When Money Talks

Ted Klontz grew up dirt-poor on a 500-acre farm in southern Ohio in the 1940s. His family raised its own food and sold meat, eggs, and butter for cash. He had one pair of shoes and two changes of clothes, and he didn't go to a dentist until he was 16.

So his wealthy uncle's visits made a big impression on him—and on the rest of the family. Ted's uncle had left Ohio and gone into construction in Florida, where he eventually became a real-estate developer. The mere fact that he could afford to fly home and rent a car at the airport drew the ire of his relations, who assumed his money came from exploiting the poor.

"I grew up listening to them vilify him," says Klontz. "The unstated message was, if you want to be thrown out of the family, be successful like him."

In his adult life, that hidden message shaped Klontz's every financial decision. Even with stable employment, his fortunes cycled between boom and bust, and he found it almost painful to put aside money for retirement. His struggles would eventually lead him to become a financial therapist—a psychologist who specializes in money issues. "I knew somehow my unconscious thinking about money was sabotaging my finances," he says.

These days, of course, finances are being undermined by more than just thinking, and Klontz's uncle might well be hitchhiking back to the family farm. The economic downturn that began last year has left the well-off nearly as vulnerable as the worse-off. Financial worries are keeping Americans of all income levels up at night: In a survey conducted by the American Psychological Association in September, as the recession was gathering steam, money ranked as the top stressor for 8 out of 10 respondents. Almost half reported growing concern about the ability to provide for their families' basic needs.

But psychologists and economists alike say that much of this stress results not from actual material circumstances but from hidden fantasies and fears, such as Klontz's. Steeped in his family's attitudes, Klontz grew up equating material success with exploiting the poor and being ostracized by loved ones. That association kept him in a state of self-defeating ambivalence about accumulating money, reflected in roller-coaster ups and downs of his finances. Whenever he found himself flush and began to save, an unwillingness to appear exploitative and a fear of abandonment would kick in and he'd find himself squandering earnings. Then he'd have to scrimp to get out of debt.

Even in prosperous times, such unconscious beliefs distort our financial dealings. In hard times, where there's no margin for messing up, they can wreak havoc on our budgets, our relationships, and our peace of mind. To find our bearings in the new economic reality, experts say, we need to expose and explore our implicit attitudes about money. Typically, that means reexamining ideas about value, necessity, success, and security. Those who do it stand to reap more than financial stability. There is a huge psychic dividend—discovering that self-worth is wholly separate from net worth.

The cash-poor have as much to gain as the better-off, says Ed Jacobson, a psychologist and business coach based in Madison, Wisconsin. Realistic budget-conscious living can have a salutary effect on how we find meaning in our culture. "If you're operating on fewer financial assets, that doesn't mean you have to operate on fewer emotional, spiritual, interpersonal, or familial assets," he says. "It's a good time to take inventory, to look at what the sources of wealth and abundance in our lives really are."

Money is laden with subjective associations that have accrued over decades, typically originating in the childhood mind trying to make primitive sense of the world and operating thereafter below the level of conscious awareness. Klontz calls these "money scripts," assumptions about "how things are" when it comes to money. Some common scripts go: "There will always be enough" or "There will never be enough." "The fat cat will get away clean and leave you holding the bag" or "Hard work always pays off." Sound familiar?

Money scripts can also stand in for complex feelings that people are either unaware of or unwilling to acknowledge. Klontz's parents, for example, raised to distrust outsiders and to stick together as a clan, may have resented his uncle's independence. They may have felt that he abandoned them by leaving Ohio, and in their rejection of his lifestyle they sought to return the slight. Recognizing and expressing these feelings may have required a degree of insight and honesty that was beyond them. So they condemned him for his money.

Even in the best of times, money scripts rarely lead to realistic or healthy appraisals of financial circumstances, Klontz says. Too often they present a rigid vision that leads to blaming others for one's financial problems or denying that one has problems at all. Negative scripts can be fatalistic, fostering a sense of helplessness and victimization: What's the use of poor old me trying if the fat cats always get it all? Positive ones can be dangerously simplistic or naive: If hard work always pays off, and I get into trouble, then all I have to do is work harder—when, in fact, it may be time to switch strategies.

