Understanding Your Relationship With Money

Journal of Financial Planning, May 2001
by Eileen Gallo, Ph.D.

In my last column, I talked about my two year (1995-97) study of sudden wealth. An incidental side effect of that study was the development of a three dimensional model of money relationships that is the subject of this column.

As part of my doctoral dissertation, I reviewed the psychological literature dealing with money. Prior studies had identified a number of emotions surrounding money which differ from person to person. For some of us, money is a source of security or freedom, or a measure of self-esteem. For others it is a cause of anxiety or dependence. And then there were psychological themes identified in the literature. Themes of frugality: "penny saved is a penny earned." Themes of overspending. Themes of not having enough. Themes of guilt over having "too much." Themes of philanthropy and sharing wealth with others less fortunate.

Out of this combination of emotions and themes several psychologists had developed the concept that people have a "money personality." Before going on, we need to define what psychologists mean when they talk about a personality. A definition widely used is that developed by Theodore Millon, who defined a personality as "a pattern of deeply embedded and broadly exhibited cognitive (how we think), affective (how we feel) and overt behavioral (how we behave) traits that persist over extended periods of time." So a money personality is how we think about money, how we feel about money and how we behave with money.

I found the concept of money personalities useful and in fact use a modified version based on my three dimensional model of money relationships when Jon and I offer workshops and seminars. But I had problems with the way the concept had been developed. First of all, the commentators couldn't seem to agree on either how many different types of money personalities existed or what to call them. Secondly, the categories seemed superficial. Both my clinical practice and the interviews I had conducted convinced me that people had multifaceted relationships with money and could not be relegated to a single money personality. Instead, I determined that each person develops a unique relationship with money in three separate dimensions: acquisition, use and management. The prior attempts to develop money personalities weren't working because they tended to focus on just one of these dimensions, rather than looking at all three.

You develop this three dimensional relationship with money largely as the result of two factors: the information we receive during childhood about money and values, and the way we organize this information in our minds. We are barraged with messages about money and values associated with money from toddlerhood to older adulthood. For way too many children, the bulk of those messages are from the most sophisticated information delivery service ever invented: the modern marketing industry that inoculates our children with the message that consumption is good, that buying more will make us happy and that he who dies with the most toys, wins. The way each of us processes and organizes these money messages and modeling behaviors is very individualistic . Even siblings in the same household are likely to organize their views and their relationships with money very differently.

I use this three dimensional relationship with money as a diagnostic tool to work with patients. For my husband, it is an estate planning tool that allows him to relate estate planning techniques to the clients= relationship with money. Jon talks further about this concept in his column this month.

A useful way of looking at these three relationships is to think of a common 12 inch ruler. The middle four inches represent a secure relationship with one of the three dimensions of money. The first four inches and the last four inches each represent different types of insecure relationships with money. I like to use a ruler to illustrate the concept since it allows you to see that there is a range of normal relationships with money in each dimension, as well as a range of insecure relationships. The borders between secure and insecure are fuzzy and are different with practically everyone. There are no lines in the sand that we can draw and say that everyone on this side of the line is secure and everyone on the other side is insecure.

When I say that your money relationship in one of the dimensions is normal or secure, two tests are being met: (i) your relationship in that dimension will not get you into money trouble and (ii) you are reasonably content with the relationship. You might want to be more organized or save a bit more or spend a little less or earn some more but, all things considered, the situation is acceptable. When you have an insecure relationship in one of the money dimensions, that relationship has either already gotten you into money trouble or it may someday. And for most people, but not all, the relationship is a psychic drain, causing them worry or anxiety. There are some people who have an insecure relationship with money but view it as a natural and inevitable part of their lives. They take their money problems for granted. At the extreme ends of the ruler we find people whose relationship with money is so abnormal that it can correctly be viewed as pathological. These are people with adequate to high incomes who lose their homes because they don't pay their bills or go to prison for tax evasion or securities fraud.

Each of us tends to have different degrees of security or insecurity when dealing with the three dimensions of acquisition, use and management. For each of us, one or two of these dimensions tend to be more important than the other or others. This occurs either because your relationship in that dimension is secure and successful or insecure and problem laden. Even if all of your money relationships are reasonably secure, you are likely to find that one dimension is more important to you than the others. If you are a successful entrepreneur and your goal in life is creating and selling new businesses, acquisition is likely to be more important to you than either use or management. There is nothing wrong or abnormal if one relationship is more important than the others. The mere fact that you are more oriented in favor of acquisition than use or management does not, by itself, imply the you have taken that relationship to such an extreme that it approaches a form of pathology. It merely indicates that acquisition is the most important aspect of money to you. How you implement that importance determines whether your behavior falls within or without a broad range of normalcy.

Let's look at each of these relationships in more detail.

ACQUISITION:

This is the dimension that relates to how you get money. On one end of the ruler you have the avoidant where money is the root of all evil. At the other end, you have the insatiables, the white collar criminals who will break any law and bend any rule to acquire more and more, where acquiring money is the source of all happiness. A wonderful example of the insatiables is John D. Rockefeller. At the time when he was the wealthiest man in the world, he was asked by a reporter "How much money is enough?" His answer: "Just a little bit more." Most of us tend to be somewhere in the middle four inches of the ruler; we neither fear money nor are we prepared to break the law to acquire more.

If you treat Acquisition as a ruler, it looks like this:

INSECURE	SECURE	INSECURE
AVOIDANT		INSATIABLE

USE:

This is the dimension of how you save or spend. On one end you have the miser, of which Hetty Green is perhaps America's best known example. Born in 1834 into a wealthy New England family, she inherited seven and a half million dollars at age 21. Through careful investing, she built her inheritance into a Wall Street fortune worth over $100,000,000 by the time of her death in 1916. The October, 1998 edition of American Heritage ranks Hetty as 36 out of the 40 richest Americans in history. Expressed in today's dollars, her fortune had a buying power estimated at $17.3 Billion. Yet Hetty’s penny pinching was truly pathological. In one infamous incident, her refusal to pay for medical care for her 15 year old son resulted in the eventual amputation of his leg! At the other end of the rule is the compulsive overspender. Again most of us are in the middle, being reasonably careful and conscious of our use of money.

If you look at Use as a ruler, it would look like this:

INSECURE	SECURE	INSECURE
MISER		COMPULSIVE OVERSPENDER

MANAGEMENT:

This is how you manage money. It includes everything from paying bills to managing your investment portfolio. Some of these functions are often delegated to professional advisors. On one end you have the obsessive-compulsive who micro manages down to the last dime. At the other end you have the chaotic individual who is extremely disorganized and/or procrastinates in paying bills to such an extent that his or her credit is often ruined.

If you looked at Management as a ruler, it would look like this:

INSECURE	SECURE	INSECURE
OBSESSIVE/COMPULSIVE		CHAOTIC

Be sure to avoid treating the dividing lines between secure and insecure relationships as sharp, black and white divisions. In reality, the gradations are very subtle shades of gray. The difference between secure and insecure is a combination of emotions (are you content or anxious about the relationship) and finances (will the relationship get you into money trouble).

In my next column, we’re going to take a look at some tools and techniques that will help you understand your relationship with money.