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Guest Blog: How childhood impacts what we do with our money

Guest Blog: How childhood impacts what we do with our money

January 9, 2022
Deborah Edwards

In this blog, Deborah has collaborated with Leila Ainge, Business Psychologist & Coach to delve deeper into how our childhoods influence what we do with our money, both personally and in our businesses. What emerges makes for very interesting reading that once understood can have a positive impact on the future decisions we make.

What did you spend your pocket money on as a child?

Research shows that mindset differences between people who invest and those that don’t are influenced heavily by the way they experienced or were spoken to about money as children.

You might not be surprised to hear that there was psychological inequality being deposited in our childhood piggy banks.  

Boys received up to 5% more pocket money than girls in the UK according to 2019 research by University College London, which also found differences in the way that money is saved or spent by six to 18 year olds.

One of the reasons for these saving habits, boys typically save more, is additional money knowledge that is passed onto boys by parents. Boys and girls are spoken to and treated differently about money from an early age, it’s deeply rooted in societal gender stereotypes.

Unsurprisingly, when women have the same access to money knowledge as men, they will take similar money approaches in business, which is the driving force behind Raised Ups coaching program. Once we understand that knowledge gap we can start to think about the other psychological forces that come into our money decisions. Why do we put off getting financial help? Try to do everything ourselves? And why do we worry about investing in things that will transform our businesses?

Fear of missing out

Scarcity mindset effects our thinking and our feeling, in simple terms it helps us use what we have more effectively, it can promote more conservative choices or push us towards opportunistic purchases for fear of missing out.

If you had less money when you were growing up, the chances are you were faced with making more decisions about money than someone who had more, these specific kinds of decisions are trade off’s. Trade off thinking effects people differently, the decision to spend £1 out of £10 can be more fraught than spending £200 out of a pot of £5000. These scenarios offer up different types of trade-offs because it all depends on your starting point. People and businesses who have less, make more trade off decisions, a process that can become cognitively exhausting and distort decision making when it comes to money.

Cashflow matters

Seasonal businesses especially should think about how the less profitable months show up in decision making. Think to yourself, how would I make this decision if I’d had a bumper month of sales? Think about your visuals, do you have a cashflow forecast? Are you making the most of the reports in your accountancy software? The way in which your cash flow is represented over a six or 12 month timescale can help you make better money decisions and take informed risks.

It’s not only about how things look though, psychologists have found that our confidence and accuracy around financial decision making can be improved when we can ‘play’ with the numbers and visuals we see. This could be a simple spreadsheet that enables you to scale up your sales and see what happens to taxes and profit.

Misleading comfort

Instant gratification is the cognitive bias that impacts everyone to different degrees, it leads you to make decisions based on comfort and pleasure. Sometimes that comfort comes from being able to tick something off your list, even if it does take us away from your core business. Instant gratification when mixed with a fear of delegation derails businesses in a very unique way! why ask for an expert opinion when you can make a decision today?

One example that comes to mind is a client who had been running their own payroll for two years and had come to me exhausted and burned out for coaching. After we had looked through the activities that were not part of the core business I asked ‘Can you get help with your accounting?’ the business owner was adamant that they couldn’t afford anyone to run payroll, it had stopped them from asking for help. When they went out for quotes the trade-off decision became easier as the cost outweighed the burden.

How curious are you really?

Because boys and girls are spoken to differently about money, it leads to fewer ‘money moments and opportunities to ask questions about finances in the home.  If you’re not practiced in asking questions about money this might show up as keeping quiet about making and celebrating your worth.

The easiest way to unpick unhelpful mindsets is to be curious and start asking questions, in psychological terms we like to define our problems by asking questions because facts are easier to work with than worries!

So, how are you spending your money as a business owner? Are you having curious conversations about money?