Part II, The ‘Tween Years: How to Teach Your Preteen About Money

Welcome back to How to Teach Your Preteen About Money, the second part in my Teaching Kids about Money series!

Last week we talked about money lessons in the early years, and this week’s topic is how to teach your preteen about money. Trust me, preteens are in a whole new world when it comes to money; however, it’s a fun age to teach about money and a great time to begin to teach them about the complexities of it.

Saving some money

Let’s really start digging into what money looks like to an 11-13 year old. When you teach your preteen about money, you are giving them more responsibility, which means they will get their hands on larger amounts of money. This is the time to really teach them about paying bills, saving, and spending.

Paying Bills

This is a huge part of life and a great lesson to teach your pre-teen. A great example might be to explain to them how paying bills impacts their life in a positive way. Rent, utilities, and insurance are all bills that need to be paid each month in order to survive.

Of course, you don’t want to make the lesson too heavy for them because they are so young. Selecting a real example from your own household, however, will really help your preteen learn the rigor and responsibility of paying bills.


It’s hard to find someone who doesn’t enjoy spending a little bit of money here and there. Except, when you make money, you need to have some willpower in not spending it all. That’s where the value of spending responsibly comes in. You definitely want instill the distinction of needs versus wants.

Your preteen might really want that expensive dress or that brand name pair of shoes, but you only have a finite amount of dollars to spend. Just for fun, you can also teach them about budgeting. When teaching your pre-teen how to budget their money, show them how they can set aside a certain percentage on splurging. The rest of the money goes into other categories of the budget, such as bills and savings. If your preteen puts aside a certain amount for entertainment purposes, they will learn that when that dollar amount is gone, it’s time to reach into the free bag for fun!


Saving is truly a fun part to teach when it comes to teaching your preteen about money. Saving money should be looked at as a reward and not a punishment. As a child sees their money slowly build up, they will understand the long-term benefits of saving those dollars. Of course, the attitude you show towards saving money will likely be the attitude your child adopts as well. Make the “saving” part of money a positive one!

You see, teaching your preteen about money is a lot easier than it might seem. Start teaching your child early in life: teaching them about paying bills, spending, and saving isn’t something that’s too far above their head as long as you do it in a simpler way that applies to their current life.

Teaching your child about SPENDING, SAVING, and PAYING right now is smart and will pay off in their future. With your diligent hands-on teaching, your preteen is bound to continue making great money decisions as they grow through life.

Wasn’t that fun?

Wait until next week when I talk about teaching your college bound “teen” about money. This time, it gets a little more real as they prepare to move in to the real world in the next few years, even paying their own bills. Financial responsibility needs to become very real to that teen you share your vehicle with!

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Part I, The Early Years: How to Teach Your Kids About Money

Do you scratch your head as you think about how to teach your kids about money? Since money skills are so important to have, even if money is something you prefer not to focus on, it’s best to start teaching kids about money sooner rather than later. If you can effectively teach kids about money, and demonstrate responsible money behavior yourself, your kids will have a great shot at saving early and staying out of debt.

And summertime is the perfect time to start teaching kids about money. Even the younger ones can start learning about the value of a dollar and how to choose whether to spend on “must have” or “nice to have” back to school items. Teach Kids About Money

The critical things to teach kids about money aren’t that they need to have a lot of it, rather, teach them how to spend it and make proper decisions about it.

Here are some tips to help you teach your kids about money and how to use it properly.

Early Stages of Money Learning

When kids reach the age of 6, it’s safe to say that they are ready to start learning some valuable money lessons. In essence, when your kids know how to add and subtract, they are probably ready to learn about money.

Before you begin teaching your young child how to spend money, teach them about money. Though they may have learned the value of dimes, nickels and quarters in school, check in just to make sure. Teach them how to add coins together.

Want a great tip on teaching your child about money?

Rather than an allowance, think about instituting a salary for your child. Plenty of parents don’t like the automatic, money-for-nothing nature of an allowance. But letting your child earn and manage small amounts of money is a great teaching tool. Small amounts now, tied to lessons from you about how to plan spending, can help prepare your child for when the amounts are bigger. Not only is a young six to ten year old learning critical lessons about responsibility, they are also learning about the value of saving money.

