Financial Psychologist Reveals: The Secret To Building Wealth

your beliefs around money they become dysfunctional when you hold on to them rigidly and quite often there's an intense emotion associated with that and so when I think about trauma I think about something that feels like it's out of your control something that feels like it's a threat to your well-being money has a lot of threats hey I'm Dr Brad klontz your financial psychologist financial planner and financial psychologist Dr Brad klontz co-authored and co-edited five books on the psychology of money you actually can change your financial life and it's actually not that complicated and it's not the secret set of strategies that only rich people have most millionaires in the US are self-made most went to public school most work full-time you know they're not inheriting all their money and the challenge though is to realize that now that you're an adult you have the power and the ability to change your life I'm Erica kolberg and you're listening to the Erica taught me podcast so I imagine that the earliest money memories that we have in childhood impact how we then go on to manage our money and how we are with our money when we grow up is that true it's absolutely true so we have early experiences around money and for many of us they are you know innocuous like they're just things that just your parents said or things that happen things we don't really think about some are really profound and like almost traumatic but we all have these early experiences and there's so much value in in digging into thinking about you know what is my earliest memory around money what's my most joyful memory around money my most painful memory around money because what we develop on top of those are what we would call Money scripts these beliefs around money we're trying to make sense of the world we're trying to make sense of how money Works in our lives and there's so much value in tracing those back now the the big thing too is some of these experiences your parents had or your grandparents had or your great-grandparents had and that's where it gets kind of creepy and also kind of fun because many times we're just playing out a script that was written for us Generations ago so I was thinking about for me my earliest money memory was my dad was in the military so we were on this military base and there was a soda machine he puts in 25 cents or 50 cents into the soda machine to get his soda the soda does not come out so first he does you know shaking the soda machine and then he looks for the number on the back of the soda machine and I'm I don't remember the exact details but we spent like the next two hours going around to the different offices on base that were the in charge of the soda machine and trying to recover his 25 or 50 cents so what does that tell you about how I became as an adult yes that's a good question so when you think back on that memory what what sort of emotion comes up for you was it a positive experience was a negative neutral mixed I think positive now I'm grateful because I really think the way I was raised taught me the value of money and how every quarter is very important but then I also remember throughout my life being kind of embarrassed by these things that my dad did to save money and as I grew up like even in Heist school we would go around on Sundays to dumpster diving basically like people would be throwing out their trash their recyclables and that would become our new desk that would become our new lamp and and so I remember like in high school when he was doing that I was just like ducking in the car trying not to be seen by my other high school right but so yeah it was a mix I think it really taught me the value of money but it was also a bit embarrassing yeah I mean that was sort of the reason I asked about your emotional reaction is because and I heard you just say it you know there's part of you that's real grateful around the frugality and around the value of money and then also though it seems like it could have even tipped to the point of sort of like oh like are we being a little bit too Frugal a little bit too cheap it's kind of embarrassing and the reason I I I'm pointing that out is because we will quite often adopt beliefs based on what we saw growing up or react against them and so almost do the opposite and what's interesting too is sometimes we will vacillate between the two week to week month to month or or shift as we get older or so it's it's an interesting thing to explore one of the things that I was also realizing as I was doing this exercise myself is that there are people when it comes to money that have a scarcity mindset and then an abundance mindset and I definitely have a scarcity mindset the way my scarcity like obviously my scarcity mindset is very helpful in that it helped me to get out of debt but now even though I have plenty of money I am still scared to spend the extra 15 on something that I want because I'm thinking is this the best use of my money even though in relative to how much I make 15 is very little right right yeah and so you know you're mentioning scarcity obviously that doesn't sound very good to have a scarcity mindset ironically though what what our Studies have found is that people who are the most anxious around money who are sort of worried about the future we would call it a future orientation they're the ones who tend to have the most money so so there's some irony there around and you think about think about a squirrel who's not really worried about surviving the winner it's like well you're not going to run around and gather nuts and hide them and then you'll probably starve to death so there's a lot of value in having sort of that future orientation and being worried about not having enough for the future because that inspires you to you know delay gratification to save to invest but you can take it too far so where does the abundance mindset come into place and what kinds of people what kind of childhood experiences form people that have an abundance mindset and then is that a good thing later in life yeah first of all fabulous question a scarcity mindset let's look at this psychology behind a scarcity mindset so quite often people are coming from poverty or grandparents who are in poverty like like one of the things that can happen is that you can grow up middle class but your parents and grandparents grew up in the Great Depression or were so worried about money that you are living a middle class life but you feel like you're poor and you feel like there'll never be enough money so one of the beliefs underneath that scarcity mindset is this belief that there'll never be enough money now what's interesting about that belief around all beliefs around money they are a hundred percent true in a particular context right so all these beliefs the craziest beliefs around money make total sense in in some sort of context the they become dysfunctional when our our situation changes and we're not able to change our beliefs so the belief there will never be enough money um in its extreme will lead to one of two patterns so number one you're going to be like an Ebenezer Scrooge