How emotional debt leads to financial debt

By Mavis Ureke, human behaviour specialist

We make all our money decisions based on how we feel, so if your dominant emotions are negative, you are unlikely to make healthy financial decisions.

emotional debtWhen we talk about managing money ‒ financial planning, choosing financial products, our financial knowledge and understanding ‒ the focus is usually on the hard skills and the “how to’s” of budgeting, debt reduction, saving and investing, expanding your income and charitable giving.

Yet even though many of us know the “how to’s”, we remain stuck with the financial results we do not want. We often avoid talking about the soft skills around personal finance management, how we feel about money. Many of us have not been schooled around our emotions hence lack both financial literacy and emotional literacy.

Our emotions are what drive us daily, our actions and inactions are driven by how we feel, and financial behaviours are no exception. Most people make financial decisions based on how they feel, even though they may be ignorant of their emotions. These emotions can be future based ‒ fear or anticipation of what could happen ‒ or from past money experiences.

Negative emotions lead to negative decisions

These are emotions like guilt, shame, anger and resentment. We have feelings about money even before we can rationalise about money. Given that you make all your money decisions based on how you feel, if your dominant emotions are negative, you are unlikely to make healthy financial decisions.

Depending on how money was handled in your household in your formative years, your beliefs and deep-seated emotions around money are formed by the age of six. And what this means is that if the experience you had with money was negative, and you did not respond positively to that experience, you have an emotional debt.

By the time we are old enough to make financial decisions, our subconscious mind, or emotional memory, is already running the show, so we organise our financial decisions around our emotional debt. You may have heard people say “I don’t want my children to go through what I went through” or “I do not want to eat this type of food because I ate too much of it when I was growing up.”

While these are not bad, we make negative financial vows without realising it; we organise our financial decisions based on that, and not from a peaceful emotional state. This is compensatory behaviour for what we never had or what we had that we want to maintain, even though our lives may have changed. So most people live their lives and make their financial decisions based on what they are trying not to do instead of what they are trying to do.

Such an outlook on life may lead us to live beyond our means, because we are avoiding something in our past. All this does is create further negative emotions around money.

We have to pay off our emotional debt before we can pay off our financial debt. Emotions buried alive do not die, so we have to understand how emotions drove us to where we find ourselves and how to release them if they are leading to negative financial behaviours or creating financial results that we don’t like.

Some ways to pay off emotional debt:

  • Become aware of your past emotions that are controlling your financial behaviours. When you become aware and you become an active observer of your life, you cannot help but change. You become aware by visiting your money story, evaluating your relationship with money, and assessing how your personality influences your financial decisions. Exploring your relationship with money will unearth your money values and beliefs, and assess if they are serving you.
  • Have a financial vision. Many people struggle with insecurity around money and the reason is because they do not have a financial vision. A financial vision provides grounding, direction and clarity. When you know what you want, you are motivated and you become creative. Clarity leads to action wherever you are on the money cycle ‒ whether it is recovery, earning more, managing it, investing it or protecting it.

Mavis Ureke is a human behaviour specialist and author of Managing Emotions for Financial Freedom: The Invisible Forces Driving your Money Habits.