Financial psychology can influence our money decisions in ways we may not even realise.
(Financial psychology explores the emotional, cognitive, social and cultural factors that influence how we think, feel and behave around money.)
Researchers at Queen’s University in Canada have estimated that the human mind moves through more than 6 000 thoughts a day. That’s an extraordinary amount of mental activity – much of it happening without deliberate reflection.
When it comes to money, however, we often like to think our decisions are primarily rational. We review the numbers, weigh the options and make what appears to be the most logical choice.
If personal finance were purely mathematical, that might be enough.
But money is rarely just about numbers. It can represent security, freedom, achievement, status, generosity or even fear. Our financial decisions are shaped not only by what we know today, but also by beliefs we have accumulated throughout our lives.
The beliefs operating in the background
These underlying beliefs are sometimes described as ‘money scripts’ – deeply held ideas about money that can influence our behaviour, often without us consciously recognising them.
They can develop from many places: watching how our parents handled money, experiencing financial uncertainty early in life, building a career during difficult economic conditions or absorbing messages about what success is supposed to look like.
One person’s internal script might say, ‘I need to keep earning more before I can relax.’
Another might believe, ‘Spending money on myself is irresponsible.’
Someone else may feel pressure to maintain a particular lifestyle because, somewhere along the way, visible wealth became connected with achievement.
None of these beliefs is automatically right or wrong. From a financial psychology perspective, the problem arises when an old assumption continues directing financial decisions without being questioned.
When yesterday’s beliefs shape tomorrow’s decisions
An unexamined money script can affect how much we save, how comfortable we feel spending, how we respond to investment uncertainty and even what we believe ‘enough’ looks like.
Someone may be financially secure yet remain deeply uncomfortable using their money. Another person may continually raise their lifestyle expectations as their income grows, without stopping to consider whether those choices are actually making life more meaningful.
This is where the numbers alone can tell only part of the story.
A financial plan may show that certain goals are achievable, but that doesn’t necessarily remove the emotions attached to making those decisions. Likewise, having substantial assets does not automatically create a feeling of financial security.
Understanding financial psychology means recognising that the practical and emotional sides of money often need to be considered together.
Bringing the invisible into view
Good financial planning therefore begins with more than asking, ‘How much do you have?’
It also asks: What matters to you? What are you trying to protect? What does financial security mean to you? What would you like your wealth to make possible?
An objective financial thinking partner can help identify underlying assumptions and consider them alongside your current circumstances, priorities and financial position.
This kind of reflection can also make financial conversations more productive, because decisions are considered in the context of both practical realities and the personal values that give those decisions meaning.
Sometimes an old belief remains useful. Sometimes it belongs to an earlier chapter of life.
Recognising the difference can help you approach financial decisions more deliberately, rather than simply repeating patterns you inherited or developed years ago.
Ultimately, wealth is not only something to accumulate. It is a resource that can support the life, people and priorities that matter to you.
At RFAdvice, we believe financial clarity comes from understanding both the numbers and the financial psychology behind our decisions. By bringing these perspectives together, your financial plan can remain grounded in your circumstances while reflecting what you genuinely value.
Next up: Financial generosity: creating freedom through purposeful giving