Periods of economic instability, involving sudden gain or loss, invariably challenge money scripts. Then, all one's implicit beliefs about money can give rise to feelings of panic, anger, and betrayal, very primitive feelings related to one's upbringing concerning money and the stories around money absorbed unconsciously.

Money scripts also have a cultural component. In many cultures, wealth has signified happiness, status, belonging, wisdom, peace of mind, sex appeal, even spiritual superiority—just the opposite of what it meant in Ted Klontz's family. "The more materially blessed you are, the more blessable you must be" goes the reasoning. Lack of money, on the other hand, has been associated with the miserable, downtrodden, outcast, foolish, anxious, undesirable, and cursed. Currency comes to represent character.

Americans favor an idealized script that economic privilege goes to the clever and industrious—the deserving. We even rely on money to tell us how to value objects and experiences, says Jacob Needleman, professor of philosophy at San Francisco State University and the author of Money and the Meaning of Life. It has become our "index of reality," substituting for a more interior valuation based on personal reflection. "Whether you're a billionaire or a pauper," says Needleman, "your sense of how to judge whether something is important, or real, or serious has very much to do with how much it costs."

Yet for most of us, our subjective associations with money remain hidden, unspoken, and obscure even to ourselves. Indeed, money has become, on some level, an unspeakable topic. In a culture where sex is recreational and potty humor epidemic, money remains the final taboo, says psychologist Deborah Price of the Money Coaching Institute of Petaluma, California. It carries such a burden of secret hopes and fears that the mere mention of it becomes fraught with tension. People struggle to have frank discussions about earning, spending, and saving even in their most intimate relationships. Because we've linked money with our selfhood as well as our basic survival, such discussions can leave us feeling acutely vulnerable. "It's not safe to talk about money in most families, not even in most marriages," she says. Such conversations don't feel safe in private counseling sessions, either. "Therapists will tell you that people will lie only about money," says Klontz.

So we're burdened with fiscal beliefs that aren't publicly aired or even privately acknowledged. That's unfortunate because, as Ted Klontz can attest, unconscious beliefs control our behavior without being accessible to change. Lack of awareness can even foster magical thinking, such as believing that you can achieve material gain merely by envisioning it. While a superstitious approach may have some appeal in boom times, magical thinking can make material losses feel unduly dramatic, mysterious, and shameful. And it gets in the way of practical discussions grounded in economic realities.

An affluent couple who married expecting that the husband would provide the primary income found their marriage threatened when, after decades of dutiful breadwinning, the husband got laid off and couldn't find another job. Even though they were financially safe—she paid the bills on her salary—the wife felt that an unspoken covenant had been breached, and her faith in her husband was shaken. The worst part, she confided, was discovering how much she relied on him emotionally to be the moneymaker and how angry she felt when he wasn't.

Although she viewed herself as an independent woman and was well aware of the macroeconomic forces that led to her husband's plight, she struggled to see it as anything other than a personal betrayal. The layoff forced both of them to confront their shared assumptions about marriage as well as money (that the man would always be able to find work and make enough so that the woman wouldn't have to worry). Even so, things did not settle down until the husband got another high-paying job.

The couple learned a lesson that many financial planners struggle to convey to clients: Emotional reactions to changes in financial circumstances are not necessarily rational or proportional to the degree of risk involved. In fact, they're influenced by the same factors that mediate aggression and anxiety in life-threatening situations, says Paul Zak, a neuroeconomist at Claremont Graduate University in California.

"Our brains treat volatility in markets as equivalent to spotting a lion on the savanna," Zak contends. Perceived economic perils can trigger the fight-or-flight response. Neurochemicals prime the body for action and put the brain on high alert. "Decisions narrow to the immediate, and the primary objective is to seek safety"—selling, for example, in a down market, when holding might be wiser.

Investors can also fall prey to what Zak calls "portfolio love," becoming emotionally attached to stocks painstakingly picked and followed over time. Such attachment is mediated by the neurotransmitter oxytocin, the same hormone that leads us to care about our partners and our families. Thanks to oxytocin, the loss of inanimate objects—cars, club memberships, vacation homes—can trigger the same feelings of distress and despair as separation from a loved one.

