WEALTH HUB JOURNAL

How Your Financial Role Models Can Affect Your Future

If you learned about money from watching your parents or other role models, you likely don’t have a solid financial education that will help you maintain your financial position and get ahead in life.

You’ve probably heard stories about famous actors and sports stars who are now broke, or everyday people who come into a windfall of cash and their lives are ruined by it.In fact, according to the National Endowment for Financial Education, 70 per cent of lottery winners go bankrupt within a few years.

Having a lot of money in the bank today doesn’t guarantee you’ll be comfortable financially a decade from now. You have to be smart about what you do with your money.

Often, overnight millionaires and people who have built up a large sum of money end up bankrupt or fall into hardship because they never learned how to manage their money—or they learned from a source that did not set them up for success.

Most of us were taught how to eat the right foods, take care of our physical health, and other life skills, but financial literacy is just as important to our survival.
Let’s take a closer look at how where you learned about money affects your ability to be financially healthy in the long run.

Informal Financial Education

Most of us learned about money from our parents. We saw how they treated money while we were growing up, and we’ve adopted their mindset. Childhood financial socialisationhas a powerful influence on how a person will manage money for the rest of their life.

The role of money in the household when we were children will forever shape our attitude toward money, what we believe about it, and our overall relationship with it—unless we correct course with new knowledge.

Since what most of us know about money came from informal education, it’s important for us to gain new knowledge and change our perspectives so we can make the right financial decisions for our future.

Many adults don’t have a financial plan, know how to save money, or understand how to maintain their financial status once they’ve achieved some success.

To sustain your financial position and build wealth, you have to know how to avoid bad decisions when it comes to your money.

For most people, that means changing their mindset. When you understand your finances and have a healthy relationship with money, you can make better financial decisions.

Where Did You Learn About Money?

Australian schools don’t have a financial literacy program. So, unless you studied how to build your financial skills at university, an important corner of your education was left empty.

No matter what generation you were born in, your parents managed money under different circumstances. So even if they made excellent financial decisions, simply watching them and doing what they did will probably not work for you. And if your parents had bad habits when it comes to money, there’s a good chance you have them too.

According to a study by the University of Melbourne, 31 per cent of Australians reported being under financial stress last year. It’s likely that these numbers could have been better if fewer people were following their parents’ financial mistakes.

It could also be your friends’ mistakes you’re repeating, or you may be tempted to follow dubious advice from influencers on social media. Many people see others make investments that turn out well for them and try to do the same without being able to identify if an investment is wise.

Lastly, you may have attended the financial “school of hard knocks,” where you learned to make better decisions after feeling the sting of overdraft fees, damaging your credit, or nearly missing rent because you didn’t have a clear budget.

Keep a Clear Head

Your emotions can lead you to bad financial decisions as easily as your financial role models. You may back out of an investment too early due to anxiety, make a purchase you can’t afford because your eyes were bigger than your wallet, or overextend yourself in pursuit of something that you think might make you rich—despite the warning signs.

Especially if you don’t have much financial experience, if you don’t keep a clear head when it comes to decisions, you won’t be able to make them rationally.

It’s natural for us to think that “now” is the most important thing when it comes to our financial choices. This bias toward instant gratification can tempt us away from the path to financial security.

In addition, sadness heightens addictive behaviours. Going through a difficult time in their emotional life can lead someone to order food delivery far too often and spend too much money on alcohol or impulsive Amazon purchases. This can derail their budget and sabotage their financial goals.

For a lot of people, managing finances is stressful. Needing to make a financial decision can cause them to feel like they have to make a choice immediately. This can cause some people to make rash decisions or avoid thinking about their finances entirely.

If making financial decisions creates feelings of apprehension or anxiety, take a step back, identify those emotions, and attempt to approach your decision with a clear head.

Set Yourself Up for Financial Success

Repeating the mistakes of others, making financial decisions based on emotion, or not updating your money mindset can keep you from achieving financial success.

You likely need a new perspective if you want to meet your objectives and stay on the path to achieving your goals. A financial coach can help by teaching you how to manage your money based on your goals and where you currently are financially.

With the right tools, you’ll be better equipped to make financial decisions with confidence, build wealth, and create a legacy.

Contact Wealth Hub Australia today for a free consultation.

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