You've Got Money Baggage, And You Don't Even Know It.
Have you ever heard of the phrase "money baggage"? Maybe you haven't, but there is a good chance it is secretly impacting your financial life. Money baggage consists of the negative beliefs, attitudes, and behaviors we have around money. Our past experiences, upbringing, and cultural background all influence these beliefs and behaviors. Typically, we are completely unaware that it exists.
Money baggage is passed from generation to generation. Sometimes, the next generation replicates the money baggage of the previous generation. Consider an individual who spends their money on accumulating material possessions because their parents were always spending money on things, and that's how they showed their love. Money baggage may manifest in direct opposition to what was experienced in childhood. A child of the same parents who spend on material goods may refuse to collect material possessions, instead spending their money on experiences like vacations.
Photo by Justin Buisson on Unsplash
In my own life, as I've mentioned in a previous blog post, my father was laid off. This brought immediate feelings of fear and insecurity. Later in life, after becoming a financial planner, I went through an exercise of reflection on why my views on money and finances were what they were. What I discovered was that this singular experience of a family layoff, thirteen years prior, had a significant impact on how I saved money, what I saved for, and what I sacrificed to do so. These feelings of insecurity were my money baggage.
Another example of money baggage comes from a client of mine who went through the exercise of trying to identify it. This individual had saved a large sum of money throughout their life for retirement. After developing a comprehensive financial goal plan for them, it was clear that they could fund a very comfortable lifestyle in retirement. It would require, however, that they spend their money. They had a great deal of trouble shifting from a save mindset to a spend mindset. Together, we made the discovery that as a child, this person was raised in a household that had very little, and they moved frequently because of layoffs and job changes. There was never a spare dollar, and there were many times when there was no money at all. Their money baggage, their money discomfort, and their scarcity mindset of the present were a direct result of their childhood.
Why is it important to identify your money baggage?
To gain a better understanding of your relationship with money. If you can identify your money baggage, you can understand how it impacts your financial decisions.
To break your negative money patterns. Negative money baggage can lead to harmful financial behaviors like overspending, undersaving, and incurring too much debt. If you can break the negative habits, it creates the space to develop healthy financial habits.
To make more informed money decisions. If you know what your money baggage is and how it negatively impacts your financial decisions, you will be less likely to make decisions influenced by it.
How do you discover your money baggage?
The process of identifying your money baggage is an introspective one that can be both emotional and intense. It can be done independently or with the assistance of a financial planner or financial therapist. To discover your money baggage, try answering the following questions:
What is your earliest money memory?
How did your parents and grandparents handle their money? Were they successful or unsuccessful with money?
Did historical events like the Great Depression or Great Recession impact how your parents or grandparents handled money?
What financial difficulties have occurred in your family?
Did your parents or grandparents experience significant events like bankruptcy, job loss, or inheritances? Did it change their financial attitudes or behaviors?
Have there been money problems in your family that seem to come up more often than they do in other families?
What financial difficulties have affected you the most?
What lessons about money has your family taught you?
How did your family's financial situation impact your childhood or upbringing?
What kinds of financial behavior were admired?
What were the family rules about money?
What financial topics did you talk about?
What financial topics did you not talk about? Were there financial secrets in the family?
When did you have your first job? What were you expected to do with your income?
What are your financial goals and values?
As you work through these questions, it may be helpful to reach out to the actual family members involved to gain their perspective and experience.
Consider Generation X and Millennials, the children of the Baby Boomer generation and grandchildren of the Silent Generation. What did Boomers and the Silent Generation experience that might impact the money baggage of younger generations?
The Silent Generation
The Great Depression: The Silent Generation developed a sense of frugality and a reluctance to take financial risks. They grew up in a time of scarcity. They are cautious and value stability and security above all else.
Employer Loyalty: Many people in this generation prioritized loyalty to their employers and worked for them for long periods of time, sometimes their whole working life.
The Baby Boomer Generation
Consumerism: Baby Boomers grew up during a time of economic growth and prosperity, which created a consumer culture focused on material possessions and the accumulation of wealth. This may have resulted in a focus on material possessions rather than experiences.
Real estate: Baby Boomers were able to buy homes and see their value rise over time, which led them to value home ownership.
Pensions: Many Baby Boomers worked for companies offering pension plans. Some Boomers relying on traditional pensions enjoy the benefits fully, and some saw their benefits reduced, disappear altogether, or change to a non-guaranteed source of retirement income.
Generation X and Millennials, think back on your childhood and answer the discovery questions above. Have your parents and grandparents and their experiences influenced how you think about money and finances? In my own life, as a member of Generation X, I can say without reservation, yes!
Now, let's take the next step and consider what we, Generation X and Millennials, have experienced that will impact the money baggage of our children, Generation Alpha. (Yes, our kids are named Generation Alpha.)
Generation X and Millennials
Economic uncertainty: The recession of the 1980s, the dot-com bubble burst, the Great Recession, and COVID-19 created a sense of financial insecurity and a desire for stability.
Delayed financial independence: The rise of student loan debt, high housing costs, and challenging job markets increased levels of financial stress and limited the opportunity for financial independence.
Skepticism towards employers and financial institutions: The financial crisis of 2008 left a lasting impact on laid off employees, homeowners that lost homes to foreclosure, and investors who lost wealth due to the stock market.
Generation X and the Millennials’ have both had their fair share of opportunities to accumulate money baggage. But perhaps we can stop or limit what is passed along to our kids. If we don't look to the past and identify what it is and where it came from, it will always be with us. As you look to your financial future and set goals still influenced by your money baggage, you may set the wrong goals or achieve a life that is unfulfilling. It can cause friction with spouses and family members. Money baggage can leave an unwanted legacy for your children and grandchildren.
Now is the time to discover our money baggage, free ourselves of it, and plan for the future free of money baggage!
My name is Tim Melia, and I am a CERTIFIED FINANCIAL PLANNER™ Professional. I would be happy to answer any questions you may have or discuss how this topic impacts your life and financial goals. Feel free to email me at tim.melia@emboldenfp.com. If you would like to learn more about working with Embolden Financial Planning LLC, please schedule a free, virtual introductory meeting.
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References
Nelson, Rebekah J, et al. Three Interventions for Financial Therapy: Fostering an Examination of Financial Behaviors and Beliefs. July 2015, https://newprairiepress.org/cgi/viewcontent.cgi?article=1058&context=jft.
