'We’re all crazy when it comes to money,' advisor says. How to manage your psyche for better finances
Human psychology and money don't mix well. Left unchecked, our psyches can easily sabotage financial decision-making, behavioral experts said during a panel discussion at CNBC's Financial Advisor Summit.
«We're all crazy when it comes to money,» said Brad Klontz, managing principal of YMW Advisors in Boulder, Colorado, and a founder of the Financial Psychology Institute.
«The miracle is that anyone is doing it right,» he added.
The human brain is hard-wired to make choices that are long-term money losers, such as buying high and selling low, making a purchase due to the «fear of missing out» or engaging in herd mentality, for example, said Klontz, a certified financial planner and member of the CNBC Financial Advisor Council.
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These shortcomings actually do make some sense. Many date to evolutionary processes that played out thousands of years ago species-wide or more recently, on an individual level in early childhood, experts said. Parents, culture and socioeconomic status are powerful forces that shape money beliefs from a young age, they said.
Additionally, feelings of shame, such as thinking we have too much or too little money, are pervasive, experts added.
This tendency traces its roots to comparing oneself to others in the «tribe,» feeding into a sense of needing to «keep up with the Joneses,» Klontz said. Households may therefore place outsized importance on amassing an arbitrary amount of wealth — perhaps $1 million or $5 million — when these figures don't mean much for overall happiness, he said.
«The number itself needs to be very personal,» Preston Cherry, founder and president of Concurrent Financial Planning in Green Bay, Wisconsin,
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