Heightened emotions rarely lead to appropriate decisions about money, Zak says, because they bear little relation to the urgency of a situation. In fact, they can feed the tendency to splurge or hoard—possibly the fiscal correlate of the fight-or-flight response. Exhibit A might be Toronto cartoonist Cathy Thorne, most of whose commissions come from the radically shrinking market of print publications. "I've been poor before and I don't want to be again," says Thorne. "The poorer I feel, the more I want to spend. It's as if I have to spend money so I won't feel poor. Silly, yes, but such is my psyche."

Studies bear out the role of threat and other emotions in feeding the impulse to hoard or splurge. In a recent paper titled "Misery Is Not Miserly," researchers led by Carnegie Mellon psychologist Cynthia Cryder showed that sad and self-focused people spend more than their emotionally level peers.

Too, individuals come equipped with constitutional tendencies toward spending or saving. Some people are born tightwads, Cryder has found; for them, spending provokes anxiety. Others are born spendthrifts who are actually calmed by the experience of spending. Such temperamental proclivities don't budge much in times of economic crisis, so people might need to learn to go against their innate tendencies in order to make appropriate decisions.

However varied and irrational our emotional reactions to money, psychologists agree that when it comes to happiness, one robust principle fits all: More is not better. Above a modest sustenance level, gains in wealth or income don't produce greater happiness.

The kinds of activities that make life feel rich are unrelated to wealth: spending time with loved ones, doing meaningful work, being of service to others, cultivating faith and spirituality. Yet we commonly put financial goals first.

The strange thing is that "the mere thought of having money makes people less likely to help acquaintances, to donate to charity, or to choose to spend time with others—precisely the kinds of behaviors that are strongly associated with happiness," reports psychologist Elizabeth Dunn of the University of British Columbia in Vancouver. In a study published last year, Dunn showed that spending as little as five dollars on someone else promotes greater happiness than splurging on yourself.

She hopes the thought of having less will encourage people to reach out more. "Feeling a little more pressed for money can help people recognize their ultimate need to depend on one another," she says.

Philosopher Needleman thinks the economic shakedown will bring us as individuals and as a culture to deepen our reliance on inner resources rather than external ones. "Human beings live by meaning—not by pleasure, not by acquisition, not by status," he says. "If this crisis makes people ask what is really important in their lives, then a lot of the money problem will be alleviated."

Ted Klontz finally worked through his money issues in his 50s. He realized that his family wouldn't abandon him for managing his finances responsibly and that money doesn't always come from exploiting the poor. Sometimes it comes from a dream you refuse to give up on, and the more of it you have, the more you can give away.

"Suddenly, I had permission to accumulate wealth," he says. "My wife and I started saving seven times the amount we had planned." His finances stabilized and he began putting money away for retirement. Now his retirement savings, like those of so many others, are in jeopardy. His net worth may be subject to market forces—but his self-worth, he says, is secure. —Karen Wright

Calm Counsel for a Cash Crisis

Calm Counsel for a Cash Crisis

Household budgeters, like investors, make the best decisions when they employ deliberative analysis. Here's how to get your money's worth out of a financial free-fall.

Meditate, breathe deeply, or get out the yoga mat.

"These times call on people to exert a certain level of self-soothing to be peaceful around their not-so-peaceful emotions," says Ed Jacobson. Even in the best of times, it's wise to cultivate emotional detachment from investments and financial goals. If you can't, delegate decisions to a family member or a professional who can be more objective.

Stay grounded in the reality of your finances.

It's a natural restraint on fears. Keep a budget; make a spreadsheet with income, expenses, and savings. Prioritize expenses. Educate yourself about finance and debt. Objective information helps the fiscally traumatized avoid the blaming, denial, and paralysis that often accompany a sudden decline in fortune.

Consider which expenditures will bring true fulfillment.

People spend money on the wrong things, believing mistakenly that a faster car or a bigger diamond will bring happiness, says economist Robert Frank of Cornell University. In fact, the rewards of affluence are largely relative: "When everybody else does it, you're right back where you started." The trick is to shift resources from domains where extra spending doesn't help to domains where it does, Use whatever dollars you spend to enhance your connection to friends, family, and community. Take the money you'd spend expanding your house and buy a smaller one closer to work, so you can have more time with your family.

Find a buddy.

Reach out. Remember that you're not facing a crisis by yourself. "People feel alone with this money thing," says Jacob Needleman. "And they don't have to. The guy next door is going through the same thing. This could be a new bonding element." Bonding, experts agree, is a big part of what makes life worth living.