How Language Controls Your Money Habits

If you’ve been reading The Amateur Financier for a while, you’re probably aware that one of my guilty pleasures is Cracked.com.  I’ll admit, much of what they publish doesn’t really count deep journalism, and even the articles that are interesting and well cited (yes, Cracked is surprisingly good at citing relevant and interesting sources for their comedy articles) tend to involve more curse words than you might be comfortable reading.

Still, every so often they publish something that really makes me think.  Such an article was published last week, which discussed the ways that language can control your thoughts.  Some of the examples they include Australian Aboriginal tribesmen being better at oriented themselves (because they use cardinal directions such as North and South when orienting themselves, rather than left and right like us English speakers) and how having a name for a particular color enables you to distinguish it from similar colors.  It’s kind of amazing what various psychological studies have shown about the effects language can have on our perception.

Money, Language, and You

Naturally, being a personal finance blogger, my thoughts went to how the words we use regarding money affect our actions about making, spending, and saving it.  If you talk about investing as being ‘risky’, are you going to put more money into your investments?  If putting money into index mutual funds is ‘boring’, how likely is it that you will seek more speculative investments to ‘spice up’ your investments?  If you tell yourself that saving money or paying off your credit bills is ‘impossible’, are you even going to try?  The language you use to describe your money habits can have a large impact on what actions you take with your money, and as a result, what happens with your finances over time.

When you look at this money, do you think 'A good opportunity to boost my savings' or 'Weekend in Vegas, baby!'?
When you look at this money, do you think 'A good opportunity to boost my savings' or 'Weekend in Vegas, baby!'?

Given these points, the language we use when we talk about money takes on a new importance.  If what you say affects how you think (and it does), and how think affects how you act (also, quite true), then the importance of using proper language regarding your money becomes even more pronounced.  So, how can we ensure that we use the proper language?   Well…

1. Learn the Language of Money: One of the biggest obstacles people face when trying to be more proactive about their money is the wall of jargon that financial types tend to use.  Even if you have a grasp of the basics, telling the difference between ‘large-cap growth stocks’ and ‘zero-coupon bonds’ can get rather tricky.  That’s before we even get into the issue of how much money to put into each type of investment.  If you want to help learn the language used by investors, one good place to start looking is Investopedia’s Dictionary.  It’s one of the most thorough lists of investing terminology out there, and should provide a good grounding in the phrases you’ll encounter while researching your investments.  And of course, you can take advantage of my Investing 101 posts to give you a background in many of the most commonly encountered investments.

2. Use Optimistic Language…: It’s important to have confidence in your ability to determine proper investments.  If you are constantly doubting yourself, you’re likely to invest in vehicles that don’t provide enough returns to reach your goals.  If you are fairly young and pulled your money out of stocks and other growth investments after the market turmoil of 2008, telling yourself that the stock market was ‘too risky’ or not a ‘safe’ place to keep your money, you could find yourself not getting enough of a return to retire at a reasonably young age (or perhaps at all).  Instead, remind yourself that investments go in cycles, and that if you are diversified and don’t let yourself panic, you’ll come out ahead in the investment game.

3. …But Don’t Be Overconfident: It can be tempting, particularly if you have had some luck with your investments in the past, to chalk up your success to your amazing investment skill.  There’s nothing wrong with that; more power to you if you have had success investing.  The trouble is if you start to invest more and more of your money in increasingly speculative (there’s another of those money terms) investments because you tell yourself that ‘I’m too good to lose money’ or ‘It’s stupid to keep some money in savings, earning nearly nothing’.  It’s important to remind yourself that potential reward doesn’t come without risk, that there is not such thing as a ‘sure thing’ when it comes to investing.

There you have it, several ways to keep the language you use from sabotaging your money goals.  Hopefully, you can now tell yourself that ‘Money management isn’t that hard’ and that ‘If I work at it, I’m sure I’ll increase my net worth over time.’

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