Use real life experiences to teach your young child about money. As they get older, you can make the experiences age appropriate. Here are a few ideas:

  • Let them create a budget for back to school clothes and supplies
  • Putting a portion of their Christmas or allowance money in their piggy bank
  • Saving up for something they want or need
  • Differentiating between saving, spending, donating, and investing
  • Allow the child to make decisions with their money—kids have to learn from their mistakes too!
  • Introduction to paying bills
  • Earning money to make an honest living

These are just a few tips, but you get the general idea. The fun part of starting money management early is that you can build on it as they grow older.

Want to read more on this topic?

This is part one of a three-part series on teaching your kids about money. Parts two and three will talk about teaching your preteen and your soon-off-to-college child the basics of personal finance. So stay tuned!


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5 Reasons Not to Buy Bitcoins

Don't Buy Bitcoins

Want to buy Bitcoins?

Have you heard of the latest financial craze hitting the streets? An article from the Washington Post really got me thinking about why people might buy Bitcoins and what digital currencies could mean about how we spend money in the future.

First things first, Bitcoin isn’t actually an investment (investments are expected to go up in value)—it’s a de-centralized alternative currency. Bitcoins are transferred directly, person-to-person and anonymously, via the Internet. It’s simply an alternative to the various global currencies, such as US Dollars, the British pound sterling or the Euro.

Human nature has people very curious about Bitcoin, and some are scrambling to get some of this alternative currency for themselves. Unfortunately, some people seem to be under the false conclusion that buying Bitcoins would be considered a wise investment.

Personally and professionally, I tend to be pretty loyal to investments that I can expect to go up in value, yet all we can predict about Bitcoin is that its value relative to the US Dollar will be volatile.

Here are some other ways that buying Bitcoins could go incredibly wrong. Let’s take a closer look at what the Washington Post had to say:

#1. Losing Your Keys

According to the Washington Post, the Bitcoin network doesn’t even have a “password reset” mechanism. All of your Bitcoins could become unrecoverable if you lose your key.

#2. The Network Effect Gone Bad

The last time I checked, investments work in our favor because the underlying thing we are investing in is creating value. The unfortunate thing about a Bitcoin is that people could just stop using them one day. When you are using something as volatile as a digital currency, you suffer the risk of losing 100% of your money.

The Washington Post put this into words brilliantly when they said “If people stop using the Bitcoin network, Bitcoins won’t be worth anything.”

If you don’t think this can happen, just ask investors in Friendster or even MySpace.

#3. The Bitcoin Exchange Rate

Bitcoin is primarily being used and promoted by speculators, rather than participants in normal retail and commercial markets. Speculation can lead to huge price volatility. While this is exciting, it means that holding Bitcoins is truly just gambling.

#4. Security Problems

The Bitcoin network requires a network of voluntary users to operate, and is subject to malicious actors or hackers that may be able to gain control of the network and destroy the value of the community. Unlike the money in your checking account at the local credit union, there is no one backing up your Bitcoin investment.

#5. Intellectual Property Challenges

Some prognosticators have asserted that the federal government will never allow Bitcoin to gain traction in the currency marketplace. It does seem likely that the US Federal Reserve could assert its power over US monetary policy and block Bitcoin’s growth if Bitcoin becomes a major player. You can read more about the Bitcoin patent dispute right here.

I think that this list clearly explains that there are a lot of reasons to stand on the Bitcoin sidelines at least for now. While it’s seductive to jump into what might be the next big thing, you may want to stick with PayPal for now.

What do you think about Bitcoin? I’d love to hear your opinion, so feel free to comment.

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How to Make it Your Financial Independence Day

Over this beautiful and patriotic Fourth of July weekend, we as Americans celebrate our political, religious, and economic independence from tyranny.

Independence and self-sufficiency are core to the American set of values.  Don’t forget that the above mentioned freedoms have been granted to us all without regard to our personal differences.


Another universal American value is the idea that each and every one of us has the opportunity to achieve financial independence. Keep in mind that financial independence isn’t granted to us, we have to earn it and then keep it around for the long run.

