Breaking down the barriers to healthy money habits

Posted 1 May 2024 by Dennis Harhalakis

Behavioural economics has become popular in recent years as a way of explaining why people don’t act in logical and rational ways. But to me, the obvious is question is, why did we ever think that they would?

We’re biological creatures, not logical creatures. Our biology drives our behaviour. It always has done. We’re all familiar with fight, flight or freeze. But biology is in charge almost all the time: being polite is hard when you’re tired; jokes aren’t funny when you’re scared or upset. Concentrating is difficult when you’re hungry. And making good decisions is hard when you’re tired, hungry or upset.

One of the pioneers of behavioural economics, Daniel Kahneman, was asked what the most insightful idea he’d come across was. He cited the Austrian psychologist, Kurt Lewin. Among Lewin’s many insights was the idea that behaviour is a mix of forces. You have driving forces that push you in a particular direction, and restraining forces, which are preventing you from going there. 

The key point that Lewin made was that the best way to change behaviour was by diminishing the restraining forces that are stopping the person.

That turns out to be profoundly non-intuitive

When we want to move an object, we pick it up and move it. When we want to move somebody, we try to move them by increasing the driving forces. We end up trying to change people’s behaviour with a mish-mash of arguments, incentives, and threats. We all fall into the trap of trying to use logic to influence something that isn’t driven by logic.

Diminishing the restraining forces is a completely different kind of activity, because instead of asking, “How can I get them do it?”, it starts with a question “Why aren’t they doing it already?” 

It’s a very different question. “Why not?” And once you understand that, you can ask, “What can I do to make it easier for that person to move?”

These restraining forces that Lewin referred to can be thought of as blocks

We all have our own money blocks, and we all have clients who have money blocks. And these blocks are powerful because they’re usually rooted in fear. Lewin talks about behaviour being an equilibrium between driving and restraining forces, but most of the time the restraining forces win out, and we procrastinate.

We see this all the time with clients who won’t invest, clients who don’t follow through, and clients who refuse to spend money when they hit retirement.

In order to help clients to understand and manage their money, you need to understand their behaviour around money, and that means understanding their money blocks.

Money blocks come from our money stories

These are the stories that we tell ourselves about what we can be, do, or have with money.

Money stories originate in childhood and are based on the behaviour of the people around us and the broader cultural environment. If you want to understand where someone is blocked, you need to understand their money stories. You can do this by asking them directly: “Would you mind telling me what you believe about money or money and yourself?”. Or you can ask “What did you learn about money growing up?”. You can be a bit more indirect and ask “Could you please tell me a bit about your life story?”

In the stories are the beliefs, and the beliefs – expressed through hard-wired patterns – are what drives the behaviours.

Tucked away in the beliefs are the blocks

There are generic blocks – fear of the unknown, fear of change, fear of loss – and specific blocks. Specific blocks are limiting beliefs that clients have about themselves, about money, and about money and themselves.

“I’ve never been able to save.”

“I couldn’t possibly spend that on myself.”

“I don’t deserve a lot of money when others have less than me.”

“It’s wrong to talk about money.”

When you come across blocks like these, it’s always tempting to challenge them. But that simply doesn’t work – these are restraining forces and they don’t respond to logic or force. The client will feel attacked and will respond accordingly. You first need to acknowledge the validity of their position, and then try and understand what’s driving the belief. 

“If you don’t believe you deserve money when others have less, then dealing with this inheritance must be hard for you,” is a much better approach than “What’s wrong with inheriting money?”.

“If you’ve been saving all your life, then the idea of running down your savings in retirement might be difficult.”

Start there and see where the conversation leads you. You’ll be amazed at how far you can get with curiosity and compassion.

If your job is to help clients make financial decisions, then understanding how they make those decisions – what’s driving them, where are the blocks – is at the heart of supporting them and driving the best outcomes for them.

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Dennis Harhalakis

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Dennis Harhalakis