Toxic Relationship with Money? Explore scripts, personality, and biases

We have a relationship with money based on “money scripts”. Money Scripts are our beliefs about money.

Scripts are akin to personal rules of behavior that make us unique^[1]. They exist in all domains of life. Money scripts, a special case of rules/guidelines about money, are beliefs and habits about money that come from culture, family values, financial status, purchasing power, scarcity, and past experiences.

And these beliefs – scripts – can go toxic and hurt one’s financial well-being and money management.

Disclaimer: This article is written by a psychologist, and not a financial advisor. Information here should not be construed as financial advice. Cognition Today, and its author, isn’t liable for financial decisions made by the reader. This article is intended to only give insight into the psychology of money.

Let’s look at some typical attitudes (money scripts) toward money.

If I grew up in an affluent house-hold and developed guilt about having it, I may spend it recklessly or abandon it.

If I grew up in scarcity, I want to hold money very dearly and not spend it anywhere, even though the spending that money will solve major problems in my life.

If I learned that showing my wealth through objects is the right way to attract success in life, I will internalize bragging about wealth and make vanity purchases to feel successful.

From the psychological point of view, researchers Bradley Klontz^[2] and colleagues studied people’s beliefs about money. They tested a total of 72 independent money-related beliefs that they synthesized into 4 major “money scripts”.

1. Money avoidance

We treat money negatively

• we feel we don’t deserve it, especially if others don’t have it
• we avoid discussing it
• we sacrifice it
• we think rich people are greedy
• We think it is hard to be a rich person and still be good
• we think money corrupts people
• we feel life with less money is a better life

2. Money worship

We think money solves all problems

• we ignore relationships and ethics for money
• we obsessively desire and hype money
• we think money buys happiness
• we think we can’t be poor and happy
• we feel money can never be enough

3. Money status

Our self-worth comes from money

• we flex our earnings
• our purchases define us
• we think money gives us purpose and meaning
• our self-worth is based on money
• if it is not the best or new, it isn’t worth buying

4. Money vigilance

We get anxious and extra careful about money

• we become hyper-savers
• we sacrifice well-being for savings
• we constantly worry about finances
• we think money is there to be saved, not spent

Money isn’t just about surviving in the world and leading a well-adjusted life. Because it satisfies needs, builds an economy, and causes stress, it’s very easy to show unhealthy money behaviors.

These behaviors directly affect financial health because they affect decisions about managing finances – CIBIL score, Income tax compliance, Net worth, and psychological health – feeling valued, feeling deserving of money, money-induced friction between friends and family, etc.

Let’s now consider where some of these scripts come from.

Personality

One research^[3] correlated the Big 5 personality traits with financial behavior in 412 Americans recruited through amazon’s MTurk. Their sample had a variety of backgrounds. Around 50% held a bachelor’s degree or higher. Average age was 37, and all recruits were over 21 years of age. Their average salaries were about $45,000. Considering this, financial aspects of life were relevant to all participants in the study. They listed 20 possible correlations with each of the 5 personality traits with 4 financial factors:

1. Financial literacy: the ability to understand and apply financial management skills
   Knowledge about financial factors like investment, spending habits, banking, savings, value-for-money, interest, deposits, loans, cash flow, etc.
2. Financial risk tolerance: how comfortable individuals feel investing in risky investments
   This measures how financially secure someone is and whether they have an appetite to make unplanned purchases, stop earning money, and spend leisurely. It also includes taking an investment risk like purchasing a house/land (traditionally considered safe) vs. investing in stocks or mutual funds (traditionally considered risky). In this case, Financial risk tolerance is also about the monetary returns a person gets in the long term and whether can put in money now to wait for that return.
3. Income: the amount of money earned each year
   The direct money one earns by exchanging their services for money. This includes primary incomes like salary, royalties from intellectual property, interest rates, donations, gifts, etc.
4. Net worth: an individual’s net worth, which is defined as assets minus liabilities
   The total financial worth of a person that includes what they make with work, what they have inherited or been gifted, what their investments yield, what their financial assets (stocks, equity, shares, bonds, etc.) are worth, etc., put together after removing the value of money owed.

