Value or Belief	Explanation	Potential Problems
Thrift	One should only buy items at a discount. Buying cheaply saves substantial expense.	A stubborn refusal to “pay up” can lead to missing some of the biggest opportunities. Cheap ≠ bargain.
Glamour	If something is expensive, then it’s of higher quality.	Often buy “at the top.” Overpaying for stocks. Mistaking hype for substance.
Loyalty	You should stand by people (or investments) who have served you well in the past. You owe your investments the benefit of the doubt.	The story of your investments change. Your opinions should too. The “Halo Effect”—an early return causes us to “fall in love” with a position.
Safety First	You feel strongly that risk is to be avoided at most any cost. To behave otherwise is to jeopardize your financial well-being.	Perceptions of risk are often skewed. Long-term returns of stocks are higher than for bonds precisely because they are viewed as more risky (academics call this the “equity risk premium”).
Thrill-seeking	Investing should be exciting. If there isn’t the potential for a big win, it isn’t worth investing.	Excitement is an emotional goal, not a financial one. The gratification from investing well comes in the very long term.
Morality	You shouldn’t invest in companies whose products, services, or management contravene your values.	Investing should not violate your conscience. But if you invest to improve your life, then that prospect should govern your decisions.
Altruism	Money should be used for the greater good.	A noble sentiment that should not be confused with self-denial or passivity. Markets are impersonal and competitive.
Hard work	Money should be earned through hard work and sacrifice.	Sometimes we work excessively to achieve returns that would be easily available with a slight shift in effort or perspective.

The Impact of Financial Traumas

If, like Bob, you’ve got relatives who lived through the Great Depression, you may have noticed some unusual habits of theirs. For example, despite having more than adequate assets, they spend time washing and drying Ziploc bags for re-use. Or you might have observed them picking up pennies off the street, clipping coupons, cleaning their plate of all food—even if they don’t like it—or gorging themselves on free samples at grocery stores. In the markets, they are often scared of stocks, keeping their savings in low-yielding cash or savings accounts.

If you try to change their behavior, reminding them that they have more than enough money, your reasoning falls on deaf ears. If you demonstrate that many of their habits, on a cost-benefit basis, are costing them money, they respond with a shrug and continue as usual.

The financial changes experienced by many people during the Great Depression were so sudden and shocking that as survivors, they permanently changed how they see the world. Depression survivors adapted to the sudden changes by learning and sticking with habits of extreme thrift and resourcefulness. Such ingrained thrift is also seen in survivors of wars or severe poverty, refugees, and new immigrants.

Thrift of this nature often leads to the accumulation of wealth and is usually not maladaptive. Problems arise when such thrift becomes hardened into habits that prevent further growth and flexibility in response to changed circumstances. Coping strategies that safely carried us through those traumas can become automatic behaviors that are difficult to change even when they no longer serve their original purpose.

Researchers Ulrike Malmendier and Stefan Nagel found that “Depression Babies” were more reluctant to invest in stocks. In fact, among any generation, poor stock returns several decades previously altered their general willingness to take risk in the stock market.¹

Studies of the brain’s response to traumatic experiences show that memories of the experience and events surrounding it become burned into the brain’s amygdala (an emotional learning region). Subsequent reminders of similar events trigger anxiety and defensive behaviors. The task for the investor is to identify (1) any experiences of severe financial loss or hardship you have faced, (2) the coping strategies you built up to protect yourself, and (3) the triggers that can elicit any anxiety-ridden or maladaptive responses:

1. What types of high-impact financial experiences have you or your family experienced (e.g., war, poverty, dislocation for work, market crashes, investment losses, health expenses, business failures, bankruptcies, debt, career changes)?

2. What were the coping strategies that helped you survive the trauma? How did they change you for the better?

3. What aspects of your coping strategies could be limiting you now?

4. What triggers remind you of the event and induce anxiety for you? Are there particular circumstances when you feel yourself falling into this pattern again (e.g., market plunges, losing investments, portfolio stagnancy, changes in your income, unexpected costs/bills)? How do your coping strategies affect you when anxiety is triggered now?

All in the Family

Raj was raised as an only child by a poor single mother. Growing up, he moved frequently from city to city as his mother searched for better employment opportunities. Raj remembers feeling there wasn’t enough money at home and that his clothes, grooming, and accent were never quite “right” for the kids at his latest school. He felt out of place and rootless, except when he was with one person—his father.

His father was a pilot who visited him as a surprise when he occasionally passed through town. During his visits he regaled Raj with tales of exotic locations, fast cars, and good times, and he gave Raj more gifts in one visit than he received from the rest of his family in a year. Inevitably he was accompanied by a pretty young flight attendant who was generous and kind with Raj, hoping to win his affection. Days with his father were like holidays from his difficult daily life.

After these too-brief visits, his father was gone again, not to be heard from until the next unexpected phone call. Raj’s mother despised his father, both for his playboy lifestyle and for how little he contributed to raising his son. She was bitter and sometimes treated Raj badly after those visits, which only steeled Raj’s resolve to live a life of ease and comfort like his father.

Shortly after he finished college, Raj’s mother fell ill. He moved nearby to take care of her. His dreams of the playboy life had been put on hold, and his spirit was beginning to flag. Then Raj discovered online trading. He could be a “trader”—playing small stakes with dreams of getting rich and escaping from his humdrum lifestyle. Raj traded for a few years, but he never felt secure in either his developing career or his trading on the side. Unfortunately, he frequently “blew up” his trading account by taking excessively risky positions in his hurry to make a quick “million.”