type hoarder super Frugal cheap because you're worried there'll never be enough money and um now it's good for your net worth to have that mindset it's not good for your experience of life right or another another behavioral pattern around there'll never be enough money is that why bother trying so and this is a real dangerous one and people come from poverty it's it makes logical sense why you would end up with this there'll never be enough money so why bother trying to save why bother investing if I if I have some credit on my credit card I'm gonna go spend it all there'll never be enough money anyway so the scarcity mindset can lead to two different directions based on what behaviors ensue and an abundance mindset is where this can also backfire also I've definitely seen people who have this abundance mindset which you would say well there's always enough money and it's a great mindset like to have a friend like that right like if you're for friends you have an abundance mindset I know you're just going to pay for dinner you know everything's fine I'm gonna get great gifts but if it's not true that you're you're living a life where you have an abundance of money or an unending amount of money you're going to quickly get in trouble with it so how do you develop this ability to shift based on the circumstances going from if you're on the scale of abundance to scarcity how do you develop the ability to shift on that scale depending on where you actually are and how your financial situation actually looks yeah I mean you're you're describe your ability to shift your thinking really is sort of the Pinnacle of mental health and actually success it's being able to be open-minded and flexible in your thinking to match reality and so I mean to me that's that's sort of where we're all trying to get to is this ability to shift our thinking and our approach based on what's happening around us where we get into trouble is where there are really strong emotions or even trauma associated with our early experiences around money sometimes this trauma as I said can get passed down through the generations so I'll just give you a quick example so my grandfather passed away in a trailer park so I did not come from money and um in in trying to look at my own psychology around money because I made some big mistakes investing early on I didn't know what rich people did I grew up poor I thought oh well no they they invest and and so I put all my money into the riskiest possible stock started to make money and the tech Bubble Burst and I started to lose all my money which got me interested in the psychology of money I was like why would a reasonably intelligent person do something so stupid with his money and so I went home and I started to interview my family members and I interviewed my mother you know what my poor mother I put her through this in my psychology training you know just picking her brain but what was it like you're growing up around money how did you feel about it and what was it like for Grandma and Grandpa and this has started to blow me away and I really started to understand my psychology when I found out that my grandfather never put a dollar in the bank since he was a young man ever so he was unbanked so it's like no wonder he's living in a trailer park has no money and what happened to him is he was a young man during the Great Depression and so he went to the bank one day and all his money was gone and so if you had that experience just imagine the trauma of like you're putting your trust into a financial institution all your money's gone and so what belief would you have from that well he said you can't trust banks with your money now that is a very logical belief for what happened to him we would say that's a very functional belief and if he had had that belief before the banks collapsed we would have been fine it became dysfunctional immediately when the contacts changed so when the government came in and started to guarantee bank accounts up to a hundred thousand now it's 250 000. that became a very dysfunctional belief but he had an intense fear and so all of a sudden my mother's fear around investing and her you know Ultra conservative and really Frugal and cheap always a scarcity mindset all started makes sense and then for me I came along and it's like well I don't want to be poor like my family so I I call it a dysfunctional pendulum swing it's like I went from the you know real risk averse to like the riskiest possible Investments and then I got I got crashed and burned and if I wasn't a psychologist if I wasn't willing to like examine myself I think I would have shifted right back to my grandfather's belief which is you can't trust you know investing and so what what's fascinating about this for all of us is this happening below our conscious awareness it's driving all our financial behaviors the results you're getting in your life right now are because of your beliefs around money which we can trace back to those experiences either you've had or your ancestors have had one of the things you said earlier that I feel like is a driving force for why I want to help people be better with their money is when you said that a lot of people feel like because they grew up poor they too will be poor and why even try and I think that being able to break these generational cycles of poverty and being on the being lower on these socioeconomic scale is so important what is your advice there to people who do say to you well I grew up for I'm going to be poor too yeah so I mean first of all I I understand how you feel that way and there's this thing we have to be really really careful about this mindset and in Psychology we call it learned helplessness and it's really really dangerous and that the studies that have determined learn helplessness do you want to hear about them yeah all right so it's actually really sad but what they would do is they would take a dog and they would put it in a cage that was electrified no this is terrible it's like torturing animals but um it's a good illustration of the torture that people endure who end up with this mindset and what would happen is they would do an electric shock in the cage and the dog would jump around trying to get out trying to escape and then eventually it would learn Escape is impossible so it would just lay down and whimper by the way just terrible terrible science but then what they did is they changed the situation so that half of the cage was not electrified so literally the dog all the dog had to do was hop over here and it would not be getting a shock and what they found is the dog didn't even try it just laid down and whimpered because it had learned Escape is impossible and so one of the one of the challenges and one of the reasons I create content on Tick Tock and social media is is to try to um give people a sense of hope and and empowerment around the fact that you actually can change your financial life and it's actually not that complicated and it's not the secret you know set of strategies that only rich people have the system is rigged and you cannot achieve you know success I mean I'm trying to break some of those down because I grew up with that