My Future's So Bright, I Gotta Buy Shades

In The Secret Life of Money, Tad Crawford offers this revolutionary concept:

Keeping the symbolic value of money in mind....we can gain a new view of debt, seeing it not as merely an obligation to be paid but also as a statement about how our inner richness will be expressed in the future (italics added).

That is actually completely brilliant. Until I read that I had not heard the phenomenon articulated so clearly.

When it comes to understanding how money doesn't work in a person's life, debt is often where the narrative begins. Debt is the manifestation of some sort of imbalance, either internal or external (or sometimes both).

An external imbalance may be quite difficult but it's usually pretty straightforward. Perhaps a major life crisis affected a person's finances, or their resources are simply not adequate for their needs.

An internal imbalance, on the other hand, can be many things. It may be around self-concept, such as when you buy things to try to feel like a new person or to correct for some felt deficit. It may be around impulse, when the desire to buy something rises up and cannot be deferred. There are a million ways we might be slightly skewed in perception, judgment, mood, etc. and all of these can affect how we use money.

What I love about the Crawford quote is how artfully it captures a distortion of both self and time. It shows how debt is a way of not fully living life in the present, but rather projecting oneself forward into some fantasy future where money is more abundant (along with approval, achievement, and sex, most likely).

This more affluent future-self is perceived as the true manifestation, and the debt is simply the price we pay to express our confidence in that belief.

I see this again and again in my counseling practice. When people arrive at a point whereby they can no longer afford to sustain their debt, they experience an accompanying personal crisis. It is not that they are so attached to the things that they bought on credit. It is that their coveted future self -- who is much more real to them than the life they live in the day to day -- must be sacrificed to come to terms with the reality of their financial position.

The good news is that most people who get appropriate support through this crisis come out healthier on the other side. It's true one can amass huge amounts of debt but there is pretty much always a limit. Being forced to a financial reckoning brings many activities that are effective in re-aligning the temporal distortion and the imbalance in self-concept. Tracking spending, for example, reinforces connection to the present and helps a person to remain grounded in their life as they actually experience it.

Unless there is true mental illness, a derealized existence actually gets pretty uncomfortable after awhile. You only get one life. Spending all that "future richness" wastes so much more than just money.

Explanatory Styles and Financial Baby Steps

This morning as my daughter was learning to pull herself up in her crib, I became aware of how I kept my hand on her back, supporting her. Without thinking about it I maintained a presence that was close enough to mitigate a swift fall that might injure, but not so close that she couldn't experiment on her own (and perhaps get a minor bonk or two to the head as she went along). It occurred to me that even this small activity of learning a new skill was a template for her in how she would see the world.

Our experiences shape our beliefs, and experiences are quite subjective things. My daughter's experience of her new activity might be "I am so strong!" or "The room looks different from here." Should she fall, her experience would indicate "Well, that was unpleasant but I sure liked standing while I was up -- maybe I'll try again." Or if the fall was enough to hurt or scare, she might believe that standing is a dangerous activity that should be avoided.

This is a small example (and one that probably only occurs to a caffeine-deprived therapist whose baby wakes up at a quarter to 6:00), but the idea behind it is well-established.

The beliefs that we use to give meaning to our experiences are generally organized into patterns, or Explanatory Styles. Dr. Martin E.P. Seligman is the clinician who is most often associated with the concept of Explanatory Styles through his work in the field of Positive Psychology.

Awhile back I developed a simple quiz to demonstrate how people bring their Explanatory Style into their experiences with money. The quiz asked respondents to identify the thought or belief that would occur in the following situations:

1) You overdraw your bank account and are charged a $39 fee.
Option A: "I never have enough money."
Option B: "This month I didn't account for some extra expenses that I had."

2) You find $20 in a jacket pocket.
Option A: "This is my lucky day!"
Option B: "I'm so lucky!"

3) Even though you've always paid your bill on time, your creditor mysteriously raises your APR.
Option A: "Maybe a temporary dip in my credit score caused this creditor to try to raise my rate."
Option B: "Creditors are unfeeling beasts."

4) Someone with your creditor's fraud department calls to alert you to suspicious activity on your account.
Option A: "Here is one instance when this creditor actually did something right."
Option B: "Creditors do their best to provide good customer service."

5) Your investment portfolio grew significantly in value over the last couple years.
Option A: "The market did well."
Option B: "I did a good job choosing investments."

6) When bringing some items to the register for purchase, the total price is higher than you'd anticipated.
Option A: "I must have miscalculated how much these things cost all together."
Option B: "Some of these items must have been mis-marked."

The six items are organized into three sets of one positive scenario and one negative scenario. The positive/negative dyads correspond to the three dimensions of interpretation that constitute one's Explanatory Style.

The first two scenarios have to do with the value of Permanence, or how we perceive time. When something bad happens, do we think that such a result is to be expected always? What about when something good happens? Is that a result of something that is permanent (such as a character trait) or is it something that just happened randomly?

The second set of scenarios relate to the value of Pervasiveness, whether something is seen as specific or something that is true across all situations. A jump in APR could thus be experienced as a particular event relating to the one account or it can take on the specter of everything that is terrible about the credit industry. A helpful customer service agent could be seen as either an anomaly or as an accurate representative of overall good business.

