You know that family of origin / childhood issues have a big impact on your adult relationships, on your work habits, and of course your love life. But have you ever thought about the way your childhood impacts the way you handle money? You should.
CNBC / Acorns recently asked me to write a series of stories about the psychology of investing, a topic I really enjoy — and I think is underappreciated. Our ideas about money, and saving for the future, are influenced by a lot of unconscious and semi-conscious factors. Today’s discussion might be the most important, but most underappreciated, of all: The way our family of origin impacts our decisions about money.
You can read the full story, “3 Ways Your Childhood Can Determine How You Think About Money,” at CNBC / Grow. But here are a few other things I learned while reporting on this story.
“A lot of both negative and positive things are inherited from our parents,” says Dr. Michal Strahilevitz, a professor at St. Mary’s College of California who studies investor psychology and behavioral economics. “If they were obese, you are more likely to be obese. If they were smokers, you are more likely to be a smoker. If they ate lots of vegetables with every meal, you will likely do that in your adult life as well. Often our behaviors come from what we were exposed to as children.”
In the world of money, parents often transmit their attitudes about money and investing to their kids.
“If your parents lost all their money in real estate, you are probably going to avoid going into real estate. Or if one of them did badly in the stock market you are more likely to avoid investing in the market,” she said. “If they were successful in the market, you’re more likely to mimic their investing strategy.”
On the other hand, parents can create a whipsaw impact instead. Kids who grow up witnessing the negative impacts of money mistakes sometimes take an intentionally opposite tack, Strahilevitz said. If you saw your parents struggle with credit card debt your whole childhood, you might avoid credit cards entirely.
“Like if your dad was an alcoholic, you might decide not to drink at all,” she said.
Young children don’t really understand money, says co-author of MarketPsych: How to Manage Fear and Build Your Investor Identity. But they do observe their parents attitudes about money and often internalize it.
“A big part of what gets internalized is how afraid they should be. Is there a sense of security around money or does the subject provoke anxiety?” says Murtha, who holds a doctorate in Counseling Psychology, and is an investing psychology expert. “People react in different ways to financial chaos in their youth – but they do react. People (who) experience money worries as kids are more likely to carry forward that sense of scarcity and insecurity. But there are other people who had money problems growing up who can’t wait to splurge when they get older and buy all the things they felt they were deprived of. “
Some childhood lessons that impact your relationship with money aren’t quite so direct, says Jeff Kreisler, editor in chief of behavioral economics site PeopleScience.com.
“If you grow up learning the element of self-control, if you have the ability to think of your future self, you are less likely to fall for something,” like too-good-to-be-true investments, Kreisler said.
He mentioned the famous marshmallow test, which suggests a positive future for young children who are able to delay eating a single marshmallow in exchange for two treats later. The classic test has recently been questioned on many levels, but the main lesson remains: People who can delay gratification have a leg up with money matters.
“How do you get that upbringing? Some is where you grow up where you go to school. Some is who your peers are,” Kreisler said.
Of course, it’s impossible to avoid the impact of larger economic forces might have on impressions left by childhood.
“The 2008 market crash is pretty hard to forget,” says Jamie Foehl, Senior Behavioral Researcher at Duke University’s Center for Advanced Hindsight. People who came of age during the Great Recession are necessarily gun shy about investing. “It’s hard to get that out of your head.”
Still, your family situation can exert a strong impact on your investing attitudes throughout your life. Children of parents who did well investing can leave childhood with a lot of financial confidence – perhaps too much, Strahilevitz said.
“They think, ‘It’s in my blood. I’m from a family of brilliant investors. But if your parents did well, sometimes it’s due to something called luck,” she said. On the other hand, if your parents did poorly and you overreact, you might be entirely unwilling to invest — which can be just as risky as investing recklessly.
You can read the full story, “3 Ways Your Childhood Can Determine How You Think About Money,” at CNBC / Grow