Financial literacy

All personality traits correlated with Financial literacy. In a sense, there is no financially inclined personality trait, and given the nature of the sample – adult, eligible working age, had basic education – this is expected. However, another author^[4] who wrote a book on financial literacy and money scripts says otherwise, “It is a misnomer that graduates of tertiary education are financially literate or are qualified to make financial decisions. In fact, they are particularly vulnerable in making poor financial decisions as many students do not undertake courses in financial education and they therefore have limited financial knowledge.”

Financial risk-tolerance

Openness to experience was weakly correlated with not having financial risk-tolerance – like being on a stricter budget, not affording to invest in ways one could potentially lose/gain some money. Extraversion was moderately related to risk tolerance. Extraverts tend to rely on social connections and seek out people for help. Their study also points out that extroverts tend to be concerned about their status & appearance, so they would take risks to improve their image. Conscientiousness & agreeableness were both related to not having risk tolerance. In a way, those mindful of their decisions (C) and those who are empathetic & cooperative (A) may not take risks because they could be more aware of their risks by observing details and listening to other’s stories. Neuroticism was unrelated.

Income

Conscientious people & extroverts had a slightly positive correlation with income; weak (C: +0.17, E: +0.15), but positive. Neuroticism & openness to experience had a negative correlation; again, a weak correlation. Agreeableness was not related to income. This would mean that people with good discipline & attention to detail (conscientious people) and people who get along with people (extroverts) are likely to earn a little higher than those who tend to worry and have more negative thoughts (neuroticism) and those who tend to explore new experiences which may be risks (openness to experience). But, the big takeaway is that all correlations were weak, so the story isn’t founded on convincing data.

Networth

The most striking finding is that extraversion & agreeableness did not correlate with net worth. Among other personality traits (neuroticism, conscientiousness, and openness to experience), there is only a weak correlation (between -0.14 to +0.14). This generally means personality traits are not related to a person’s net worth. Now, the narrative around this could change. One could casually interpret this as – anyone could be rich or anyone could be poor if you only consider a person’s personality.

Their study shows 1 thing very clearly: personality factors affect finances – but only to a very, very small degree. (intuitively, think this – because personality is a description of behavior, and behavior affects how money is managed).

Everyday experiences

The money scripts I talked about in the first half tend to emerge from real-life experience & learning. So let’s look at a different perspective on personality that looks more at one’s approach toward life experiences instead of basic personality tendencies.

Another study looks at^[5]6 everyday aspects of personality (conscientiousness, adjustability, curiosity, risk approach, ambiguity acceptance, and competitiveness). They found adjustable people are less likely to have the “money avoidance” script. Competitive people had higher “money worship” & “money status” scripts.

Let’s unpack this.

Adjustable people are less likely to have money avoidance – they will tend to not avoid money-related conversations, they won’t feel they don’t deserve money. Since they are adjustable (and presumably well-adjusted) they would consider money as a practical tool for survival and living in a society. Their attitude toward money would enable healthy behaviors so they can adjust successfully.

Competitive people, on the other hand, are likely to seek more than they have at the moment. They would likely seek a higher job status/profile, increase their potential earnings, and wishfully think about a higher quality of life. All these desires would create attitudes that put money on high priority and they would value things money can buy.

With this baseline of personality & money behavior, let’s look at the other significant component – decision-making.

Money decision-making

When it comes to managing money, cognitive biases will play a major role because cognitive biases affect decision-making, which includes financial decision-making. Whether it’s budgeting, investing, or purchasing, cognitive biases can cloud our judgment and lead to irrational financial choices. Let’s look at 5 significant biases and how they relate to Money scripts & consumer behavior.

