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What is Money Psychology?

I was teaching a financial class in the Travis County Jail to a group of inmates. Most of the inmates I was assigned to teach were there because their use of drugs and alcohol led to bad situations that got them arrested. Once they had the opportunity to get sober, many were bright, interesting, and articulate. It was usually a pleasure teaching them.

I was explaining in one of these classes how dealing drugs at the street level is always a loser’s game. I explained with facts and figures how you make way less than minimum wage engaging in street-level drug dealing when you count jail time. From a financial perspective, you are better off getting a minimum-wage job or starting a business. One Freakanomics Review Weekly study also pointed out that most street-level drug dealers mostly live with their mothers or grandmothers because they can’t afford a place of their own.

One of the inmates immediately voiced his opinion that he made a lot of money dealing drugs. He had all the money he wanted when he was dealing! The fact that he was serving a year in jail for a drug-related charge was entirely lost on him. Even when the other inmates asked him how he could say that, since they were all sitting in jail making zero money for a year or more, it did not click for him. Obviously, in his case, it was a behavioral or psychological issue, not a math or financial issue.

Drug dealers aren’t the only ones who have misguided opinions on earning money from steady employment. While teaching fellow police officers the basics of investing, one of the officers immediately spoke up and said, “Well, that won’t work because you’ll never get rich doing this job!” I was speechless! Not only was I millionaire but many other officers were as well. None of us made any secret about it, and we constantly encouraged others to join us with offers of knowledge-based assistance. As a result, some of my fellow officers even saved and invested their way to a multi-million-dollar fortune. These are examples of how money psychology overrides budget math and our common sense.

Most people really want to do well financially. They know finances are an important part of their lives. Yet, according to CNBC, only 30% of Americans are financially “healthy.” That, of course leaves, 70% who are struggling. Another CNBC study says 25% of American worry about money all the time. Consider these common financial behaviors.

Which ones you have engaged in?

• Spending money you know you should not spend

• Vowing to spend less but not doing so

• A boom-and-bust cycle of personal budgeting

• Chronic overspending

• Constantly struggling to pay your monthly bills

• Not understanding how much money is coming in and where it goes

• Budget and bill avoidance

• No savings

• Alarmingly high debt

Some of these behaviors I struggled with as well. Most of this list has to do with behavior and habits surrounding money. Your behavior and habits are based upon your psychological makeup that was forged by your past experiences, your own unique story, and the perspective it gave you. In short, this all falls squarely within the psychology of money.

Recognizing certain patterns is the first step in breaking them. Gaining financial knowledge, setting goals, and dealing with your past problems is the way to gain financial success.

Want to learn more and read about other people who overcame their own psychological barriers to financial success?

If you like this subject and want to read more, take a look at the free excerpt on this website from my latest book:

From Money Disaster To Prosperity: The Breakthrough Formula.

—Larry Faulkner

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1 Comment

Donald R. Adams
Donald R. Adams
Feb 11, 2022

Turns out, the list of common financial behaviors applies to at least 80% of the American public. Reminds me of the old joke about the guy who complained to his doctor: "Doc, it only hurts when I do "this." Doctor's advice: "Quit doing 'that' ."

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