Check out these four steps to achieve financial independence:

1. Make Sure to Plan it

During your saving and investing years, you must spend less than you make, no matter how high your income. It is vital that you invest prudently, without letting your emotions get in the way. Trust me; I understand how emotional investing can be.

Rather than saving 10% of your income by rote, you should take the time to create a financial plan and understand the math behind how your savings amount translates to an expected portfolio value.

You need roughly 20 times your annual income in savings to retire adequately. Are you prepared for this?

2. If You Can Plan It, You Can Achieve it

The day you retire or stop investing money for your retirement is a very important day. On that day, you are taking the big leap of faith that your money will outlive you. Don’t go at it alone—your retirement day should be strategized and planned for so that you know what you’re getting into.

You should understand what income your portfolio can afford to pay you in up markets and down (you’ll be counting on the growth in the portfolio, and in many ways volatility is no longer your friend). You should also be absolutely sure you’re comfortable with your retirement income number.

3. Protect It With Your Life

Many people don’t realize that growing wealth requires very different skills than preserving wealth. And of course, I don’t mean that you should just buy more bonds.

For many people, once you’ve stopped working, your ability to earn wealth back after a financial mistake will decline. You might not be able to get re-hired, your health might not permit you to work, or you might need to spend your days caring for an aging loved one. Many very smart and educated people grow their wealth and lose it multiple times during their lifetime, not realizing that what is missing is the skill of preservation of wealth.

Preservation of wealth requires following the principles of patience and discipline, but also the practice of asset allocation and rebalancing. How would you rate your own ability at these?

4. Enjoy It Because You’ve Earned It

While the world was battling the Great Recession, we consistently advised our clients that their portfolios had been built to withstand even tremendously negative events. An example of one of these events was the 45-55% declines we saw in the global stock markets.

The vast majority of our clients were able to continue to take retirement income from their portfolios at the same level as previous years. Take special note that all of their portfolios have recovered in the bull market of the past few years.

You cannot afford to let short-term market events cause you to abandon what should have been a long-term plan. Even though we all want to throw in the towel every once in a while! Right?

Once you have built your wealth and achieved financial independence, trust in the science you used to create the plan. If you can do that, you have achieved true financial independence and peace of mind.

Do you feel like you’ve experienced true financial independence? I would love for you to share your experience with us in the comments section! 

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How I Keep Myself from Overspending

How I Prevent OverspendingI am an admitted overspender who has managed to keep bad habits at bay for many years now.

As such, I keep myself on a pretty tight spending leash.

I have a very well-designed system that uses auto-drafts to send money automatically over to my various savings accounts—this is how I pay myself first and is my first level of defense against overspending.

I have a savings account for auto-related expenses (including a new car), one for my next vacation, a relatively new one for my wedding, and of course retirement savings. I also have two checking accounts. I use one checking account to pay for pre-arranged expenses such as rent and insurance, and another checking account (with a separate debit card) where I make spending choices on things like food, clothing and entertainment.

The idea is that the second account gets filled up the day after I get paid, and that’s the amount of money I can spend over the next two weeks. When the balance gets to $0, I’m done spending.

Like I said, it’s well-designed.

It’s in the execution where things can get sticky.

This month, on the day after the checking account received its bi-monthly transfer, I paid a large doctor’s bill, stocked up at Costco and sent some money to my alma mater. In retrospect, these were not great things to do given there are 13 days left until that account gets another transfer.

Every morning I log in to my bank to verify any transactions that have taken place and see my updated balances. And I was a little shocked yesterday to see that the balance in that account is down to $178. Ummm, ouch.

And yet, right there, next to the little 3-digit number I don’t like, is a nice 4-digit number in my other checking account. And two nice 5-digit numbers in my other savings accounts.

There is a little button, like a siren song, sweetly calling “Transfer! Transfer!”, a fantastic new summer dress in my Amazon shopping cart, and Jiminy Cricket on my shoulder.

So, how do I keep myself from overspending my plan when I’ve got the money and could easily spend it?

There is a little adage I once heard that changed my financial life forever. Someone said to me, “Being rich isn’t about how much you get to spend. It’s about how much you get to keep.”

And that moment was a revelation.

Until that day, I thought that having attained riches meant the ultimate freedom to spend at will and buy anything you wanted. But the point is that once you spend it, it’s gone.

