Why personal finance is more personal than it is finance

The 18th-century writer David Hume became one of the world’s great philosophical voices when he hit upon a key fact about human nature: we are more influenced by our feelings than by reason . Although possibly an insult to our self-image, Hume believed we can all be far happier if we can learn to deal with this surprising fact. His philosophy is built on a single powerful observation: the key thing to get right in life is feeling rather than rationality. It sounds like an odd conclusion. Traditional learning assumes you need to train your mind to be as rational as possible; to be devoted to evidence, logical reasoning and committed to preventing feelings from getting in the way. But Hume insisted that whatever we may aim for, “reason is the slave of emotion”. Fast-forward 250 years and Daniel Kahneman, a Nobel prize winner in economic sciences, agrees that when it comes to our money, we are also far more motivated by our feelings than by analysis and logic. So, both in money and in life, few of our leading convictions are driven by facts. What to do with our money, how to invest, what constitutes a good financial decision and whether someone or not is trustworthy are all examples of decisions made on emotions above anything else. Reason only helps a little. We find an idea “nice” or “threatening” and declare it true or false. Reason only comes in later to support this finding, rarely to challenge it. Dogecoin founder Jackson Palmer, for instance, recently said cryptocurrency is a “get-rich-quick cult designed to extract money from the desperate and naïve whilst amplifying the wealth of its proponents”. But this doesn’t deter those determined to gamble their futures with it. These speculators tend to be the same individuals who ignore decades of peer-reviewed academic evidence on the sensible way to invest your money and “get rich slow”. This isn’t wrong, it’s actually the essence of being human. Perhaps not surprising then, in a noisy world where conflicting information abounds, we become “predictably irrational”. After all, we are all trying to find clarity around our decisions and feelings of greed, anxiety, worry, denial, shame, inaction and fear. Almost universally – regardless of income bracket or upbringing – people suffer from the same money affliction but the real problem isn’t money at all. The real problem is the emotional relationship people have with their money . Consider these mindset "script" examples: “It’s not nice to talk about money”, “I have left it too late to start and will never have enough money to be secure”, “I deserve to spend money”, “Cash in the bank is my safest option, investing is for the rich”, and “If you are good, the universe will give you what you need”. Do they sound familiar? These beliefs are rooted in your childhood experiences, the community you grew up in and the habits of those around you. “We have these beliefs clunking around in our heads and for many of us, it’s been passed down from our parents,” says Dr Brad Klontz, a financial psychologist and associate professor at Creighton University in the US. They are often just partial truths, largely from our upbringing and we, in turn, pass them on to our children. Consciously or unconsciously, these “scripts” are responsible for your financial decisions. Perhaps the greatest shield against poor financial decision-making is increased self-awareness around these scripts. Knowing yourself better is the best starting point for change. Researchers have identified four common attitudes towards money: money worship; money avoidance; money vigilance and money status. Do you believe money can solve all your problems? You could be a “money worshipper”. Do you worry about money even though you have a steady income and a healthy retirement fund? You may be “money vigilant”. Recognising your own money personality or working with a professional who understands your scripts is the first step towards making better financial decisions. Awareness of your drivers can help you to achieve smarter money goals, whether that’s spending less on impulse purchases, investing wisely (avoiding speculation) or saving more for retirement, experts say. In my next column, I’ll explore each of these money archetypes, along with how to discover which applies to you and the insights and advantages they may bring to you and your family. But for today, hopefully, we can just agree that personal finance is more personal than finance. Sam Instone is co-chief executive of wealth management company AES