Through his work with Dr. Peterson, Raj came to realize that he was living two lives—one a stable, slow-paced life in which he sacrificed for his mother, and one a “fantasy life” he dreamed of. It was, in fact, the same childhood dynamic being played out in adulthood, only this time it wasn’t surprise visits from his father that provided his chance for deliverance, it was the stock market.

In examining his values and where they came from with Dr. Peterson, the cause of his failure (and the means to change) became clear. This “I need to get rich” value that drove him to trade so recklessly—so desperately—was not the motivation of an adult trader at all; it was the motivation of a lonely 10-year-old boy who wanted to be like his dad. His trading behavior would not change until he came to a place of acceptance about his father and the pain and his childhood. When Raj realized this, he was able to change.

What outside observers may plainly see in us, we often don’t see in ourselves without the use of a mirror. Such is the case with Raj’s values. He thought he was just an aggressive trader who needed to tweak his “system.” It came as a revelation to him that this value he placed on obtaining a thrilling lifestyle was rooted in his childhood experiences and inextricably bound to his relationship with his father. Through treatment Raj gradually stopped trading, redoubled his efforts on his career, and today is very successful in his profession (and he no longer trades).

Like Raj, we all have unconscious values that serve as drivers of our behavior. Making such motivations—and where they come from—conscious is a first step toward positive change, and, on occasion, the only step necessary.

These questions will help you begin an exploration of your values and the life events that may have shaped them. These questions, designed to facilitate self-exploration, were derived from the work of Dr. Robert Siroka, a New York City psychologist who, among other projects, offers workshops and psychotherapy related to money issues. As you go through these questions, consider how your answers might explain the origin of your career choice, investing habits (both successful and damaging), and opinions about money.

Think back to your early years:

• What would your parents say about social class?

• What was the financial status of your family?

• What were your family’s values around spending, saving, and earning?

• What was the general tone around money in your family?

• Was money seen as good, evil, indifferent?

• Was money seen as easy to obtain?

• Who in your family controlled or was the authority on spending? Saving? Investing?

• Who was a positive role model?

• What is an early money memory?

• What are two messages you received from your family about money?

• Who are the money heroes in your family history?

• Where are the money ghosts hiding (that is, what are some financial embarrassments or shame in your family history)?

How have your parents’ attitudes influenced you?

• Which attitudes have served you well?

• Which attitudes have been unhelpful?

What are your financial values?

• How do you speak to or educate children about money?

• What are your attitudes or beliefs about those without money?

• How wealthy do you want to be?

• How will you define being wealthy?

• What will it take (how much income or assets are enough) for you to feel financially secure?

• What scares you the most when you think about your financial future?

• Should you fail to reach your financial goals, what will be the reasons why?

This exercise is designed to help you start thinking about the role of your money history in guiding your present-day habits and beliefs. In some cases there are clear relationships between your answers and your life choices.

Once you understand how your values may have formed over time and through your early experiences, it is useful to turn toward another series of questions. How would your life and values change if you truly believed that money was no object? Thinking along these lines helps free up any underlying dreams or goals that may have been set aside in the pursuit of financial security.

George Kinder and the Three Questions

In middle age many people realize that their current work is incompatible with their personal values and goals. Yet because of their investments of time and education in their careers, they feel trapped—unable to change tracks. Such a conflict between one’s innate values and career can lead to frustration and moodiness—often called a “mid-life crisis.” Such emotionality may be due to chronic disappointment with the “rat race” or feelings of “selling out” at work.

Conflicts between a person’s fundamental values and daily work often lie dormant in the unconscious, subtly influencing behavior. It is only when such conflicts are brought to the surface that they can be worked through and new, more harmonious pursuits initiated. The pioneer in unearthing conflicts between one’s deepest values and current lifestyle is George Kinder, a certified financial planner and founder of the Kinder Institute of Life Planning.

Kinder established the Institute to help financial advisors understand and help clients with their entire lives (not just their finances). Kinder instructs his advisors to ask clients three questions about their current lifestyles and their deepest values. Their responses to these questions reflect their fundamental financial goals.

We’ve reprinted Kinder’s questions here. As you go through these questions, think deeply about your answers. Take the time to consider if your responses to these questions are consistent with how you are currently living and working.

1. I want you to imagine that you are financially secure, that you have enough money to take care of your needs, now and in the future. The question is . . . how would you live your life? Would you change anything? Let yourself go. Don’t hold back on your dreams. Describe a life that is complete, that is richly yours.

2. This time you visit your doctor who tells you that you have only 5 to 10 years left to live. The good part is that you won’t ever feel sick. The bad news is that you will have no notice of the moment of your death. What will you do in the time you have remaining to live? Will you change your life and how will you do it?

3. This time your doctor shocks you with the news that you have only one day left to live. Notice what feelings arise as you confront your very real mortality. Ask yourself: What did I miss? Who did I not get to be? What did I not get to do?

According to Kinder, “When you understand what you want to do with your life, you can make financial choices that reflect your values.”² Kinder’s questions usually open up much soul-searching. Many clients wonder, “Should I make a change if my current trajectory isn’t consistent with my dreams?” At MarketPsych we believe that such a self-analysis process should be done in partnership with a trained and trusted advisor in order to gain the most benefit, as can be found with a financial advisor trained through The Kinder Institute of Life Planning (www.KinderInstitute.com).