Behavioural psychologists say that there are 2 types of behaviours pertaining to financial management that we as individuals exhibit viz.,

1. Acquired
2. Drive based

How these behaviours affect our innate need to own “money” and “create money” and “create more money” is what we shall understand and investigate.

The impact of Acquired behaviour:

Covert or internal behaviour stems from what we are, what we have learnt, what we have seen and what we have been advised and taught. It is controlled by our skills, knowledge & resources, which we have built over the years. The most important influence of this behaviour is the environment in which we have lived. The point where things start falling apart is when the environment itself changes. Need for newer skills, resources and knowledge becomes acute and we still hold on to the principles of the past. There is a huge element of personal bias as well which largely stems from the lack of knowledge. For e.g. equity investments are like gambling, therefore risky and hence can eliminate our money. Most of our actions are based on our understanding, which at times may be rather shallow. It is strange however, that for everything important in life we want to consult the experts but when it comes to financial management we want to do it ourselves. May be we think financial management is not so important. This type of behaviour is financially ruinous.

The impact of Drive based behaviour:

This type of behaviour is driven by greed, competition, social standing and again the primary influencer is our environment. If we see others doing something profitable even we want to do it irrespective of whether we understand it or not. Another important influencer here is emotion. “I also want it” – a very powerful emotion. Here are some more examples, ‘Even I own stocks’ or ‘Even I have a 1600cc mid-size car these days’ or ‘Even I went abroad this Diwali holiday’. All this becomes a matter of social acceptance. I too have to be a part of the action.

Let’s talk about stocks – If everyone around me these days is playing into stocks I should do it too and make some quick money. We forget that there is no short cut to making money – if we have to do it the legal way ofcourse.

Let’s talk about lifestyle cost – The ‘me too…’ is a killer once again. We spend and over spend for our children and ourselves. Our lifestyle cost keeps increasing and with cheaper loans we think we can afford our new lifestyle on instalments.

Such behaviour is also financially ruinous….

It is important to understand that social acceptance happens by what you are and not with what you own. When you speak your worth is known. It’s a matter of time and everyone realises that a Cartier watch andMont Blancpen are all worthless if you do not align your money to create long term sustained wealth

Conclusion:

All the way, the behaviour is dictating what we are and what we will be in terms of wealth and affluence. Building wealth requires behaviour where the benchmark is what we were a year ago and where we are today and where we expect to be in a year’s time. This exercise continues year after year. Another component of prudent financial behaviour is to have the attitude to consult the experts, do thorough research, plan your financial goals and invest time to learn continuously. To build wealth and bask in the glory of affluence requires a mindset, a mindset to create and harness the power of money.

How much are we still willing to comply with our standard behavioural norms?