mindset myself I grew up lower income I thought well you know I had all the stereotypes and by the way I've studied all these in research to see if they were true so first of all I would tell you if they were true but like you know most millionaires in the US are self-made most went to public school most work full-time you know they're not inheriting all their money now certainly some people do and I hope my children inherit a lot of money by the way I'm not disparaging that but just to realize that there is a path to bettering your life financially and it's and it's accessible to everybody is one of those things to help break that pattern because when you grow up in poverty quite often there's trauma so associated with it there's fear for your safety you certainly do not get access to the best education the best opportunities and so there's some there's a real part of that there's not enough money and I'm suffering and I'm being traumatized around it and and the challenge though is to realize that you know now that you're an adult you have the power and the ability to change your life you keep mentioning this money trauma can you talk about what exactly that is and then maybe some examples of what are the most common scenarios of money trauma that people experience when they're younger that lead them to then feel helpless and hopeless when they're older yeah so I I talk about financial trauma because what we have found is that your your money skipped your beliefs around money they become dysfunctional when you hold on to them rigidly and quite often there's an intense emotion associated with that and so when I think about trauma I think about something that feels like it's out of your control something that feels like it's a threat to your well-being and money a lot money has a lot of threats associated with that like if you don't have money it literally is a threat to your safe safety and well-being and your ability to survive so it's real closely linked to survival and so when you feel like things are out of control when you feel like no matter what you do it doesn't make a difference when you feel like something happened and devastated you or your family history this is why I think growing up in poverty is just a series of trauma after trauma that people endure and then meanwhile you're watching other people who seem to be having a much better life you know which makes you even feel worse about it so I think trauma around money is anything that leads to that sense of disempowerment that sense of helplessness and hopelessness and I feel like to shift out of that you really have to kind of dig back into your history and think about it with your adult brain because as children we are just looking to make sense of what's happening to us and so we'll latch on to a belief that makes sense like like my grandpa's example you can't trust banks with your money that he never went back and Revisited that with sort of his more logical adult brain because he was wrapped up in his emo around it and so that's really sort of the route to Healing if you will healing that trauma is being able to look at it sort of like with a bird's eye view and look at it more accurately around what's what's the reality of the situation right now I understand my emotion and where it came from but how do other people look at money who are you know a step or two ahead of where I want to be what what are their beliefs around money that's so interesting so if people are listening right now and they're resonating with this and they're thinking I have money trauma I feel this way what are the best exercises that they can do to get out of that yeah so if we're talking like money trauma where it's like post-traumatic stress disorder where it's having a profound impact on your life number one go go see a therapist by the way therapy is incredible because what you need to do is is really do some healing around that for some people just recognizing that they have this money script they have this belief around money it's not serving them well recognizing that like go back and interview your parents if they're alive if you're able to do that relatives try to figure out what is your story what is your family's story around money it can be so empowering because one of the things that keeps us stuck is um shame so we feel ashamed around money the reason I I talk about my mistakes and screwing up all the time is because I want to help people feel less shame like most of us have had terrible experience from you've made big mistakes around money you're not alone and the the message I try to talk about is that the craziest money behaviors your biggest money mistakes make perfect sense like I could take any kid put them in your family situation give them the experiences you had around money and they'd probably be doing exactly what you're doing around money I mean it makes total sense and so just recognizing that your money problems aren't the result of you being crazy lazy or stupid they just make absolute sense based on your family history and based on the beliefs that you developed and trying to make sense of that history yeah and it's so true that because money is such a taboo topic and there is this shame around it you may not realize that the people in your inner circle the people that you know are going through the same money things as you for example you may be in credit card debt and feel like you are the only one who was silly enough to get into deep into this credit card debt but secretly there's probably at least five ten people around you who are in the exact same situation but no one wants to talk about which makes you feel so alone in that and so a shame and then that in turn makes it harder for you to climb out of that because you don't have that accountability of someone saying you can do it you've got this right yeah you're right like that social comparison is so incredibly impactful and we like to tell people like like you shouldn't care about what other people think and it's like oh you know that's I mean honestly it's like we all care about what other people think it's it's hardwired into our nature and it's really important to embrace that because you are going to be acting out around money based on that reality of your status within a group whatever group you're you're associated with or you affiliate with in your brain your status is very very important to you and this is just one of the things that it pays to know and pay attention to because the bottom line is we're all crazy when it comes to money we all are we're just wired to do it all wrong and if you think about how we've spent most of our time on Earth 99 of our time on Earth has been in small little hunter-gatherer groups of 100 to 150 people who are closely related and paying very close attention to our staff status within that group that is how our brains have been developed and so when we see somebody who seems to have something that is a symbol of status you're going to feel like you're missing out you're gonna you're gonna it feels like a threat to your status within that group and so a lot of social media is the worst for it right so I make a lot of content around you know