People carry different “money scripts,” or financial beliefs, said Edward Horwitz, director of financial psychology programs at Heider College of Business at Creighton University.
An individual’s past experiences with money are what shape these attitudes, which then inform their financial decisions and behavior throughout their life.
Perhaps a person watched as half their 401(k) plan savings vanished when the dot-com bubble burst, or witnessed their mother get fired unexpectedly.
“These financial flash points are usually set very young in our life, and we carry them around with us,” Horwitz said. “They cause us to panic when we start to see things on television regarding the movements of the market.”
Unfortunately, these financial beliefs are often maladaptive, Horwitz said.
In other words, they’re a risk to our long-term investing goals. For instance, misplaced anxiety could lead you to believe the next Great Depression is imminent and to sell all your stocks at once.
Therefore, the next time your investments are in the red and you’re feeling uneasy, Horwitz recommends asking yourself: “What happened in my past that’s causing this feeling? When was another time in my life in which I felt this level of anxiety, and what ultimately happened?”
This self-understanding will better equip you, he said, to decipher a real threat to your investments from your own emotional financial baggage.