The final two scenarios demonstrate the value of Personalization, whether we see the event as due to our own actions or whether it occurred because of outside forces. Personalization is the most important dimension when it comes to determining how we feel about our ability to change. A person who sees negative events as universal and always true might still find the will to alter his behavior, but only if he believes that doing so might make a difference. If he believes that he himself is the source of his misfortune then what motivation is there to change?

I posed these six scenarios to a group taking the Seven Weeks to Financial Sanity teleconference organized by Galia Gichon and M.P. Dunleavey. What we discovered was that even people who were familiar with Explanatory Styles and Learned Optimism were surprised how often they identified with the pessimistic/negative statement when it came to money. It seems that we can view the world as generally good and believe in our own positive self-agency, and money can still be an area of our lives where we struggle with destructive frames.

Why is this true? Well, perhaps we grew up in a home where money was treated as a great evil or a cause of conflict. Perhaps the consequences we experienced around our earliest financial decisions were too punitive or hard to bear. Perhaps issues of money separated us from others and caused us to feel isolated.

Perhaps we did not have that supportive parental hand guiding us, preventing the worst spills but still allowing for experimentation and learning. Not to blame parents here -- it's much more straightforward to help a child learn to walk than to navigate the complexities of financial self-care.

Whatever the particular cause (or more likely accumulation and reinforcement of causes), it behooves us to think about how we view ourselves as agents in a money world. The benefit of being an adult is that you can bring events from the past forward into consciousness and apply adult maturity and cognition to understanding them. This new understanding can, with applied practice, become a new cognitive frame that supports healthy financial self-care.

Debt, It's Not Me, It's You.

“I’ve kept up with the debt payments as long as I can. I mean, I charged the stuff and I agree that it should be my responsibility to pay it off. But in 6 months my rate has gone from 0% to 12 to 23 and now it's at 33%. Credit card companies have become worse than loan sharks. I don’t think it’s right that they can charge so much interest that you can never pay off your debt. And when you’re struggling they call your house night and day and treat you like some deadbeat! I’ve tried and tried, but if I pay them what they ask I won’t even be able to afford to feed myself. So forget it. They’re not getting a penny more of my money.”

Most people agree that if they borrow money they should pay it back. They will even agree that it is acceptable for a lender to charge interest on the amount borrowed (unless their religion forbids it). But what happens when the terms of repayment go beyond a person’s idea of what is fair and reasonable, or when the borrower feels powerless to meet the lender’s demands?

As terms become more unbalanced in favor of the lender, the borrower’s sense of ownership for the debt decreases.

Call it the consumer's APR: Adjusted Personal Responsibility.

I’ve said before that lending is a business, and right now the lenders are holding a lot of cards. Regulatory caps on interest rates and fees have been eroded in recent years, and consumers live in a world where the 0% APR on your Visa can jump to 23% (or higher) just because you’re late paying the electricity bill. These are pretty tough terms. Factor in the aggressive practices of collection agents and you have a situation where the besieged borrower, already stressed, now feels attacked and victimized.

In these situations, the mind will reframe the circumstances in a way that preserves the borrower’s sense of his own self-worth (“goodness”) and will recast the lender as predatory, unfeeling, and downright evil.

Part of the problem is the way that consumer goods in general, and credit in particular, are marketed and sold. In order to ease consumers through the anxiety that comes from parting with their money, they are presented with the option of buying on credit. And in order to get the consumer to override their natural aversion to debt, they are flattered and told that this credit is something they’ve actually “earned,” something available only to people who are “worthy.”

So when a lender switches from acting like a loving parent or an approving friend to acting like a wronged lover, this can come as somewhat of a shock to the consumer. The consumer may experience the lender’s escalating (punitive) interest hikes as erratic and unreasonable behavior.

First, the borrower is wounded:
Creditor, I thought you loved me!
Next, the borrower reproaches himself:
Maybe I’m not as great as Creditor said I was.
Then the borrower’s sense of self-preservation kicks in:
This Creditor is acting like a real creep.
Finally, the borrower rejects the negative message:
Creditor, we’re through.

The “break up” can take a number of forms depending on the situation. Maybe the borrower stops answering the creditor’s calls or opening their letters. They may transfer the balance to another card (if they’re able), or take steps toward filing for bankruptcy.

Since you cannot actually break up with a creditor, all of these scenarios are bound to cause more grief for the borrower than they will for the lender. Trust me, you can't punish MasterCard by throwing their bills in the trash. Eventually they will get your attention.

However, I do feel that creditors are taking the wrong tactic with their penchant for ever higher fees and interest rates. I’ve spoken with many consumers who feel personally betrayed by the actions of their creditors. Having experienced extreme consequences for what they perceive as relatively minor missteps, they are bound to be wary of exposing themselves in the same way again if they can possibly avoid it.

Creditors should be concerned about the rising tide of consumer anger. When creditors hold all the power in a relationship, they also hold a higher proportion of responsibility. Even in Shakespeare's day, nobody cried for the money lender.