mistaken money beliefs

The Harmful Power of Mistaken Money Beliefs

Learning to understand what we believe about money is crucial, because mistaken money beliefs can be harmful to our emotional and physical wellbeing as well as our financial wellbeing. Yet it’s really hard to determine if we have a mistaken money belief. Because, obviously, when we really believe something, we totally don’t believe that we’re mistaken.

In today’s world, knowing about money is a survival skill. What you don’t know about money, as well as what you think you do know about money, has the potential to literally kill you and those you love. A comprehensive research project done by Columbia University on the impact of social factors on mortality found that 4.5% of US deaths could be attributed to poverty. In addition, research overwhelmingly supports a huge correlation between financial illiteracy and poverty. So understanding how money works is a big deal.

Unfortunately, most Americans apparently think they know a lot more about money than they actually do. A 2019 article by Craig Hawley in Kiplinger reported that 71% of Americans say they are financially literate. How do we know that they aren’t? By another research study showing that, by age 40, 66% of Americans can’t correctly answer five questions on the fundamental concepts of money or understand three basic financial literacy topics. Another data point is in 2019, a GOBankingRates survey found that seven out of 10 Americans had saved less than $1000 in cash. If 70% of Americans needed $1000, they would have to borrow, use a credit card, or sell something to come up with it.

Why is there such a disconnect between our actual and perceived levels of financial competence? Probably the biggest thing is that it’s part of the human condition. For most of us, facts don’t matter unless they align with our worldview. If they don’t, it’s probably only the very curious and most mature of us that can stand to say, “Oh, what I think may be wrong. Please share more data with me in an honest and open way.”

Why are we not more “logical”? Actually, we are. Even when we deny a clear fact, we are logically reacting according to our worldview and core beliefs. We will immediately dismiss anything that can challenge those core beliefs, because challenging those beliefs is incredibly threatening. We have all sorts of difficult emotions around being “wrong” that keep us from being able to pivot or take in more information.

We have seen this a great deal with the COVID-19 pandemic. Early on, a great many beliefs about the virus turned out to be wrong. Part of the scientific process, what scientists are trained to do is say, “Oh, I was wrong. I did an experiment. It didn’t work. I know one thing that doesn’t work or one thing that’s not the answer, so I can move on to the next thing.”

But on a personal level, we find that very threatening. It’s not unusual for us to hold a lot of shame around discovering that we were incorrect. It can be painful. So our internal system shuts down the possibility of taking in anything different from what we’ve always believed, because it wants to avoid emotional pain.

How do you know if your firmly held beliefs around money might put you and your family at risk? If you think you are financially literate, how can you tell if you’re not? Here are some red flags:

  • You’re among the 70% of Americans with under $1000 in savings.
  • You carry a lot of credit card debt.
  • You have a lot of anxiety around money.
  • You have a lot of shame around your financial situation.
  • And ironically, the biggest red flag is that you don’t even question your assumption that you know a lot about money.

It’s a positive sign if you have enough awareness to say, “I think I might know less than I think. When I look at my money behavior and my financial situation, they don’t necessarily look like those of someone who understands money.” Another way to look at this is to consider whether your beliefs and values align with your behavior around money.

What do you do if you come to realize that maybe you really don’t know how money works? The most important thing is to become willing to unlearn what you think you know about money and to be open to learning something new. This is not easy, and it’s essential.

It helps to know that many of your beliefs were formed when you were very young, so they don’t necessarily apply in your adult life. To emphasize that, here is a quote from a poem, “One Source Of Bad Information,” by Robert Bly. He describes an uninformed child “in you about three years old” who “

“. . . does want

To save your life. And he has. Because of this boy

You survived a lot. He’s got six big ideas.

Five don’t work. Right now he’s repeating them to


An excellent starting point for changing mistaken beliefs is to consider which of your own “big ideas” about money may be the ones that no longer work.

Check out The Financial Therapy Podcast by Rick Kahler concerning this topic.

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