myths about Millionaires and I disparage all these like you know designer Brands and everything and I do it a little bit tongue-in-cheek but you know we're being sort of like all these images of Lamborghinis and designer bags and you start to think that everyone else is living this luxury lifestyle and I'm not and so then the impulse for you then is to go overspend uh to get some of those status items so that you can feel like you belong and and we and you know I just want to be really sort of gentle around that too I mean that what's coming from that is is this need to want to belong and to feel like you know we we have friends and that people are going to look upon us you know in a good way I mean it comes from that sort of survival Instinct but that is one of the biggest problems we have in United States are people spending way more than they have to try to uphold this sense of status which really goes back to that survival brain so just understanding that we're wired to do it wrong you can then interrupt that process you know you can see something you go oh I'm feeling bad about myself I want to go buy it and say aha I know what's happening right now and a big part of what I try to do on social media is educate people around what actual most millionaires how they actually spend their money and it's very very different than what we see on social media so how are most millionaires actually spending their money yeah so I've done some studies where we looked at a group of ultra wealthy individuals who had about 11 million in net worth and we compared them to a group of people who had half a million dollars in net worth so that's a big disparity in terms of net worth and we looked at their psychology a bunch of different things but this shocked me I'll just be quite honest with you but what we found are the people in that ultra wealthy group so they had 11 million in net worth they only spent twice as much on their house their watch their vacation and their car then that group that had half a million dollars and that's what study after study has shown and we can certainly think of examples you know we're in Hollywood right now you can see lots of examples of people who are lavish Spenders right but when it comes down to the average like most self-made millionaires in the United States they describe themselves as Frugal they have a Frugal mindset they're thinking about saving they're actually worried about the future so they're they're willing to delay gratification and that's that's really the way to to climb out of poverty and to climb the socioeconomic ladder it has to be a focus on the future and I'm going to save and invest and because I value owning my time I value Freedom when people are really attached to items and we would call it materialistic materialism there's a lot of studies on this they tend to have lower income lower net worth lower Financial Health and they tend to be frankly more depressed you were talking about this concept of the reason we tend to overspend within our circles is because we want to we feel the need to belong we want to show that if your neighborhood can buy this beautiful 500 000 house while soak a knife if they can drive this beautiful car well so can I and I know how that feels because I remember in high school all the cool kids they were wearing these American Eagle jeans and I really really wanted it but obviously my parents were like no no that's too expensive and then we went to a thrift store and I found these American Eagle jeans so I bought them and I just felt so proud and so excited and that need to belong continued Even After High School in college I was going out and spending all of my paycheck from working at the local Subway I was spending it all at the mall on these shoes so that I could be like the cool one with the cool shoes and that need to belong as deep and strong how do we get out of that or is there not a way out well it really does depend on your comparison group I mean so that that's that's one of the hacks is like come up with a different comparison group that's just the bottom line and uh you know it's one of the reasons why I'm passionate about sharing the information around how do people become wealthy and how do they actually spend because what I AI what I've done is I've I now associate in my own brain sort of lavish displays of status objects as being an indication that somebody probably doesn't have a lot of net worth or number two that they feel bad about themselves in some way so they're they do want people to look at them in a certain way which tells you that they have a little bit more insecurity you know which is probably what you had around the genes I mean certainly like and by the way I'm not trying to disparage people who do this like when I got out of grad school I was 29 years old I owed a hundred thousand dollars in student loan debt I was broke and I immediately went out and bought like a luxury watch an Omega watch I went and bought my mom a real thick like um Hawaiian heirloom bracelet I was living in Hawaii at the time like solid gold I mean I was like I was doing exactly all the things that I try to caution people against and but I know exactly why I did it I grew up poor I was sick of being poor I I wanted to show the world I made it I wanted to show how my mom how much I appreciated all of her sacrifice in her life to help me get where I was and um but in any objective standard it was the absolute wrong thing to do I mean I couldn't afford it I didn't have the money and I thought that this is what rich people did and so you we see a lot of that we see a lot of people who um grew up in humble beginnings who have gone to school perhaps you know they're now making a hundred thousand dollars and they immediately go out and do all the things they think that rich people do so they go they buy a luxury watch they buy an expensive suit they lease a very inexpensive a very expensive luxury car thinking that this is what people do it's actually not what most people do do you think because we have these similar experiences of wanting to belong and overspending do you think that we grew out of it do you think that we started making enough money where we didn't feel that need to belong as strongly like what do you think happened you know I would be lying if I said that I didn't still have those feelings inside of me and you know I I was it's so funny because about three years ago I was telling my wife we got to get a van we got to get like a you know I want to get a sprinter van and we're going to build it all out and and what what I found myself doing was talking about how it made so much sense you know how we're going to be doing this thing and then literally I was doing this for like three months drawing up plans and all this and then one day I was walking to work so I walked live in Boulder it's beautiful I just walk along the mountains over to my office I saw a sprinter van and I was like I'm gonna count how many Sprinter vans I see on the way to my my office and I think I saw like 14 of them and I I had this awareness that how much you know I want this Sprinter van because I'm seeing everyone else around me have it now I that's