We've got emotions and we've got reasoning. Guess which we use to make financial decisions?
Mostly it's our emotional brain, says Brad Klontz, author of "Mind Over Money" and co-founder of the Financial Psychology Institute.
A financial therapist, Klontz understands what motivates people to make personal money choices. He sees so-called money scripts they've internalized from childhood or their parents' experience, and how these drive their financial lives.
But he was once just like most people: not that smart about money.
Raised to believe debt is bad, he finished graduate school knee-deep in student loans. Then he learned about day trading when a friend made $100,000 in a year.
"I thought, what a brilliant idea to get out of debt," he said. "I sold basically everything I had of value, which was primarily a truck."
Next, he funneled that money into stocks. Things went well for about two months. Until the tech bubble burst.
"It was devastating," Klontz said. In addition to the misery of seeing his money go up in smoke, he felt tons of shame. "Like, how can a reasonably intelligent person do something radically stupid with his money?" he said.
The experience propelled Klontz into the new field of financial therapy so he could better understand his own money psyche.
Here's what inspires most of us to make some less-than-optimal money moves.
Money raises a lot of uncomfortable feelings. People's money anxiety — that it's inherently bad, or that it corrupts, or that wanting it makes you greedy — leads to avoiding the topic altogether.
One thing that's undeniable: Money definitely raises people's blood pressure. "It is identified as the No. 1 source of stress in the lives of Americans," Klontz said. The American Psychological Association conducts an annual survey about the factors that are most stressful in American life.
Every year, Klontz says, money is one of the top stressors, cited by 60% of survey respondents in 2019.
Those negative feelings weigh you down, taking a physical as well as a mental toll. Ironically, the more stressed you are about money, the more difficult it may be to be make good financial decisions.
Certain common beliefs are actually quite harmful, Klontz says.
Money is bad, and being rich makes people evil. Unsurprisingly, this can devastate someone's ability to earn money and hold onto it.
Other people believe money confers status. "Keeping up with the Joneses, which many of us can relate to," Klontz said. If you feel you're missing out when you see other people with more, you run the risk of wrapping up your self-esteem in your net worth, not to mention spending beyond your means.
For some, money is the magic answer. This is a type of worship, Klontz says, thinking that money is going to solve our problems and make us happier. But research says otherwise. Once your basic needs are met, more money does not bring more happiness.
We all have future events we need to save for, but it's not in most people's genes to stash cash. "We're actually wired to enjoy the moment now and consume as much as possible," Klontz said. "What you're asking yourself to do here [save] goes against your entire biology."
Change is hard, Klontz says, and living in the here-and-now is how we are genetically set up. "It's why we were able to survive as a species," he said. "We're wired to keep things the way they are. It's called the status quo bias."
In other words, it's easy to give in to current satisfaction rather than deny yourself so you can meet long-term goals.
Too much information. That's what social media excels at, and that's a big piece of the problem, says Klontz.
"Social media is having a huge impact on what we believe we do with and what we should do with money," he said.
Only problem is, much of the information is based on falsehoods. It shows us that rich people are lavish spenders with luxury cars and beautiful yachts.
It's not true," Klontz said. In fact, some billionaires are noted for driving modest cars. The image of a billionaire in a Lamborghini only clouds things for younger people.
"As a matter of fact, if you want to become wealthy, if you want to improve your financial health, you need to save," Klontz said. "You actually need to spend less — and all the research has shown that's how people become wealthy."
Try some behavioral hacks to refresh your financial perspective.
Make an effort to get excited about why you're saving. Klontz says this will give you the motivation you need to take action. Then, automate a savings plan.
It may also help to name your savings account after what you actually want: Instead of the generic "vacation account," call it "European Family Vacation 2021."
The more clearly and more visually you can make your goal, the better.
Take a moment to sift through your deeply held financial beliefs. Ask yourself if a behavior or spending pattern is helping you reach your goals, or if it's in fact trampling them.
"Take an opportunity to look at those beliefs that are hurting you and tripping you up," Klontz said. "Quite often these beliefs around money are skewed, and they're biased.
"They're only part of the truth."
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.