The basics of personal finance are simple. Regardless of how troubled their financial lives, I have yet to meet anyone who doesn't already know what they should be doing. Everyone knows they should save for the future and not spend more than they make. Despite hundreds of books, thousands of newspaper articles, and prime time television and radio shows discussing the ins and outs of personal finance, millions of us are still unable to make the most basic changes in our financial lives. More advice telling you what you already know you should be doing isn't going to improve your financial health.

When someone continues to overspend and fails to save money, further financial education is useless. It was our historically low savings rates and out of control borrowing and spending that set the stage for the economic crisis- individually and collectively. Until we are ready to spend less and save for the future, more information about the nuts and bolts of 401(k)s, investing, and budgeting is like pouring water into bucket full of holes. For most of us, it takes more than knowing what we should do to get us on the right track.

The Big Lie about personal finance, introduced in Mind Over Money: Overcoming the Money Disorders that Threaten Our Financial Health, is a significant barrier to getting our financial lives on track. The Big Lie tells us that our financial difficulties stem from a fundamental defect in our character- that our self-destructive money behaviors are due to our being lazy, stupid, greedy, irresponsible, or somehow defective.

Well they don't.

Chronic self-defeating financial behaviors are not driven by our rational minds. They stem from psychological forces that are outside of our conscious awareness, with roots that run deep into our past. When we understand our neurobiology, personal and family histories, and the impact of the lessons we learned about money throughout our development, our financial behaviors- even the most destructive ones- make perfect sense. In fact, they are predictable.

Problems with money are incredibly common, and are often responses to stressful life events. Money disorders typically manifest themselves in one of three ways: 1) Repeating destructive financial patterns learned from our early socialization, 2) Doing the polar opposite, often in an exaggerated and equally dysfunctional way, or 3) Bouncing between the two extremes. The Big Lie compounds the problem, making us feel deeply ashamed of our inability to have a healthy relationship with money. We conclude that we are alone, worthless and/or incompetent and feel paralyzed. Instead of someone who has made mistakes, we believe that we are a mistake. Our shame takes the wind out of our sails and tells us to just give up. After all, if I am a lost cause, why bother trying? The Big Lie keeps us stuck in an emotional glue trap, in a vicious cycle of action, backsliding, and shutting down.

Recognizing that our financial habits make sense given our history and the beliefs we internalized about money allows us to reflect on our financial mistakes with compassion and grace. Understanding that our pasts have a profound and insidious impact on our relationship with money sets the stage for our transformation.

Brad Klontz, Psy.D., CFP® is a financial psychologist, Associate Professor at Kansas State University, an Investment Advisor at Personal Financial Consultants, Inc. and co-author of four books on the psychology of money, including Mind Over Money: Overcoming the Money Disorders that Threaten Our Financial Health. You can follow Dr. Klontz on twitter at @ DrBradKlontz

Copyright © 2013 by Brad Klontz

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