In this article, we present research that forms part of Milford’s and XY Adviser’s recently published whitepaper for Australian Financial Advisers titled ‘Financial Advice Reimagined’, in which we explore how implementing better financial behaviours can lead to improved lifelong money relationships.

The Four Money Disorders – or ‘The Four Money Scripts‘ were developed by financial psychologists Bradley Klontz and Ted Klontz to describe core beliefs about money1. These beliefs are typically unconscious and likely learned during childhood and adolescence, influenced by our parents’ own money attitudes and behaviours.

For example, were they frugal? Were they judgmental about others based on how much money those people had? If our parents had a healthy relationship with money (irrespective of their wealth) and talked openly about financial matters, then our attitudes and behaviours are likely to be similar. Conversely, suppose money was associated with some measure of shame or trauma. In that case, we are highly likely to enter adulthood with an unhealthy relationship with money, increasing the likelihood of making poor financial decisions2. Author Ken Honda refers to them as money wounds3.

Below are the Four Money Disorders or ‘The Four Money Scripts’. See if you can identify certain traits your clients may display.

1. Money avoidance

  • Money avoiders believe that money is bad or that they do not deserve it.
  • They believe that wealthy people are greedy and corrupt and that there is virtue in living with less money.
  • Avoiders may sabotage their financial success or give money away in an unconscious effort to have as little as possible.
  • Money avoidance is associated with ignoring bank statements, increased risk of overspending, financial enabling, financial dependence, hoarding, and having trouble sticking to a budget.

2. Money worship

  • At their core, money worshipers are convinced that the key to happiness and the solution to all their problems is to have more money.
  • At the same time, they believe that one can never have enough. Money worshipers are more likely to have lower income, lower net worth, and credit card debt.
  • They are more likely to spend compulsively, hoard possessions and put work ahead of family.
  • They may give money to others even though they can’t afford it or be financially dependent on others.

3. Money status

  • Money status seekers see net-worth and self-worth as synonymous.
  • They pretend to have more money than they do and as a result, are at risk of overspending. They believe that the universe will take care of their financial needs if they live a virtuous life. They tend to grow up in families with lower socioeconomic status.
  • People with money status beliefs are more likely to be compulsive spenders or gamblers, depend financially on others, and lie to their spouses about spending.

4. Money vigilance

  • The money vigilant are alert, watchful, and concerned about their financial welfare.
  • They believe it is important to save and for people to work for their money and not be given handouts. They are less likely to buy on credit. They also tend to be anxious and secretive about their financial status.
  • While vigilance encourages saving and frugality, excessive wariness or anxiety could keep someone from enjoying the benefits and sense of security that money can provide.

Our emotional relationship with money is deep-rooted and can be complex and confounding. Understanding the factors and behaviours that influence financial well-being is important in improving our relationship with money.

Successfully identifying which disorder or ‘script’ contributes to your client making sub-optimal financial decisions should help you offer more insightful advice. This will help reshape your client’s money attitudes and behaviours, giving them a framework within which they can make better financial decisions and more successful outcomes.

If you’re an adviser and would like to explore ways to help coach clients better to improve their relationship with money, you can download the Financial Advice Reimagined whitepaper right here.