Psychology of Money

How do emotions, habits, and beliefs impact financial success? Explore the topic of Behavioral Finance to understand what may be holding you back on the path to financial security.

All of us come with a history of how our own parents related to money. Were there examples of charitable giving? Do you remember any lessons in the importance of investing? Knowledge and awareness of financial habits are the first key to better personal finance for women. Unlock the power of change by understanding your psychology.

Are you hiding from your finances?

Get involved to improve your financial health.
By Laura Scharr-Bykowsky, CFP®

Men are notorious for procrastinating when it comes to their health, but when financial health is the issue, women tend to be the ones who avoid taking action.

In the course of my financial planning practice I hear these types of comments from my female clients.

“I take care of the children and house– it’s my husband’s job to take care of the finances.”

“My mother told me what you don’t know about the money, won’t hurt you.”

“I never spent much time trying to understand anything about finance and investing, so I don’t want to start now.”

These comments are disheartening considering that close to 90% of women will need to be responsible for taking care of their own finances at some point. It’s essential that women educate and inform themselves about financial matters so they can become more empowered, confident and secure about their financial future.

Stocks, lies and ticker-tapes
Women develop an understanding of their relationship with finances from an early age. Strong messages from a parent can result in misperceptions that carry over to adult life.

As a child of a traditional stay-at-home mom, I constantly received the message that a woman’s financial success and happiness was solely derived from a man who could provide for the family. My parents’ ongoing struggle with finances instilled an irrational fear in me–a fear of losing and spending money, or of losing my spouse who is the main breadwinner.

I experienced what is known in behavioral finance as “loss aversion.” Essentially, the experience or thought of losing money is far more painful than the experience of monetary gains. It’s a powerful force that can lead to being overly conservative, or hanging onto losing investments too long in the hope they will eventually come back.

Ultimately, I confronted that fear and went on to get my Masters in business and CERTIFIED FINANCIAL PLANNER™ designation. With more knowledge, I became more comfortable and confident with my finances, and now enjoy helping other women do the same.

The experience of loss can also cause women to hold onto investments for emotional reasons. One of my clients couldn’t bring herself to sell a poor investment because it was a favorite of her late husband’s. She viewed her commitment to her late husband’s investment plan as a commitment to him and his memory.

Another tendency for some women is to suffer from “recency bias.” Their recent experience with the financial crisis of 2008-09 is weighted more heavily, resulting in a more conservative stance toward risk. They become disengaged with their investments because they assume that terrible market conditions will persist. These women tended to pull their money out of the market at the trough of the plunge and place it in cash. Consequently, they missed the spectacular run up following the March 2009 lows.

Men are from Mars
Studies confirm that women in general are more conservative investors. On average, they tend to hold more “safe investments” like CDs, savings accounts, annuities and life insurance.

Men, on the other hand, tend to suffer from “overconfidence bias.” A study done by Barber and Odean in 2001 showed that men trade up to 45% more frequently than women. Interestingly, decreased trading frequency is one reason why women, when they do invest, tend to outperform men. On a net basis their returns are better than the men’s due to lower transaction costs.

How can women improve overall financial health?
Luckily, it is never too late to become more dedicated to your financial well-being. Here are some tips.

1) Get informed about your financial life. All too often I deal with women who have suffered a loss due to divorce, death or disability of a spouse. They are left in a frightening position of uncertainty and fear if they were not involved in the financial decision-making.

2) Get help if you need it. Seek out a CERTIFIED FINANCIAL PLANNER™ practitioner to help assess your goals and form a plan. You can get guidance on investments, insurance, estate planning, taxes and financial education.

3) Discuss your finances with your husband or partner on an ongoing basis. Share the decision-making for large purchases and spend time together doing periodic reviews of investment statements and budget.

4) Prepare for the unexpected. Ensure that you and your family are protected with proper insurance and estate planning documents should you experience a catastrophe.

5) Invest with a long-term mentality. Remember that financial markets can be very volatile on a short-term basis. Understand your tolerance for risk by taking a risk-tolerancesurvey online or with help from your financial planner.

6) Monitor your progress towards your goals. If you’re working with a planner, have a financial check-up at least once a year. Don’t set it and forget it. Life is ever-changing and your financial plan should also be dynamic.

Other articles by Laura: The Purposeful Budget , Desperate Housewives

Laura Scharr-Bykowsky, CFP®, MBA is president of Ascend Financial Planning, LLC. She is a South Carolina Registered Investment Advisor, NAPFA member, and member of The Garret Planning Network, Inc., an international group of professional fee-only financial advisors and planners offering hourly, as-needed financial planning and advice to anyone regardless of income. The members are dedicated to providing competent, objective financial advice. To contact Laura or Ascend Financial Planning, LLC, visit the website at




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