More importantly, how can I live for almost two weeks on less than $200?

I use a few simple techniques to keep my head on straight.

First, I make it a game.

I make it fun!

It’s a challenge, it feels good to be amassing wealth and I appreciate my learned ability to avoid overspending and live richly on very little cash flow for a time. I’m in my mid-thirties now, but I know that if I don’t save according to my plan, at some point down the road I’ll end up in financial crisis. And my commitment to avoiding financial crisis is what ties me to the proverbial mast, as Odysseus enlisted his crew to tie him to the ship’s mast so he could hear the call of the Sirens, but not lead his crew to death on the rocks.

Second, I stay out of expensive situations.

I don’t go to dinner with groups when the balance in my spending account is low. I don’t go to the mall. I have learned that I can say no to people.

Third, I don’t live my life at the edge.

My car has a full tank of gas. I keep enough food in the house so that I don’t have to go out, and if I run out of food I can certainly afford a trip to the grocery store on that $178. I have some organic greens delivered each week, that bill comes out of my pre-arranged spending account.

Fourth, I plan well, and then I lean on my plan.

Since 20% of our spending occurs in lumps, I have more than adequate savings for any unplanned expenses. If my car needs work, that money comes out of my auto savings account, but the important thing is that I have not violated the plan to pay for it. My plan is still 100% intact, and yes, my plan is written down and I do review it at least quarterly.

Obviously, any amount of planning won’t make a difference if I don’t actually follow the plan. I could easily break down under the strong pull of the siren song, but I know where that path leads.

Although transferring another $1,000 into my spending account certainly wouldn’t break the bank, I just don’t allow myself to do that anymore.

Please comment: how do you keep yourself from breaking your own financial rules?

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Should I Invest My Cash Now?

“Hey, Ms. Advisor/Economist/Person I met at a party: Should I Invest My Cash Now??”

Too often, I hear questions like:

“I have some cash in my portfolio… do you think I should invest invest my cash now or wait for the market to come back down a little bit?”
(Honey, if I knew that, I’d be sitting pretty on my own island, for sure!)


“Shouldn’t I wait for the market to go back up a little bit before I invest my cash?”
(See how silly, people can’t decide if they want the market to go UP or DOWN before they invest, and this last question is a prelude to, “Oh no! I waited too long and the market left me in the dust!”)

Trying to predict the market seems like an obvious thing to do—not only could you potentially make yourself some money, but the media tends to completely support the (false) assertion that these things can, in fact, be predicted. No one can predict the future though, and even the most handsomely paid economic experts are wrong when we need them most.

This is a great video from a very smart company, Loring Ward, about why you shouldn’t worry about a few percentage points when it comes to putting your money in the market. If you’re wondering what the truth is about market predictions, watch it now!

NOTE! This advice only applies to cash that is earmarked for long-term goals–events that are 5+ years in the future.

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Should I Convert to a Roth IRA?

Congress recently made it easier to convert to a Roth IRA than it ever has been, but is it really the lucrative opportunity everyone thinks it is? roth

Roths are popular because, unlike Traditional IRAs, distributions in retirement are tax-free.

However, the ability to contribute to a Roth IRA has always been subject to fairly restrictive income caps.

To lessen the restrictions, in 2010, Congress passed a law allowing anyone (no income restrictions) to take an already-existing Traditional IRA and convert to a Roth IRA.

Roth contributions are after tax dollars, though, so the conversion amount becomes taxable income. This can translate to a hefty tax bill depending on the size of your conversion, and the taxable income can trigger the new Medicare surtax.

This year, Congress lightened restrictions even further by declaring that employer-sponsored 401(k) account balances are convertible to Roth 401(k)s, as long as your plan allows for Roth 401(k) accounts.

Since then, many people have converted or are considering converting to a Roth with the idea that they are taking advantage of a huge tax benefit: tax-free retirement income.

So are these folks really getting a free lunch?

Actually, the answer to this question involves you guessing what tax bracket you’ll be in during retirement relative to the tax bracket you’re in now.

As it turns out, the only way you’ll be better off in retirement with a Roth IRA is if you are in a higher income tax bracket then than you are now. [i]

Here’s how it works…

…with a Traditional IRA

Say you’re in a 30% tax bracket now.