not what I thought when I had that that mindset I actually came to my wife with all these very logical reasons about why this made sense you know but to when I when I had that awareness it really flipped on a light bulb and I looked at the whole thing very differently and I realized actually this was the the latest iteration of me feeling like I wanted to fit in feeling like I wanted to belong feeling like I didn't want to feel like I had less than the people around me interesting I don't even know what a sprinter van is by the way oh yeah well let me tell talk more about it because then you're going to feel like you need one and you can justify yeah all the cool kids have it Eric oh wow they all have one yeah I for me I really I don't feel like I spend to prove anything now and if I had a choice I would just wear my sweatshirt and my jeans every day my team recently has gotten on me though like they made me in the trash over there is my pair of jeans I think I bought them when I was in college over a decade ago and they were like first of all skinny jeans are out and they look worn and gross and then they also throw in my mom's shoes I got hand-me-downs from my mom and I was so excited about these cute boots and packing them for the strip and they're like no it doesn't look good they threw them away and someone was like oh well are the hand-me-downs like you know vintage Chanel or something I was like no they're all though they were like 70 shoes and my mom wore them for a few years and then not to me but the only reason I'm digging it now is because my team is forcing me to and apparently like I have to look a certain way to maybe yeah I don't know yeah I mean for me it's it's just recognizing that I have that vulnerability and that I probably always will because I I am going to be concerned at some level of how people perceive me and what's so fascinating around the whole status thing is that you can belong to a group where the highest status is wearing the worst clothes and people who are sort of anti-cultural establishment what's so funny is they sort of tend to group together and all kind of look in a look in a similar way and I so so for me I feel like there's so much value in just recognizing that we're vulnerable to this idea of where where do I fit within the group and that sometimes that can leave us vulnerable to uh you know engaging in financial behaviors that aren't really good for us what are they worse like the three worst things that people are doing with their money the three worst things you know part of it comes from a a desire to climb the socioeconomic ladder and so one of the things that that really concerns me the most and it's so hard to watch is people who you know it's cliche to say get rich quick but people who just fall into to these schemes of trying to become wealthy quickly it's actually what got me on Tick Tock I my nephews were showing me that app and then all of a sudden I saw people talking about day trading and I'm like oh my God day trading's back you got to be kidding me so there's so many of these things that are set up to take money from people who most need it and so it's that impulse that I'm gonna change my entire family generational history around money but I need to do it fast you know I want to do it quickly and so they get suckered and I hear and people will like mimic my profile and then I get these terrible stories where people you know I gave them a thousand dollars because they said they were going to turn it into ten thousand and man it's real easy to look at people and shake your head and say why would you do that but I understand why they do it they're desperate to want to become wealthy they're not sure how to do it so it's falling for those get rich quick schemes that uh just seems to just continue to happen over and over and over something that that um is devastating for people what's number two I think number two might be not not having sort of that future orientation okay and so there's actually not nothing more boring than like an amorphous savings account or a retirement account that kind of thing because what we have to do is we have to overcome our instinct to enjoy things right now because that's how we're wired and again let's go back to that that um hunter-gatherer group you couldn't save anything for 99 of our time on Earth food would spoil you can only bring with you what you could carry so we are wired to consume we're consumers food you know I mean like how many people struggle with their diet everybody does because there's an abundance of food there's sugar salt fat I mean that's what we crave and and we want to eat as much as we possibly can and then our bodies also don't want to move much you know you want to like hold on to those calories this is all part of that survival brain and so that consumption mentality is just built into us so how do you overcome that well you have to have a super exciting vision of the future and so I we actually did a study on this where we got people to increase their savings rates by 73 after one hour of visualizing why they would want to save to be begin with so pick your top three financial goals is what we did in the study and then we had people do vision boards we had them create visual representations of those goals think about what values are associated with those goals is this about freedom is this about family is this about connection about fun what is it why are we doing this and then then we had them automate and just you know name accounts after those goals and then just automatically send money over to those goals 73 increase in savings after one hour of doing that so having a very clear vision of why you're going to be sacrificing and delaying gratification super important so people don't have that Vision it's a huge mistake because they're just going to be wired to spend right now that's so good and number three oh number three so I got the get rich quick I would say this is a a caveat of that but it but let's just talk about investing in general so many people actually most people who invest do do terrible at it I mean they we've done studies as a profession actually studies show that dead people outperform living when it comes to investing and women outperform men and one of the reasons that both of those are the case is that uh you know dead people and women are less confident in their ability to beat the market so they actually trade less dead people trade way less and women trade less and so what what studies have found is the more you trade the worse you do and the irony is that people think that the more they trade the better they do the irony is the more people treat yeah the irony is that the more people trade the worse they do but we think that we're gonna do better the more we trade because the more we know right and so trying to beat the market is another just sort of devastating approach people do when it comes to money and what I always tell people is so first of all wealthy people aren't at their computer trading all day that's not what they're doing okay what they're doing is they're making money and they're looking for ways to make more money but more importantly they are saving