Why our 'money scripts' can put our financial security at risk

More than $1 trillion was recently lost in cryptocurrencies, with 70 of the top 100 digital tokens losing more than 90 per cent of their value in a matter of weeks.

But why, after major blunders, do we look back and say, “How could we have been so blind?”

Why do some people see what others don't? Why did some people ignore the widely published warnings about the risks of investing in cryptocurrencies? And how can we change our behaviour next time?

The answer might lie in our internal money scripts, which are developed in childhood. For example, you may have grown up in a household where money conversations didn’t happen. This can often lead to raised voices and upset.

On the other hand, you may have had people around you who regularly and openly discussed money, giving you a good grasp of how money works.

Perhaps money was a taboo topic in your household or there simply wasn’t much of it about.

People do crazy things with money. But no one is crazy. People from different generations, raised by different parents who earned different incomes and held different values, in different parts of the world, in different economies all learn very different lessons.

However, our financial behaviours make sense when we can understand the belief that drives them.

Money scripts are our own internal beliefs about money, the unwritten rules we follow without realising it.

Imagine a film script, where the actors must recite from it without adding anything to it. Or a computer script. When the computer script starts, it runs through the code automatically.

In the same way, your brain writes these scripts for you to operate on. All your financial behaviours are driven by your underlying scripts about money. And all financial behaviour makes sense once you understand the scripts driving them.

Our money scripts act as guides when we make financial decisions. The problem is — as is the case with an Ikea instruction manual — they are not always that helpful.

At best, these scripts, developed over time but mainly in childhood, are partial truths about how the world works.

They don't always come from our parents — they can come from anyone, including teachers, culture, neighbours or religious leaders. They work sometimes, but not all the time.

Sometimes, scripts are developed because of a trauma involving money. Some are more traumatic than others — such as losing all your savings to fraudsters versus being mocked for the kind of bike you had when younger — but all shape our internal rules around money.

Sometimes a highly emotional positive event happens that also shapes our views about money.

Amazingly, our scripts are automatically reinforced. Every time we operate on a money script and the outcome matches what we expected, that particular script grows in strength.

If the script doesn’t work, we build a narrative or excuse to enable us to quickly forget or discard the evidence about why an error was made.

So, what is your money script? They are different for everyone, but there are some common rules we follow.

Perhaps yours is, “I wish I had more money”, or “money is not important”. Or maybe “you shouldn’t talk about money”, or “good people don’t care about money”.

Even though many different money scripts exist, they generally fall into four categories: avoidance, worship, status and vigilance.

Avoidance scripts are based on some version of the belief that money is bad, evil or even corrupt.

Worship scripts are based on some version of the belief that things will be better with more money. The ticket to happiness or that money solves all problems.

Status money scripts are based on the belief that our self-worth is equal to our net worth. Unlike worship, where we pursue money for internal reasons, status scripts are about pursuing money for external reasons and using it for status purposes. People with these beliefs want to show people how successful they are.

Finally, vigilance scripts are based on the belief that you need to be careful with your money. These people tend to be secretive about money and nervous if they don't have savings.

Don’t get me wrong: it would be impossible to function without these “money operating systems”.

They aren’t good or bad, but more and more researchers are understanding the impact of the internal messages we have around money and, in turn, our financial decisions.

Uncovering your money scripts and gaining self-awareness on how you frame money decisions allows you to challenge and change any that are unhelpful.

Who knows? Maybe it could even help you to avoid the next big blunder, such as avoiding another cryptocurrency winter.

Sam Instone is co-chief executive of wealth management company AES