Further, let’s say you earn $1,000 before tax and contribute the entire $1000 to your Traditional (pre-tax) IRA. Now say you earn a rate of return that triples the money by the time you retire.

So now you have $3,000, and when you take the money out of that account after age 59½, you pay 30% tax on it, so that leaves you with $2,100.

…with a Roth IRA

Now, let’s say you earn the same $1,000.

You pay 30% tax on it, leaving you with $700 and contribute that amount to your Roth IRA. In the Traditional IRA scenario, compound interest tripled your IRA money, so this money will triple too[ii].

So, now what do you have? That’s right: $2,100

Look at that. You end up with exactly the same amount of money!

And the math works the same for every dollar amount, so again,

The only way you’re better off with a Roth is if your tax rate is higher during your retirement than it is now. 

In that case, for example, if you were in a 30% tax bracket now and a 40% tax bracket in retirement, the Traditional IRA result, paying 40% of $3,000 ($1,200), would be $1,800 instead of $2,100. Now you’re better off with the Roth.

Stay in Control of Your Taxes

That said, it is a good idea for you to be able to have some control over your tax rate in retirement, so I do recommend having some portion of your savings in a Roth, some in a Traditional IRA and some in a taxable account.

So, should you convert to a Roth?

Since Roth conversions turn into taxable income and you’ll have to come up with the cash to pay the bill, my recommendation is that you consider taking some of your Traditional IRA or 401(k) and convert to a Roth if you have the cash to pay the tax.

[i] This assumes you are saving the same amount of money no matter if you’re saving in a Roth or Traditional IRA or 401(k).

[ii]  (assuming same time horizon and investments)

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Have You Already Received Sudden Money and Don’t Know It?

When I tell people I specialize in helping sudden money clients the most common response I hear is,  [laughing] “Great! I’ll call you when I win the lottery!” Most people think sudden money only occurs in factors of tens of millions of dollars and only comes by a stroke of luck.


Actually, sudden money occurs far more frequently than we are aware of. Unfortunately, we often don’t see it or plan for it before it’s too late.

What is a Sudden Money Event?

A sudden money event occurs any time someone receives an amount of money that can dramatically alter their financial future.

For someone making $50,000 per year with $20,000 in savings, inheriting $250,000 is a sudden money event.

However, for someone with $2,000,000 already in the bank, the $250,000 is just nice to have. It would probably take more than $5,000,000 to be a sudden money event for our friend who already has $2,000,000 saved.

For a young person, like a college student with minimal income, a seemingly trivial amount like $10,000 can even be a sudden money event (truth: it happened to me).

A divorce can be a sudden money event. In many marriages, the husband handles the finances. After a divorce, and especially if the wife hasn’t worked or her husband has far out-earned her, she will eventually end up with a lump sum of money, but no skill in preserving or managing it.

NOTE: In some cases, the wife handles the finances, and in that case the roles above could be reversed.

Inheriting money or property can be an extremely emotionally complex sudden money event because of the grieving process and some people’s mixed emotions about inheriting money that they didn’t earn from a loved one.

Divorce and inheritance are by far the most common sudden money events. Other sudden money events include lucrative compensation contracts, an IPO, selling a business, and of course, winning the money.

The Sad Fate of Most Sudden Money Recipients

Sadly, the National Endowment for Financial Education reports that as many as 70% of people who receive financial windfalls lose the money within a few years. The majority of financial windfall recipients squander their life-altering sum and end up living with tremendous regret.

However, contrary to popular opinion, these folks don’t squander money because they’re uneducated or because they don’t care. Unfortunately, we all have a Money Mindset that programs us to behave around money in a particular way, and many times these programs don’t get seen until they are magnified by a sudden money event.

And don’t start thinking, “But that wouldn’t happen to me!” Our behavior around money is ripe with cognitive biases—our brains play funny tricks on us. Remember that before 70% of financial windfall recipients lost their money, they all knew about the ones who did it before them.

How to Preserve Your Sudden Money

With appropriate education and planning, you can maximize the value of your sudden money to yourself and the people you love the most.