and investing a percentage of every dollar they make and so like right now if you're not saving and investing a percentage of every dollar you make that that is my number one piece of advice um and the earlier you start it the better it is obviously but that is sort of the mindset you have to have if you want to become wealthy I think the thing you brought up about delayed gratification is so important because that is probably the skill that the most number of people lack that leads them to not end up in the financial position that they should be because also technology around us makes delayed gratification even harder like there are these studies that show that Amazon used to have maybe two clicks to get to the actual buy button now it's just the buy now instantly they've removed so many barriers that once took that extra like two three seconds for you to think oh do I really want to buy this now it's just like click it's shipped yeah and delaying gratification again it goes against our our biological wiring we're not wired to do that so you have to overcome that and so I think the hack around that is you know getting really excited about those goals being able to picture them and leave pictures around your house you know just be reminding yourself about why this is important to you did you find that most of the goals were around buying a first house or getting out of debt what were during that study what were the goals yeah we didn't really track it but we we saw patterns around there were some you know midterm goals and long-term goals so for a lot of people there was a sense of Financial Freedom which by the way I like better than retirement retirement means to stop engaging in a purposeful Pursuit and so people actually sabotage themselves thinking that I'm going to stop working so I think I like reframing it to freedom and then what are you going to do with that freedom like you know specifically where are you who's there what does every day look like spend some time really fleshing that out because that's the motivation you need and then the other key is to harness our it's called a status quo bias where basically we're all a bit lazy and so if you've ever belonged to a gym for months after you stopped going that's the power of the status quo bias so get really specific about your goals be it Financial Freedom be it a car be it you know a house and then set up accounts and then automate every month to those goals and then just work with the rest that's in your bank account to fund your life but you if you're not paying yourself first in those ways you're really never going to get ahead when you are studying these people who do end up being able to climb the socio-economic ladder and do really well financially versus those who don't Are there specific traits that they have in common or tend to have in common yeah so I've talked about some of the spending habits and sort of the mindsets around you know wow they don't spend nearly as much as we think they do and they actually describe themselves as Frugal we've also found several specific mindsets so one of them is being vigilant around money so there's a you know focus on saving and investing for the future but there's some things that they don't have too which are really important so one of them is what we would call Money avoidance and this is beliefs like rich people are greedy money corrupts there's virtue in having less money you know if you have that negative association with rich people and money again you come by it honestly I guarantee in in your past you've you've run across or your relatives run across some really nasty rich people out there and by the way they're terrible rich people out there there's also terrible poor people so it's not really necessarily about the money but having that negative association very very difficult we've talked about status and this is really interesting too people who are most focused on status have the least amount of money and and are more likely to have grown up poor and so ironically when you ask ultra wealthy people they would say that they would actually tell you they make less than they actually do when you ask people who make less they're actually likely to tell you they make more than they actually do so it's so it's it's a big eye you know I mean when you see social media this should just blow your mind so so the cue is to when people are really really promoting themselves as having all this stuff you got to have in the back your mind studies show that those people do that actually end up having less and if you look look behind the curtain a lot of times they're trying to sell something right so they're trying to sell this image and the other thing too and this is this is really profound it's called locus of control so this is a mindset and locus of control basically means location of control so there's an internal locus of control and an external locus of control so the question is this the outcomes you're getting in life are they because of you or because of things outside of you and this goes back to that learn helplessness stuff but every study that's ever been done around income wealth success bouncing back quickly after a tragedy academic success people who have an internal locus control so they say the outcomes I'm getting in life are because of me the mistakes that I've made in life are because of me you know my lack of satisfaction in my relationship I have an impact on that it turns out that having that internal locus control is associated with success in every area of life versus focusing more on external factors for why why you are where you are interesting because one of my favorite podcasts I used to listen to it all the time is how I built this and at the end they asked these very successful entrepreneurs the question goes how much of your success do you think is because of luck and how much do you think is because of your hard work and your work ethic and your skills and it's always interesting to hear their responses and that's really what you're talking about right because I guess the ones that have a higher external locus of control are going to think it's all towards luck and the ones that have a higher internal locus control are going to say it's because of their hard work right but I I assume it's more important on the other side where you're talking to people who are who have not found that level of success you want to understand whether they think the reason that they have not found that level of success is because the world is out to get them versus they haven't worked hard enough is that right right right that's that's that's a component of it so it's like are you where you are in life around your relationship satisfaction your financial health because of things totally outside of your your control or can you dig around and find something to blame yours blame on yourself I mean to me that's where the value is and it's not about beating yourself up again like our financial mess makes total sense based on where we come from but understand that that is your mindset and certainly you got it honestly but since it is your mindset you can change it and so looking at whether and I