1. Sunk Cost Fallacy

The sunk cost fallacy occurs when individuals continue to invest time, money, or effort into something simply because they’ve already invested in it, even when it no longer makes sense to continue.

• Money Script Example: Someone continues contributing to a failing business they started because they’ve already sunk $10,000 into it, even though they know it will never be profitable. They refuse to walk away, believing they’ll lose less by continuing rather than accepting the loss. Money avoidance (sacrificing money) or feeling that money going into the business is not personally important would feed the sunk cost fallacy.
• Consumer Example: A person keeps renewing a gym membership because they paid for 3 months even though they don’t go to the gym.

2. Delay Discounting

Delay discounting refers to the tendency to favor smaller, immediate rewards over larger, delayed rewards, even when the latter is more beneficial.

• Money Script: A person is offered some equity in a big company as a portion of their salary. If the company is big, that equity is likely to yield a lot more money. But, the person opts out of that and chooses that money be a part of their in-hand salary. All 4 money scripts could amplify this problem. Money avoidance would lead to not understanding how vesting and equity works. Money status would mean a higher in-hand salary is better to show off. Money worship would mean more money in hand means being wealthier. Money vigilance would amplify the fear of the company stock crashing.
• Consumer Example: Someone opts to buy an item on credit, paying significant interest, rather than saving up and purchasing it outright later. The immediate satisfaction outweighs the long-term financial cost in their mind.

3. Loss Aversion

Loss aversion is the tendency to fear losses more than we value equivalent gains. A loss feels psychologically more painful than the pleasure of a gain of the same amount.

• Money Script: A person may be averse to earning higher amounts of money because it would be taxed more, even though post-tax money is higher. The pain of losing the tax outweighs the gain of additional income. Money vigilance would amplify loss aversion because worry about savings and a tendency to micro-manage small savings would set the narrative that losing 100 is worse than earning 100 to buy something better, for which one would need a higher salary. Money avoidance could be an add-on problem because it could potentially deter a person from seeking a higher salary with the script of “I don’t deserve more money”.
• Consumer Example: Buying expensive vs. cheap shoes/clothes is a classic example of this. Expensive clothes/shoes could last much longer than cheaper clothes/shoes. Cheaper now tends to mean more purchases, more often, which become more expensive than a one-time more expensive purchase. This particular style of decision-making depends on risk appetite or risk tolerance. A person who cannot afford more expensive at a given time has to bear the risk of spending more money in the long-term. Even though this is a problem, the money vigilance script could amplify it even if the risk appetite is there.

4. Confirmation Bias

Confirmation bias leads individuals to seek, interpret, and remember information that supports their existing beliefs while ignoring information that contradicts them.

• Money Script: Someone who believes that real estate is the safest investment focuses only on stories and data that support this view. They disregard or downplay evidence of real estate crashes or examples where people have lost money in property investments. They may ignore the money that goes into maintenance. Because of the confirmation bias, they may turn a blind eye toward other forms of investments such as the stock market. Money vigilance (worry about savings & risks) could amplify the safety aspect of real-estate investments and highlight the risk of market investments.
• Consumer Example: A consumer who is loyal to a particular car brand will only pay attention to positive reviews of that brand and dismiss any criticisms. However, there may be alternatives that fit the consumer’s budget and needs better.

5. Anchoring Bias

Anchoring bias occurs when people rely too heavily on the first piece of information they encounter (the “anchor”) when making decisions, even if that information is irrelevant or misleading.

• Money Script: Someone who hears that a “good salary” in their industry is $120,000 may feel underpaid when earning $90,000, even though they are meeting all their financial needs and goals. Their perception of being underpaid is anchored to the $120,000 figure, not their actual needs. This would be a bigger problem for someone with money worship and money status scripts.
• Consumer example: A store lists a high original price for a product, say $1,000, and then marks it down to $700. The shopper perceives $700 as a great deal, anchored by the $1,000 price, even though $700 might still be too much to spend for a relatively small problem.

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