But please, don’t go it alone. The first thing you should do when you know you have received or will receive sudden money is to gather a team of advisors who will get to know you, including your principles values and goals, and then set about helping to make sure you achieve the things that are most important to you.

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Who Else Wants to Be Rich Like Warren Buffett?

Have you ever wondered why people like Warren Buffett and Donald Trump make everything they touch turn to gold?

Warren Buffett, called the “Oracle of Omaha”, is considered the most successful investor of the 20th century, and Trump has built a real estate empire from which he draws an annual salary of $60 million. They make their billion dollar empires seem almost like a birthright.

How do those people make it look so easy to make lots of money no matter what environment they’re in?

Is it raw brain power? Well, neither Warren Buffett nor Donald Trump is the smartest man on the planet. And we all know plenty of intellectually gifted people who toil away for a teacher’s salary, so it’s not intelligence. image005

Maybe it’s practice? World class athletes practice more than anyone else, so maybe practicing produces financial success. But most of us spend our entire adult lives practicing making money! No, it’s not practice.

On the opposite extreme, consider the financial misfits.

We’ve all heard the stories of lottery winners who go broke. One study even concluded that lottery winners are more likely to file for bankruptcy within a few years of receiving their windfall than they would have been if they had never won!

Photo Credit: © Mark Hirschey / Wikimedia Commons

Also, 78% of former NFL players file for bankruptcy or are under financial stress within 2 years of retiring, despite the fact that all new NFL recruits receive personal finance training, some of which is taught by the Harvard business school.

And both football players and lottery winners know these statistics before they repeat the mistake.

And it’s not just lottery winners and football players who lose fortunes. The National Endowment for Financial Education reports that as many as 70% of people who receive a financial windfall lose the money within a few years.

Are you a Midas, a financial misfit, or something in between?

If you are in the lucky position of not having squandered a life-altering amount of money, it’s so easy to point at the socio-economics of the people who play the lottery and some of the young men who get drafted into the NFL and say, “They’re uneducated.”

Actually, most people don’t say it quite that politely.

But all they did was make big, public mistakes. Haven’t you made financial mistakes? I know I have.

And, as a financial advisor, I’ve talked to a lot of very smart people who’ve admitted big financial mistakes. I even know smart people with high incomes who make financial mistakes, like dipping into savings every month—and feel they have no control over it.

So, why are some people reliable to make millions, and some are reliable to lose millions?

In fact, getting back to our friends Warren Buffett and Donald Trump, why is it that Warren Buffett is always in the black and Trump always seems to be bankrupting his latest project? Not only do they constantly make a lot of money, but they constantly behave around it in the same way.

What I’m pointing to here is the patterns people have around money.

It almost seems like they are programmed to behave around money in a particular way.  And that’s because they are programmed to behave that way. And YOU are programmed to behave a particular way around money, too. Your programming is a function of what I call your Money Mindset.

Just like a computer program that always spits out a particular result, we are all a function of our internal coding about money.

Fortunately, it is possible to interrupt patterns that don’t work, or don’t work as well as you’d like them to. This all begins with identifying your Money Mindset, and the systems of behavior you have around money that keep it in place.

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The Money Mindset: How to Transform Your Financial Life Once and For All

money mindsetHave you ever noticed how differently people behave around money?

That some people seem to make money like Midas while some spend it like Tyson?

I know high-income earners who consistently spend more than they make and people with average salaries who tuck away nearly half of it. Also, many people suffer from very complex and negative emotions about money.

Personally, I had my own irrational financial behavior. I received financial windfalls twice in my twenties. Don’t get me wrong, I didn’t win the lottery, but these checks were in amounts that, if invested, could have contributed nicely to my retirement savings. And even though I have a degree in Economics and I’m a responsible person, I simply couldn’t spend the money fast enough. I have nothing to show for it today, except a well-learned lesson.

So, what explains all of this widely varied and sometimes even destructive behavior?  What is shaping people’s thoughts and actions around money?

The Power of Language

The idea that language might shape our thoughts and actions may seem foreign to you. Yet, Dr. Lera Boroditsky, Assistant Professor of Psychology at Stanford University and Editor in Chief of Frontiers in Cultural Psychology, has shown that language doesn’t merely express what are otherwise universal thoughts, rather, language gives rise to our thoughts, our experience of the world, and therefore our actions.