think failure is even more important it's like so I failed at investing when I was 29 I made every bad mistake now in that moment in time I could blame the school system because they didn't teach me I could blame greedy people on Wall Street I could blame the system that was rigged against poor people I could I could definitely do that and the the tempting thing to do is so tempting because we can always find people who deserve the blame too I mean we really can like like quite often it is my wife's fault that I'm upset um but I'm going to tell you right now the most effective strategy is for me to say so my wife and I are aren't getting along well what am I doing in this situation sure she's doing her thing yes she's not perfect but what can I do to make it better where did I go wrong and what studies have found is that people able to climb the social economic ladder who do better they are more inclined to say okay great great great all this stuff is happening but what can I take responsibility for and not only that but they get excited about finding something they can pin on themselves it's actually really freeing because it's like if I if the reason I'm where I'm at is because of me I can do something about it I think so and it's something it's something I try to do in every area of my life I'm constantly looking to blame myself for everything so do you think that everyone can build wealth move socio-economic ladders or do you think that there is there are some external circumstances that would prevent people from doing that well first of all I believe everyone listening to this podcast right now can I honestly believe it and that's not to say that there isn't going to be uh major major struggles along the way actually studies found that the average millionaire has had about three Financial catastrophes in their life so it it's not like you're not going to have some catastrophes along the way and make some mistakes along the way but the formula is so simple and I used to work in high schools and I would I would work with kids working in fast food and I'd be like look you can become a millionaire and it's it's like and it it's not that difficult at all and the formula I always use is you know if you invested five dollars a day and just got Average stock market returns so you just have it in an index fund it's a million dollars in 42 years I mean so to me I think that everyone can come up with an extra five dollars a day but you know what the objections would be right 42 years and so I always say well they do six dollars a day get there faster seven dollars eight dollars whatever it is you want it you know and and so the message I'm trying to promote is you know start investing early you know go go after a percentage of every dollar you make do it do it as soon as you're getting out of school as soon as you get your first job you won't even feel it like when I got my first job I was making like after after school I was making like 35 000 a year in my internship and I thought I was rich it was so easy for me to like invest 30 I've been poor my entire life and so if you can get that going early you're hardly gonna feel it and you're just basically going to be an automatic millionaire what do you wish you could have told your 20 year old self about money I think I would have really tried to I mean number one I I would have done the work around what was it like for me growing up around money like what was it truly like and to really think about what messages did I get from my parents and how is this possibly going to play out because you know all the mistakes I made around money were me living out a script that my parents and Grandparents were living it's very apparent that the way that you're raised in the discussions that you hear around money money impact you later on so how can the people listening think about how to raise this next Generation in a way where those children will grow up and have a good relationship with money yeah you had mentioned this earlier that money is a huge taboo Topic in our culture and actually studies show that parents would rather talk to their kids about sex than about money which is crazy I have two kids you think I wanted to have that conversation with so I think the biggest problem is we avoid talking about it and we avoid talking about it because we're stressed like it's seven to eight eight out of ten Americans say that money is the biggest source of stress in their lives and so we don't want to feel stressed so we want to avoid the topic and so the biggest mistake we make is not talking about it with our kids so that's number one don't be afraid to talk about it's okay to talk about what you did wrong this is a huge opportunity for you but you're just understand this that young people are picking up messages around money from you constantly by what you say what you don't say for example one of the things I don't think it's a good idea to say is that well we can't afford that I don't think that's a great idea to say it because a lot of times when I see that situation I I could say well what if you sold your house you know could you then afford a trip to Disney World he's like well yeah that's all right so this is a matter of priorities right so when when a child is wanting something that you don't think you should buy or if you feel like you can't afford it it's an opportunity for you to talk about values you know well well we're choosing not to spend our money that way why is that well because we're setting aside this money for your education we're setting aside this money for retirement what's that well that means where you don't have to worry about me when I'm older you don't have to take care of me because I'll be able to take care of myself it's an opportunity for you to talk about values with your kids the other thing is to really think about how our kids experiencing money so let's say that you want to instill a savings Habit in your child do they see you saving money and the answer is probably not and so think about a purchase whether it's a new TV or whatever and then do something visual like have a jar you know where we're going to put money in here every month and or show them an app where you're they're seeing the money going in there think about how it is you want them to experience it what lessons you want to teach them that is so good what about those like negative very hard but inevitable conversations around money like someone gets laid off is that something that your children should be exposed to yeah so first of all that's a great question because hard things happen so the the key here and I've done studies on this too like we call it um Financial enmeshment where you like give too much information to your kids because you don't want to do that because it'll make them feel special but it also makes them feel insecure and I've worked with a lot of adults whose parents did that and it led to a whole lifetime of insecurity around money so you don't want to give them stuff that they can't handle so you want to say you want to come from more of a position of um empowerment around like hey look we're going through a difficult Financial time right now you know Mom