Healing Your Inner Financial Child

If you've been struggling to break certain financial habits, the problem may not be your budget, but rather your childhood.

"Financial flashpoints are early experiences we have around money, and very often they're in our childhood," says Brad Klontz, a financial psychologist and author of "Mind Over Money: Overcoming the Money Disorders That Threaten Our Financial Health." Once we have these experiences, we come up with a way to make sense of them, Klontz says. This becomes our money script -- our beliefs around money and the way it works. However, sometimes those beliefs lead us financially astray.

Take Joan Sotkin, a business and money coach who chronicles her discovery of the link between her childhood and her finances in the book, "Build Your Money Muscles: Nine Simple Exercises for Improving Your Relationship With Money."

Sotkin remembers getting advice from her father about the value of taking out loans. "You have the ideas and the bank has the money," he would say, but he failed to tell her she'd have to pay the money back. That became Sotkin's introduction to living in debt. "My father was a debtor so I learned that pattern," Sotkin recalls.

Another lesson Sotkin learned from childhood was that debt keeps people connected since the debtor is beholden to the creditor. That lesson played out with Sotkin constantly having financial crises so that a family member would have to rescue her. "I'd borrow the money and pay it back over and over again," she recalls.

Lessons from childhood

Children pick up money habits from their parents and other family members by observing them and modeling their behaviors, says Denise Kautzer, a financial therapist in St. Paul, Minn. In fact, the National Foundation for Credit Counseling's 2013 Financial Literacy Survey (FLS) found that 33% of Americans learned their financial skills at home.

While two people can respond differently to the same childhood experience, some money scripts are common, experts say.

Children who felt deprived because there was no money could grow up determined not to deprive themselves, Kautzer says. That could lead someone to overspend, live paycheck to paycheck or even run up massive credit card debt. A child who grows up in poverty could also go to the other extreme and hoard money, Klontz says. Neither behavior is healthy.
Children who grow up up in a poor family or poor community may fear that they won't have anything in common with their loved ones anymore if they accumulate a lot of money. That could lead someone to subconsciously overspend -- in effect, ridding themselves of money because they think, "lf I get money, I'm excluded from my family," Klontz says.
A child who watches the family teeter on the brink of financial disaster only to have another relative swoop in and save the day could take from that experience the lesson that you don't have to worry about money because someone will always bail you out, Kautzer says. As an adult, this person may borrow money excessively or get into financial trouble regularly.
A child who watches one parent hide purchases from another can learn that it's OK to keep secrets from a partner or a spouse about money, Kautzer says.
A child who watches a parent splurge when they're having a bad day can grow up learning that buying something when you're unhappy can cheer you up -- even if it's not in the budget, Kautzer says.

Changing the behavior

Many people are unaware that childhood experiences are dictating their financial behavior until they experience a financial crisis and look more closely at their money habits, Kautzer says. They may realize, for example, that they're making the same mistake they saw a parent make.

To discover which childhood patterns lurk behind your money habits, Klontz recommends that you ask yourself:

What are your earliest memories of money?
What were your most joyful and painful memories surrounding money?
What lessons did you learn about money from those experiences?
Have those lessons been helping you or hurting you?

"If they've been hurting you, then you need to go back and see if there's a better way to think about money," Klontz says. For example if you believe that someone will always save you when you're financially reckless, think back to a time when someone did not save you and remind yourself that you must help yourself in order to avoid financial ruin. "That's the process of re-scripting because you've got these money scripts and you need to make them more accurate," Klontz adds.

Once you change your thinking, you can take steps to change your habits.

Become financially literate. If you come from a family that made a lot of financial missteps or one that never talked about money, there may be a real need for financial education, Kautzer says. That may mean taking a class or getting credit counseling.

Prioritize your changes. You can't change everything at once. Instead decide what areas you want to tackle first, Kautzer says.

Avoid your triggers. Once you realize that certain things lead to an unwanted financial behavior, remove the trigger, suggests Richard Reeve, education coordinator and counselor for Consumer Credit Counseling Service of Savannah. When one of Reeve's clients realized she spent money whenever she passed a Target store, she started taking a different way home from work every day to remove the temptation. "Doing so helped her to reprogram her mind," Reeve says.