Being aware of which category you fall into can help you build your wealth in a way that aligns with your goals and values.
Money mindsets can shape how we spend, invest and save throughout our lives. Yet most people don’t begin to discover their money mindset – also called “money scripts” – until their late 20s or 30s.
“It’s much too late,” says Tanya Rolfe, co-founder of financial education platform Sophia, which serves women across Asia. “Our attitudes and beliefs about money are often shaped by our early experiences and the behaviours we observe from our parents, family members and other influential figures in our lives,” she says.
Rolfe adds, “It’s futile to acquire knowledge about budgeting and investing if you have a fixed mindset. However, this can be remedied by adopting a growth mindset when it comes to money matters.”
Your money mindset is a unique combination of money scripts – it defines how you think about money and influences how you save, how you spend and how you manage your debt.
Brad Klontz, a certified financial planner and professor at Creighton University, in Omaha, Nebraska, coined the term “money scripts ” and identified four distinct categories where the first three are linked to negative financial behaviours.
Money scripts can be determined as early as seven years old. According to research from Cambridge University , key financial habits, such as the ability to budget, plan ahead and delay gratification, are solidified in early childhood, inherited from the cues children take from their parents and social group.
Rolfe says she was influenced by her mother’s unhealthy relationship with money. “It shaped my thoughts around debt,” says the Singapore-based investor. “And it wasn’t until I finally started earning a reasonable amount of money that I realized, if I want something different, I need to change my money mindset.”
In Asia, the traditional approach to money revolves around frugality, but this is changing, as younger generations are adopting a different worldview, says Alvin Chiam, a wealth planner at RBC Wealth Management in Asia.
Older generations tend to veer toward money vigilance, preferring to preserve their wealth legacy for future generations rather than spend on extravagant items, despite their wealth.
“Growing up in an age when pleasure was relatively rare, they never developed an appetite for luxury. Frugality is a badge of honour,” Chiam says. “They may view deprivation as the best form of motivation for their children.”
Meanwhile, younger generations, impacted by exposure to influencers on social media, have developed greater appreciation for the finer things in life. As a result, they tend to adopt a money status or money reverence mindset.
The challenge, says Michelle Lau, a wealth planner at RBC Wealth Management in Asia, is that divergent mindsets among the generations can cause friction during wealth transfer.
Knowing your money script early can help resolve issues through advance planning. “The key is discussing and going through the process of deciding – to the extent you’re able to do so – what the money script for the family is,” Lau says.
To change your money script, you first need to know what it is.
Modern technology has given people more access to financial knowledge and investment opportunities, Rolfe notes, and has enabled the rise of financial influencers, or “finfluencers.”
This is where financial education and conversations come in, says Rolfe: “Younger generations have the access and confidence to start investing, but they still lack the education they need to understand investment types, their risk appetite, how long they want to be invested, what they want to get out of it.”
Women, she adds, are less likely than men to discuss financial topics with friends. “Inaction due to shame and embarrassment around lack of knowledge poses a huge risk to wealth building,” she says. “Often we don’t talk about money with friends or family, and so how do you know how your mindset compares to others’? I think it is good to regularly check in with yourself and talk to others about finances.”
And if you identify with a negative script, not all is lost. Money mindsets can change as a person matures, adds Chiam. This can also happen as investment horizons shorten and people may prefer to hold lower risk assets with less volatility.
“If, let’s say, you have a negative script that you are reinforcing, and that’s preventing you from growing, then being aware helps you to change,” he says.
Lau adds that some high-net-worth families are already taking steps to ensure the next generation inherits healthy money mindsets by involving their children in their family offices and managing investments held through private banks together with them as a way of guiding their approach.
Others are using trusts or insurance-based savings plans, such as an asset transfer plan that delays benefits to the next generation. This ensures the younger generation can have capital and flexibility to invest in more modern ways that can be good for the estate, as well as for the broader society.
Chiam points to emerging trends such as environmental, social and governance (ESG) investing and philanthropy as new ways to build and spend wealth, as the younger generation, concerned about the environment and climate change, have a growing desire to do good.
“They do not want profit for profit’s sake,” he says. Instead, the new generation can carry on the family legacy through philanthropy, investing in ESG or narrowing the focus of their business’s core values. “The first step to change is awareness,” he says. “Being aware of your money scripts helps you to realize that there are a lot more ways to win.”
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