The Psychology of Financial Management

I took this picture in devastated New Orleans when residents had just returned after Hurricane Katrina. An industrious lady was offering "Cut + Coke" in her yard for $10.

There is much to say about this topic, but for today, I'd just like to address one particular issue relating to psychology and financial management that I see frequently in my organizing practice.

For some of my clients, handling bills and finances is an annoying and even distressing affair. At one extreme, I've seen years of bills stacked up, resulting in thousands of dollars in fees and ruined credit, even though resources had been there to pay the bills. Sometimes paying bills and dealing with paperwork triggers an anxiety response, and having a neutral, supportive presence to help guide the process and ensure follow-through is needed. (Of course there are many other reasons bills don't get paid for stretches of time! These include onset of severe illness, not having the money, etc. But for the purposes of this discussion, I am only referring to the psychological dimension of financial management.)

There can be many roots to this anxiety. A common one I believe is the development of habits of avoidance. These may have started years ago when there really wasn't enough to pay the bills each month on time. Opening bills that can't be paid can be extremely anxiety producing, provoking a flight or fight response. Avoidance makes perfect sense from an evolutionary standpoint, and it certainly is understandable when options for dealing are non-existent. But what I see oftentimes is that even when times change, and money is available, the anxiety and the avoidance response stick around. The anxiety of opening a bill -- followed by avoidance -- becomes a habit so that even when the money is there, the need to flee remains.


Another common issue I speak at length about in my clutter support groups is the "poverty mentality" I see frequently. This is a mindset that has nothing to do with one's actual resources. I've seen very wealthy extended families guided by a poverty mentality, and I've seen very poor people who do not live by its restrictions. It is based on the (oftentimes unconscious) assumption that there is not enough to go around. A person living with a poverty mentality might accumulate vast holdings of "stuff" -- sometimes more than their space can hold -- out of fear. I've seen people pay thousands of dollars per year in storage units for items that "will be worthwhile someday." I've seen others spend their lives accumulating "deals" -- items on sale or good deals from garage sales, with the idea that some day they will sell them. But instead, the stuff takes permanent residence cluttering up their living space, and the time spent accumulating and sorting becomes its own problem, if not nightmare.

The fear underlying this accumulation might be that one day the money won't be there to purchase the stuff, so they better hold onto it now. Or that one day it will be worth something, and that will be their only means for survival. The accumulations is not based on rational thought -- which will often reveal that the time and money it costs to hold onto to the stuff -- whether in lost rental revenue, or in lost clarity of mind, or in lost time spent shuffling everything around -- will never be repaid. It is based in fear.

In her book The Soul of Money, Lynne Twist uses her four decades of experience directing global initiatives to end world hunger to reflect on the relationship between money and leading a meaningful life. It's an inspiring book that I recommend highly. In her chapter titled "Scarcity: The Great Lie," she writes:

I have been engaged for all these years in the lives and circumstances of people, many of whom live in crushing conditions where the lack of food, water, shelter, freedom, or opportunity drives every move adn every conversation. Others, by every measure, have bounty way beyond their needs -- more money, more food, more cars, more clothes, more education, more services, more freedom, more opportunity, more of everything. Yet, surprisingly, in that world of over abundance, too, the conversation is dominated by what they don't have and what they want to get. No matter who we are or what our circumstances, we swim in conversations about what there isn't enough of.
I see it in myself. For me, and for many of us, our first waking thought of the day is "I didn't get enough sleep" The next one is I don't have enough time." Whether true or not, that thought of not enough occurs to us automatically before we even think to question or examine it.
....We live with scarcity as an underlying assumption. It is an unquestioned, sometimes even unspoken, defining condition of life. It is not even that we necessarily experience a lack of something, but that scarcity as a chronic sense of inadequacy about life becomes the very place from which we think and act and live in the world. It shapes our deepest sense of ourselves, and becomes the lens through which we expeirence life Through that lens our expectations, our behavior, and their consequences become a self-fulfilling prophecy of inadequacy, lack, and dissatisfaction. (pages 46-47).

She goes on to list the 3 toxic myths of scarcity:

Toxic Myth # 1: There's Not Enough

Toxic Myth #2: More is better

Toxic Myth #3: That's Just the Way it is


So what would our personal financial management look like if we approached it from the reverse mentality: there is enough. Less is better. I can change things -- in my life, and in the world. What would shift in your life?