This article was first published here.
I have previously written about the enthusiasm and energy which encapsulates our passion at Anchor and how this enthusiasm has led to a constant evolving of the company. I spoke about the people that constitute our business and the responsibility that we have to ensure that our clients’ experience of Anchor’s overall strategy and asset allocation is pertinent and meets their specific investment needs, objectives and constraints. I also mentioned that we want you (our clients) to understand the context of investing in the world in which you live and how it impacts your finances. In addition, whilst it matters to us that your personal asset allocation falls in line with our general strategy, it is more important to us that this also suits your individual return and risk profile.
But, how do we determine this personal profile?
Financial behaviour tends to be more emotional than rational and your financial behaviour, as with the rest of your actions, is a deep-rooted expression of your internal psychology.
So, let us begin as you would any therapy session, with questions about your childhood.
What is your earliest memory of money?
This might sound like a strange question to ask, but as an internationally acclaimed personal finance expert, Suze Orman has said; “It’s amazing how much the mind can play a role in creating or destroying financial freedom. These money memories have such a hold on our lives—they directly impact how we deal with our money or we don’t deal with our money.” How we consciously and unconsciously behave is significantly impacted by our childhood or our memories thereof.
I have spent a considerable amount of time (and money!) on understanding my general and financial psychology and the above question is one which I find particularly interesting and thought-provoking – maybe because I spend all day, every day, surrounded by money and its impact on the world around us.
I am fortunate that my mom played a constructive and positive role in my financial upbringing. Even though (or possibly because of the fact that) we did not always have access to an excess amount of money, we spent a lot of time talking about it. A topic which is normally taboo but one which I believe should be a top priority in conversations between people.
My first money memory: The coins in the chest of drawers
In my bedroom is a chest of drawers passed down from my great-grandmother to my grandmother to my mother and now on to me and which forms an integral part of my first money memory. Every Sunday afternoon my sister and I would kneel in front of this chest of drawers holding a glass jar each (which probably previously contained tuisgemaakte appelkooskonfyt) and my mom would give us – and I forget the exact value – but say R10 worth of ZAc10 coins which we would place in our respective jars. During the week if we were naughty or cheeky (mostly me) she would remove a coin and if we were good or obedient (mostly my sister) she would add a coin. Naturally, my sister would always have more spending money than me by the end of any particular week.
The lesson learnt: consistently good behaviour pays off.
Throughout school, university and now in my working career, I have never been the most intelligent or naturally adept at anything I do, but I have always been diligent and consistent. Like it did for my sister back when we were small children, good (financial) behaviour has paid off for me and coins keep getting added to my money jar.
My second money memory: breaking bread in the parking lot of a supermarket outside Disney World
Just before my tenth birthday, our family went to Disney World, Orlando. Obviously, I have so many memories of this trip, but one of my favourites is of the five of us sitting in the parking lot of a supermarket, breaking bread. For lunch every day we would enjoy fresh chip rolls washed down with a cold Game sports drink. My mom had packed Game sachets in our suitcases and would prepare and freeze bottles of juice for us every evening for the next day. We did not eat the overpriced food and drink in the parks, but we still got to experience the magic of Disney (and the occasional ice-cream or sweet treat) thanks to months of planning.
The lesson learnt: if it is important to you (for example, travel), budget and sacrifice that which is not essential for the overall experience.
What people choose to spend their money on is exactly that – their choice. The adventure and experience inherent in travel was an important part of my upbringing and remains so in adulthood. There is this saying that you should “create a life that you do not need a vacation from” and whilst I understand the intent behind these words, I have created a life which enables me to always have the next vacation booked and planned. Last year, I spent an unforgettable three weeks in Scandinavia with my family which was only made possible thanks to my work ethic (lesson one), extensive planning, detailed budgeting and, true to tradition, packing snacks in suitcases and surviving on squashed rolls wrapped in serviettes.
My third money memory: you can pack up a house in 48 hours but the need for a home lasts a lifetime
At the beginning of my second year at University, my mother, sister and I found ourselves in the position of having to pack up the house we had been living in for five years and finding somewhere else to live at very short notice. We spent the next 48 hours packing up all our material belongings and unpacking our immaterial attachments to these. That very next Monday my mother started at her current job, just over a year later I started working and my highly intelligent and accomplished sister got a scholarship funding her studies and living expenses and the three of us moved into our own flat. The years spent there were some of our happiest and most carefree.
The lesson learnt: working, which affords the stability and security of my own home, is very important to me.
Someone once remarked to me that I would work for less because money is not important to me and I have spent quite a bit of time reflecting on this comment. Whilst it is true that money in terms of how that particular person views money as a status symbol is not important to me, money, in terms of what it means for me and allows me to do is vitally important.
I started working a year or two before most of my peers and bought my first home at the age of twenty-two. Whilst I tried to keep up with the weeknight social life my peers were still enjoying during their Honours year, I had to be presentable and professional at my job by 8 AM the next morning. Then, when my peers all started working and enjoying dinner and drinks out thanks to newly increased disposable incomes, I had a bond payment which left me with little to no disposable income. I am not dismissing the difficulty of completing Honours and I am definitely not dismissing the fact that I love my social life and enjoy dinners with friends. What I am trying to highlight is that because I know that freedom, for me, means having the stability and security of my own home first, this was a choice that I would make again, no matter how tough.
The importance of money in our lives is true for all people, the reason for it being so is different. I have highlighted only three of my own money memories which have helped me manage my relationship with money.
However, it is also important to note that, as with any relationship, there is a light and dark side to mine. Relating this to the above-mentioned memories; when I am unable to be both diligent and consistent I allow anxiety to overwhelm me. I have a constant requirement, of myself, to always deliver and when this is not rationally possible, I become irrational. I used to restrict myself completely by my budgets and if any unexpected expenses had to be incurred, I would panic. I could not just enjoy an experience for what it was or live in the moment but instead focused on the monetary demise (even thought it was never that bad). The last money memory and its lesson – my sensitivity to always be financially independent and be secure in this independence – is probably the one that has impacted me most. In my quest for financial stability, I have sacrificed and continue to sacrifice other things that are also important to me and this is an ongoing lesson in understanding and accepting myself.
Financial integrity encompasses understanding why you manage money in the way that you do and feeling competent to either continue in that manner, or to make the necessary changes.
For quality advice in the search for a solid state of financial health, get in touch with your Anchor representative and take a trip down the money memory lane. We would encourage you to spend some time exploring your earliest money memory and then linking this memory to your current behaviour