Dad lost their job and so we're going to be cutting down on things so kids are going to be looking to you saying okay so should I be scared and then you might want to involve them in something that they can help with so you know we're all going to help using coupons what are those well let me let me talk about those or we're going to start cooking in more so I want everyone to pick a meal and help with the meal so you know lying to your children they're going to pick up on the fact that there's some stress and some changes you're downsizing your house and they're going to pick up on this but try to basically cry to your therapist and and do process all your emotions with an adult and then come to your kids with this is what's happened and this is how we're going to tackle it because that's an opportunity for you to show them how you handle difficult Financial Times which chances are they're going to have at some point too thinking about your childhood growing up what are some of the conversations about around money the things that you were taught that your parents did well that you are now doing for your children and what are some things that you are doing the total opposite with yeah so you know my childhood was a hot mess and my parents divorced when I was two and they just constantly fought around money and there was never enough money I mean after a situation like that so much of it was bad just to be quite honest with you except my mom was super Frugal and she was very afraid of not having enough money and so there's a Down downside to that around the scarcity mindset but the upside was that I I paid really close attention to money like I I looked at it as a valuable resource and I was afraid to spend it and again this is something I've had to balance out over time my wife helped me balance that out because she came from a little bit different side of the fence which is good I'm getting nervous talking about it because thinking that she wants to buy something right now but like for example when I met her I was living in a house that had no furniture I had lawn chairs I mean I had two forks you know and she's like you know a couch would be nice and I'm like what a couch you know how extravagant so the great thing about that is she's really helped balance me out in that sense so part of my journey around money is uh sort of the enjoy the day so the average American is enjoying the day way too much you know not thinking about the future I've had to work to enjoy the day because really money is meant for the future and it's also meant to be enjoyed today and I truly believe that because we're not sure what's going to happen tomorrow but the problem people usually make is that they're doing all of one and none of the other and so I think it's about finding balance I wanna I've never done this before but I kind of want to do like a rapid fire where I tell you the biggest reasons that people have told me about why they will not be successful when it comes to money and I want you to tell me what you would say to them okay okay so one is it's too late for me to start yes well I mean that's somebody who's done some education around you know the importance of saving early but people have a timeline that's very distorted when it comes to that and so I would say it's never too late because think about this in terms of multi-generational wealth too so quite often people say that when they're in their 40s and it's like too late you know like I mean statistically speaking you've got another 40 50 years and you can make you can cover a lot of ground when it comes to that I don't know how to start investing yes great so first of all I mean I love it when people ask that because it's like clearly you feel like you need to start investing um and so I would Point people to a books like ramit satis I will teach you to be rich great formulas in there and it's much much easier than people people think it is and so I don't give Financial advice but people like raw meat would say you know look into something like a Target date fund where it's just one fund and then your mission is to set aside as much as you possibly can in there and you'll outperform most people I don't make enough money absolutely so there's two sides to this coin one is much more exciting than the other the first is cutting expenses and you know this can be a challenge because we get accustomed to a certain standard of living you know go ahead and get three roommates you know that'll cut down your expenses a lot you know there's lots of cuts you can make but I think it's much more fun to look at how can I bring in more money whether it's a side hustle whether it's looking to negotiate a raise whether it's planning for the future how can I get further educationally to make more money beautiful you did a good job with my rapid fire I was sweating with the studying of the psychology of money what's the one thing that you've discovered that gave you the biggest aha moment I mean for me it was my family history around money and I found it so empowering because I felt lost I felt like I didn't know anything I felt like I was starting from scratch and it was so incredibly powerful to me to realize I'm not starting from scratch I'm actually playing out generations of beliefs around money and I started to look at it from that generational perspective and it just got me so pumped because I'm like look you know my family didn't do things right around money but they got me to this point and it's my job to take the football and to just run down the field and see how far I can get for my kids and I I really saw it as a generational wealth building Thing versus just an individual I found it so empowering and you know with every financial success I have I in the back of my mind I'm like I'm doing it for grandpa that was beautiful so the podcast is called Erica taught me but really today is all about Dr Brad so what do you want people to walk away from this podcast being able to say Dr Brad taught me this oh that's good I would say Dr Brad taught me that my financial mess is not because I'm lazy crazy or stupid it actually makes perfect sense given where I came from and now that I understand that I can now look to where I want to be and I can figure out what is the mindset of those people and what is the pattern they took by the way this is all you can replicate this it's it's not it's not a mystery you just need to find where you want to be and then I can model sort of the steps they took and I can get there and I can absolutely achieve it I love that thank you so much Dr Brad thank you amazing if you've enjoyed the episode please take a moment to leave a review it really helps support what we're doing thanks for listening and I'll talk to you next Tuesday on a brand new episode of Erica taught me

Channel: Erika Kullberg

Views: 179,219

Keywords: dr. brad klontz, erika kullberg, erika taught me, pesonal finance, money mindset, financial mindset, behavioral finance, money habits, wealth psychology, how to invest, how to build wealth, how to improve financial habits, how to manage financial stress

Id: qpIlU7nuUmE

Length: 49min 41sec (2981 seconds)

Published: Tue Jun 06 2023