6 emotional traps that even the financially savvy fall into

A difficult relationship with money doesn’t just impact those who live in scarcity and are anxious about its lack but can very much affect the wealthy too. As a financial psychotherapist, I have consulted clients on a wide range of situations in which they feel they are not acting in their rational, best interest when it comes to money.

Many of my clients have business degrees or life-long experiences running companies – so the difficulties are clearly not rooted in a lack of financial knowledge or experience. As we explore, in the consulting room, what gets in the way of making different financial choices, changing detrimental financial patterns, we find that there are unconscious feelings, emotional traps that they have fallen into.

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1. Letting lifestyle inflation get out of hand

As income increases, we face a choice: we can either channel some of the additional income towards medium and long-term financial objectives, or we can spend it and ‘upgrade’ our lifestyle – or a mixture of the two.

For many people, the increased spending towards ‘lifestyle’ is a gradual process which is in part conscious (‘we can afford business class now’) but partly unconscious and driven by external pressures that may hook into internal insecurities.

We inevitably enter an ecosystem of elevated spending - the events we are invited to are more expensive to attend, expectations around gifts are higher, and so on. We can mindlessly go along with societal demands, or try to resist them where they generate a discomfort because they clash with our values or our parameters of how much is ‘too much’ to spend on any given thing.

This is hard to do when these choices hook into our vulnerabilities. We have, for example, a deep-seated desire to fit in, or a fear of judgement or exclusion, or even a desire to please others. It might be these ‘emotional parts of us’ in the driving seat making financial choices that the ‘rational part of us’ is uncomfortable with.

I have heard clients say, ‘I didn’t want to let my family down’ as they pondered saying no, or suggested cutting back on some of the incremental spending. With the wrong mindset, lifestyle inflation can easily get out of hand.

2. Hoarding money even when it could be ‘enough’

Money can be an enabler of happiness, but in my experience, it is rarely the source of it. I have seen many people who have enough wealth to be financially comfortable and secure but who – despite this - continue to hoard and amass wealth, at the expense of other things that their rational self might value, like time with family, friends or pursuing hobbies.

‘The bar keeps moving,’ they tell me, ‘I thought it would be enough, but it doesn’t feel like that’ – to which I respond: “Enough for what?”. There are often emotional reasons for this kind of money-hoarding, like an ingrained equation in which ‘self-worth = financial worth.” It implies that the more money we accumulate the more robust is our self-esteem. It could be the result of a ‘financial trauma’, such as having experienced poverty, or a bankruptcy in the family at early age. Such history could leave us carrying in the present fears of the threat of poverty which belong to the past. It could even be rooted in experiences of emotional deprivation, which have left us with an inner void. Some try to fill the void with over-eating or similar habits; some try to fill it with money.

3. Orchestrating a financial self-sabotage

It isn’t unusual to meet people who are proud of their financial achievements at one level but on another harbour a deep ambivalence about money. Sometimes the messages they picked up in their early years was that the wealthy are ‘greedy’ or ‘morally corrupt’; it could be that their families were of religious backgrounds that prided themselves on modesty and condemned greed or political backgrounds that judged individual enrichment.

So even if they have managed to become financially successful, they might feel an underlying degree of shame about this wealth and end up unconsciously orchestrating a sabotage of it - making a bad investment or neglecting their finances.

Self-sabotage can also emerge from a fragile sense of deservedness; a desire to spite those who ‘expect us’ to succeed, like a parent or a partner; or even a desire to be looked after, ending with a loved one rescuing us.

4. Becoming ‘emotionally generous’

While generosity can be a positive and rewarding act, it might feel quite the opposite if it isn’t done for the ‘right’ reasons. I have seen people give away wealth, followed by a sense of regret, because the act wasn’t driven purely by altruism. It was actually looking to address something more complex and emotional.

In some cases, the giving was meant to compensate what they couldn’t give emotionally to a partner or children, or to address their sense of inadequacy and make them more likeable or lovable or address the guilt about any ‘damage done’ in the pursuit of the wealth - damage to family, business partners or societally.

Sometimes generosity comes from a painful place: ‘This is the price I need to pay to be loved’. When we hope money will compensate or repair, a generous act can be a disappointing experience for both the one giving and the recipient.

5. Keeping financial secrets

Many people who become wealthy are driven individuals who care about success. In the face of what they would perceive as failures - financial losses, mistakes, oversights - they have difficult choices to make about disclosing. They then face a sense of shame and fear of judgement for keeping it secret: ‘She will never understand’, ‘He will never forgive me’.

Unfortunately, secrets are rarely a good psychological defence as they end up being isolating, anxiety-provoking and the shame of the secret is added on top of the shame that was being avoided in the first place. The secret might also deprive us of much needed help or input that could soften the financial damage.

6. Avoiding conversations about wealth transfer/succession planning with family

Broaching the topic of inheritance and succession planning can be hard in many families. It is human to want to avoid the topic of death, and it is a reality that money can be an emotional topic.

How money is partitioned or transferred can elicit very emotional reactions because of the meaning we attach to it: does a sibling receiving a greater share of the business add to our pain of feeling less loved than them? Do we find controlling terms around the wealth transfer that confirm to us that we were never trusted? Does our parent’s decision to give a large sum to charity feel like a rejection?

All these interpretations may stand a chance to be talked about if conversations about wealth transfer happen in an open way – but when this isn’t the case people may find confirmation of their worst fears in the money choices of their families.

The myth that humans are rational when it comes to money was debunked long ago when the field of behavioural finance began to explore the cognitive biases and emotions that impact investors. Even the financially savvy can become emotional when it comes to money. The choices they make around saving, spending, how generous or withholding or foolish they are with it and developing an ability to de-code when choices are made consciously versus when they are driven by underlying emotions we are not fully aware of, is the key to feeling in control of our money.

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.