- Individuals with higher incomes tend to have higher self-esteem.
- Having higher levels of self-esteem can lead to raising one’s income over time.
- Basing self-esteem on finances can have negative outcomes such as higher levels of social comparison.
Research consistently shows that individuals with higher incomes tend to have higher self-esteem, which refers to more positive self-evaluation and perception.
A new study published in Psychological Science found that not only do individuals experience a rise in their self-esteem once they start earning more, but having higher levels of self-esteem can also lead to raising one’s income over time. This implies that financial self-esteem, referring to a person’s sense of worth in relation to their finances, can influence their financial reality.
Here are two mindset shifts to improve your financial self-esteem:
1. Start believing you deserve wealth.
A 2019 study found an intriguing consequence of financial self-esteem when participants engaged in “self-verification,” whereby their financial behavior confirmed their beliefs about themselves. Researchers found that those with low self-esteem picked inferior products as this reinforced their inferior self-perceptions. However, when they were experimentally induced to view themselves as consumers of superior products, they were less likely to choose inferior products. This singular mindset shift allowed them to choose better for themselves.
Similarly, if you find yourself constantly settling for less than you deserve, especially when it comes to accepting job offers with insufficient pay, you may need to adjust your financial beliefs about what you deserve. Self-esteem is also associated with the level of financial security or anxiety one faces.
Financial self-efficacy, which refers to one’s belief in their ability to acquire wealth and make financially sound decisions, along with holding yourself in higher regard can allow you to pursue opportunities that pay better. A growth mindset about one’s socioeconomic status also improves one’s psychological well-being.
It is also important to note the pervasive effect of sociocultural factors contributing to one’s financial self-esteem. Take the gender pay gap, for instance. Earning less than a male counterpart can create feelings of undervaluation and frustration and erode one's confidence in their abilities and self-worth.
From an early age, individuals are exposed to messages about gender roles, which can shape beliefs about what they are capable of achieving. Women especially might be subtly or explicitly told that certain jobs or levels of compensation are less suitable for them.
The absence of visible role models or mentors in high-paying or leadership positions can reinforce this belief, affecting an individual's aspirations and willingness to negotiate for better compensation.
2. Raise your overall level of self-esteem.
A person’s self-esteem is often determined by their social status. This can be a dangerous association to make, as a reduction in income can severely impact self-esteem by suggesting that one is of lower social status and somehow less valuable in society or likely to face social rejection.
Additionally, research shows that basing one’s self-esteem solely on financial success has negative outcomes such as higher levels of social comparison, financial hassles, anxiety, a reduced sense of autonomy, and low emotional well-being.
While positive emotions enhance our ability for wealth creation by expanding mental resources and allowing for creative solutions to financial problems or goals, negative emotions resulting from low financial self-esteem have the opposite effect.
Although it may seem contrary to the process of raising your financial self-esteem, it is important to ensure that one does not allow finances to hold such great influence over their self-perception and that one reminds oneself of their value in multiple different areas of their lives. An appropriate amount of financial self-esteem is a result of a balanced sense of overall self-esteem, derived from a healthy and compassionate view of oneself.
A few important ways to raise your financial self-esteem include the following:
- Seek guidance. Enhance your understanding of personal finance. Read books, take courses, or attend workshops to improve your knowledge about budgeting, investing, and managing money. The more you know, the more confident you'll feel.
- Set specific goals. Define clear and achievable financial goals. Whether it's saving for a vacation, paying off debt, or investing for retirement, watching yourself achieve smaller goals one at a time can help you trust yourself and boost self-esteem.
- Negotiate assertively. Improve your negotiation skills for salary adjustments and practice advocating for yourself. Do not settle for less than you deserve or what others in your position would be paid.
- Celebrate milestones. Acknowledge and celebrate your financial accomplishments, no matter how small, to boost your confidence and motivate yourself to continue improving your finances.
- Avoid comparison. Avoid comparing yourself to others and focus on your own progress. Understand that financial confidence is a journey, and small steps forward contribute to significant improvements over time.
- Nurture your self-worth. Treat yourself with kindness and understanding, especially during difficult times. Acknowledge that everyone makes mistakes and experiences setbacks. Identify and challenge negative self-beliefs or self-critical inner dialogue. Explore who you are beyond external roles or achievements and surround yourself with supportive people who encourage your personal growth and well-being.
Limiting beliefs about oneself can impact beliefs and fears about money. By nurturing a positive relationship with yourself, making informed financial decisions, and recognizing your inherent worth beyond finances, you can experience growth and rewards that transcend material benefits.