Money & Mind – How it works
Many times a day we think of money.
If we know how we really tick, we can put our relationship to money on a new footing.
Neuroscientist Dr. Brian Knutson of Stanford University found out that nothing has such a strong influence on people like money has. In various experiments, he showed his participants naked bodies and even corpses. But the measured brain response was not comparable to the high activity level of the brain in the case of exposure to money. Oh my dear, did we misjudge ourselves?
Surprised? This is not because we are all greedy, but because we project our desires and dreams into money and thus give it power. Would you like even more findings from brain research?
„New research conducted by neuroscientist Sam Barnett, co-founder of ThinkAlike Laboratories, offers a rare glimpse at the brain while it is making financial decisions—and finds that anxiety actually impairs our ability to make sound decisions“.
MINDFUL FINANCE, that is mindfulness in money and financial matters, starts at topics like these and asks: “What does my money decision reveal about me?”, “What really drives me?”, “How can I improve my handling of money and feel good about it?
What do we do with money: earn, receive, spend, give, borrow, lend, invest, take in, store, lose, trade and so on? And all these activities involve decisions, emotions, values, dreams, expectations and experiences. And what do we do with them? As a new Gallup survey from May 2018 (sorry, in German language only) shows, we often bury our heads in the sand, because 43% of Austrians look at their bank statements only once a month or less and 50% have rather negative emotions when it comes to money. Mostly it’s not about money at all, but more about what we associate with money. What it stands for and what we hope to get out of it. That’s why money is the permanent focus of our interest, regardless of whether we want it or not.
So: our handling of money is much less rational than rather strongly emotional, as the researchers of the Zukunftsinstitut also emphasize: “Money and thinking in money is a highly emotional affair”, writes the Zukunftsinstitut in the current trend study ''Geld-Gehirn: die Kulturtechnik des Bezahlens von morgen'' (March 2017, available in German language only).
“The answer of neuroeconomics, which deals with monetary decisions and the effects of brain activity on them, is not very flattering,” writes the Berlin psychologist Hanna Drimalla in ''das Gehirn.info''. Oh dear, why is that? Well, it means nothing other than that ultimately our rational brain, the cortex, is hardly involved, but all the more the “island region” and the center of fear. “Loss of money or valuable objects activates the so-called island region,” explains Bonn university-based neurology professor Elger in the article just quoted, “That is extremely unpleasant. This structure is also activated when we perceive pain. “And of course we try to avoid that and bear losses or produce expected losses for fear of losses. At the moment it’s quite visible again how people fear for the currency and put their money into completely overvalued stocks and real estate. Quite irrational, isn’t it? But that’s not all.
“Besides the amygdala, reason has a second enemy, deep in the basal forebrain: the nucleus accumbens. This core area belongs to the human reward system. When we receive money, sex or chocolate or even just expect it, this region is active and triggers feelings of happiness,” says psychologist Hanna Drimalla. And this greed for feelings of happiness can indeed eliminate any sense of reason. Which can lead to fatal financial decisions. “The very quick profit activates the reward system and reduces the decision-making ability and rationality,” says the neurologist Elger. Oh dear, that doesn’t sound good.
But don’t worry! With mindfulness, we are really able to improve our financial decisions: Step one, to become aware of your own emotional and physical experiences in dealing with finances. You’ll be amazed at all the things you’ll discover – in your own home. Solomon Halpern, an investment consultant in Boulder/Colorado, mindfulness practitioner and co-founder of our Mindful Finance Institute, has summed this up briefly and precisely in the article Mindful Finance Jump Starter: “Mindfulness allows our personal experiences, narratives, and emotions to become valuable tools rather than distractions to our financial planning”.
This was one of the reasons why the American Institute for Chartered Financial Analyst (CFA) training has included a mindfulness module in its training for financial advisors. And on the website of the global CFA Institute you will find the “Meditation Guide for Investment Professionals“, which also explains why mindfulness is so necessary for investment managers: “It can help reduce stress, improve mental focus and creativity, promote ethical behavior, and overcome behavioral biases”.
I think there are plenty of reasons for all players in the financial sector – bankers, consultants, traders, customers, associations – to think about MINDFUL FINANCE. As a way to a new financial industry, to a new way of personally dealing with money.
For this reason, we have founded a platform – the MINDFUL FINANCE INSTITUTE in London. We will organise discussion forums and events throughout Europe, including research on the subject. A certified university course is under development and will be offered next year. Join us – subscribe to our MIFI newsletter, join the MINDFUL FINANCE GROUP on LINKEDIN. Stay up to date and participate in the re-invention of the financial industry.
by Friedhelm Boschert