didn’t create winners and losers…it created winners and people still fighting for their wins. This isn’t a football game where the clock has hit 0:00—you haven’t lost until you decide to leave the game.

Tap into your feisty side to combat the defeatism that unfair setbacks can foster. In the business world, people sometimes speak of “peacetime CEOs” and “wartime CEOs.” Many executives are effective peacetime CEOs—they can run their businesses well when seas are calm and things are normal. But we’re not living in calm, normal times. Right now, your career—and your business, if you’re an entrepreneur—require you to be a wartime CEO. The pandemic and the post-pandemic economy have gotten some hits in—how will you hit back? Framing the current economy this way can break the victim mentality and help you fight for the win that still might be within your reach.

This article first appeared on BottomLineInc. https://bottomlineinc.com/money/financial-planning/dealing-with-post-pandemic-financial-upheaval

By

Millennial Money: Learn — don’t run — from your inner critic

Journalist’s name: Laura McMullen

Publication: Nerdwallet

I can be so mean to myself. My inner critic roasts my actions like a political attack ad, with claims that are cruel, overstated and often inaccurate. My ad would assert that I’m stupid with money, bad at decision-making and a crybaby to boot—all endorsed by yours truly.

I’m not the only one talking trash about myself. Most people face negative self-talk at some point, and it comes up often in the practice of New York City-based financial therapist Aja Evans. Even financial therapists serve themselves harsh burns. “My inner monologue is brutal,” Evans says.

Personal finance is a prime topic for inner critics to judge, as it can be emotionally loaded and involve major decisions. Learn how to identify this voice and reframe its message.

Why You Should Acknowledge This Voice

Internal criticisms can be limiting when they become self-fulfilling prophecies, says Lindsay Bryan-Podvin, an Ann Arbor, Michigan-based financial therapist and author of “The Financial Anxiety Solution.” For example, why try to reel in your shopping if you’ve already labeled yourself as an over spender?

Or say your inner voice insists you’ll never understand investing. That statement could queue the following negative thought loop, Bryan-Podvin says: Because you already assume you can’t grasp investing, maybe you’re intimidated by the idea of opening a retirement account. So you don’t set one up or learn to do so. Then, well, you don’t have retirement savings or pick up any knowledge about investing. So you continue feeling like you’ll never understand it.

This kind of spiral reinforces the initial unhelpful claim, Bryan-Podvin says.

How to Identify Unhelpful Self-Criticism

To address overly critical thinking, you must first recognize it. The fancy term for these thoughts is “cognitive distortions.” In a Harvard Medical School article, Dr. Peter Grinspoon describes them as “internal mental filters or biases that increase our misery, fuel our anxiety and make us feel bad about ourselves.”

Or consider this simpler definition of a cognitive distortion, from Bryan-Podvin: “an unhelpful or untruthful thought.”

Look for clues to identify cognitive distortions. According to the Harvard article, those could include labeling, like calling yourself a bad saver, and fortune-telling, like insisting you won’t ever make much money. Watch for absolute terms, too, such as “always” and “never,” Bryan-Podvin says.

What to Do With Your Inner Critic

When it comes to quieting these criticisms—or changing any behavior—Evans says that “building awareness and tracking matters.” That’s why people log calories to eat healthier foods, for example, and track spending to save money.

Similarly, Evans says that acknowledging unfair claims is key to wrangling them. Perhaps in the moment, you simply say, “There’s my inner monologue again, being too harsh,” she suggests.

If noting your cognitive distortion in the moment is too hard, she says it’s fine to write or talk about your feelings later.

One way to do so is by scheduling recurring “worry sessions,” says Alex Melkumian, a licensed marriage and family therapist and founder of the Financial Psychology Center in Los Angeles. Dedicate those times to reflect on the financial challenges worrying you and how you tend to judge yourself about them.

Or attach this reflecting time to an existing habit, like your daily walk, Bryan-Podvin says. Another route: Identify when that inner voice tends to yell the loudest and get ahead of it, she says. For example, if checking your spending always stresses you out, “maybe five minutes before you log in to that budget app, you spend some time lovingly challenging that inner critic,” she suggests.

Whether you silently note your feelings, jot them down or speak them aloud to yourself or a friend, Evans says, “the key is to be brutally honest with yourself.” Examine what your voice says and how you typically react, as well as these criticisms’ impact on your life, she says.

Then brainstorm activities that typically get you “back to a more neutral place” when you’re overwhelmed, she says. Perhaps jogging outside, calling a buddy or scrolling through dog photos tends to make you feel better. Aim to tap those coping mechanisms the next time your inner monologue gets the best of you.

Ways to Learn From Your Inner Critic

“The goal is not to get rid of the inner critic completely,” Melkumian says, adding that doing so would likely be exhausting—and fruitless.

Try to contain, rather than eliminate, the voice, Melkumian says. Think of your mind as a house and the critic as your roommate. “It doesn’t have to be sitting right next to us, talking in our ear,” he says.

And like a rent-paying, dish-washing roommate, your inner critic can have value. Recognize its overly harsh claims, and ideally you could learn from them. “Ask which part of what the inner critic is saying is true,” Melkumian says.

Take the investing example. Assuming you’ll never understand investing is extreme, but maybe the topic does confuse you. Use that bit of truth as a prompt to learn about investing in a beginner-friendly way.

By acknowledging and examining these unfair claims, they can become more helpful and less hurtful. “As soon as we start paying attention,” Melkumian says, “we start getting some of our power back.”

By Laura McMullen of NerdWallet
The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.