Day-to-day life can become mundane and monotonous. Some days, when following the same routine and interacting with the same people, we can, at times respond to a given situation in a "scripted" manner.
There's a similar phenomenon in the financial realm. Given a specific set of circumstances, people often find themselves reacting in the same old way, often with negative consequences. People who study financial behavior attribute this to a phenomenon called "money scripts."
Brad Klontz, a psychologist who specializes in finance, explains how these scripts can originate. "As children, we're left to try to make sense of the world, and so we develop these beliefs around money based on experiences we've had. These beliefs are like water to a fish, where it's just your sense of reality."1
In other words, these are beliefs we're not aware are beliefs. In our minds they're simply the way things are.
Klontz has identified four main money scripts Americans tend to have:
Money avoidance - Money is automatically negative. Trying to earn more of it and accumulate it is bad.
Money worship - Money means everything. If you can get enough of it, you're guaranteed to be happy.
Money status - Money is the measure of personal worth. So, it's important to appear wealthy even if you're not.
Money vigilance - Money is something to be careful with. You should be diligent about saving and cautious about spending.
Klontz says that of the four, the only belief that's useful for financial health is the 4th one in the list: money vigilance. Even so, it can produce anxiety if taken too far.
The prudent investor knows that money is neither a magic cure-all nor an inherent evil. It's simply a necessity to live and can be a tool in helping reach major goals. Keeping this in mind, it's possible to accept the inevitable ups and downs of the market as simply a part of life.