Her research has demonstrated the causal role of language in how people think. According to Boroditsky, “It turns out that if you change how people talk, that changes how they think. If people learn another language, they inadvertently also learn a new way of looking at the world. When bilingual people switch from one language to another, they start thinking differently, too.”

For example, our experience of time, which can never be seen, touched, tasted or felt, is almost entirely a function of language. What do you say to yourself and others about time?

“I don’t have time.”

“Time marches on.”

“Time flies when you’re having fun!”

“The clock stood still.”

Both the first and third statements refer to the experience of time moving quickly. Yet, notice when you read the first statement to yourself, you probably experience some form of frustration, anxiety, pressure, or perhaps confinement. And when you read the third statement to yourself, you experience some happy memory of the past, time spent with loved ones or an especially exhilarating experience.

Language gives rise to experience.

Money, like time, is also largely conceptual.

What Is Money?

Cash is just a representation of money. If even half of Americans stopped recognizing cash as money it would quickly be worthless.

Actually, an increasing number of retailers have stopped taking cash, and if you don’t believe me, try paying cash for a cocktail on a commercial flight. Cash is not money.

Money is also not the numbers you see in your bank account when you log in to see your balance or open up your monthly statement. Your credit card, though it has the power to transfer money, does not physically contain money that somehow exchanges ownership when manipulated by the sales clerk.

Further, gold is not money, and checks are not money. So, I ask again, what is money?

For you economists and sociologists, money is a solution to the problem of double coincidence of wants. It is merely an agreement about something having universal value, and without the agreement it is absolutely nothing.

Money, therefore, is a concept.

And yet, money and the social meaning that surrounds it are extremely significant in our culture. People have strong emotions about money, fight over money, divorce over money, even kill for money.

Where does all that meaning come from?

It comes from the language we use about it.

And the language we use about money is far from universally agreed upon.

Each of Us Has Our Own Money Vocabulary

And this fact should begin to explain to you why some people fight so much about money.

It is estimated that there are some 100,000 adjectives in the English language, but few of us use more than a handful of them to describe money.

And the words you use to describe the concept of money limit what money can be for you. Because money is so conceptual, we must use language to describe it. However, the word “describe” can also mean “to trace the form or outline of.” In other words, once you have described it, you have put it in a box. Now, in your understanding, money is what you have described it to be, but it is not anything else.

At some point in our childhoods, we all got an idea of what money was, we started to talk and think about money that way, and we got stuck with it. I call this your Money Mindset.

What is Your Money Mindset?

According to Klontz, Kahler, and Klontz, some of the most common Money Mindsets are as follows:

  1. I don’t deserve money.

  2. I deserve to spend money.

  3. There will never be enough money
    *Incidentally, this one was mine, and I’ll give you one guess what someone has to do with a large check when their Money Mindset is “There will never be enough money.”

  4. There will always be enough money.

  5. Money is unimportant.

  6. Money will give me meaning.

  7. It’s not nice (or necessary) to talk about money.

  8. If you are good, the universe will supply all your needs.

My experience is that Money Mindsets are as varied as people are. Do you relate with any of these?

It is possible to transform your Money Mindset, and therefore your financial situation, experience, and results.

I personally have done this work. I used to gleefully spend every dollar that came into my possession (and more), only to return to scarcity and lack of freedom. And now I consistently save almost half of my income.

I have also done this work with our Sudden Money clients to ensure that they maximize the value of their financial windfall to themselves and the people they care most about by avoiding the all-too-common fate of windfall recipients.

Identifying your Money Mindset, the systems of behavior it causes, and the emotions that surround it is the beginning of gaining freedom.

Once you accept that your Money Mindset is merely one (valid) way of relating to and experiencing money, but that it is not true in any objective sense, you have dislodged certainty and made room for exploration.

So, tell me, what do you think your Money Mindset is today, and better yet, what would you like it to be?

Referenced Book Citation:

Klontz, Psy.D, Brad, Rick Kahler, CFP, and Ted Klontz, Ph.D. Facilitating Financial Health (Tools for Financial Planners, Coaches, and Therapists). Cincinnati, Ohio: National Underwriter, 2008. 78-79. Print.


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