Investing Beyond the Numbers: Understanding financial flashpoints

By Shaun Maslyk, CFP on March 9, 2023
Estimated reading time: 6 minutes

Financial flashpoints are significant emotional events that shape our beliefs and behaviours towards money, ultimately influencing our financial and investment decisions.

What are financial flashpoints?

Financial flashpoints are significant, emotional and memorable money-related events and experiences that shape our beliefs around finances, according to The Psychology of Financial Planning (Wiley, 2022). Understanding our financial flashpoints helps us make deliberate and informed money decisions, leading to wiser spending, diligent saving and investing, and intentional control over our finances. By moving away from reactive choices, we can work toward building wealth and securing long-term financial stability.

Karl’s immigrant story: What it tells us about financial flashpoints

The story of Karl (whose name has been changed) is one of many similar tales of immigration to Canada. In the 19th century, Canada saw a significant influx of Ukrainian immigrants, including Karl’s grandparents. With little money and few skills, they took a chance and came to Canada in response to the federal government’s call for farmers, which was positioned as an opportunity for free land. Armed with their knowledge of farming, a strong work ethic and a dream to provide for their families, they embarked on a risky journey to start a new life in a new land.

Karl’s grandparents arrived in Alberta with limited resources after being promised farmable land. Unfortunately, the land they received was smaller than anticipated and unsuitable for farming, leaving them with no other option but to become extremely frugal, hardworking and resourceful in order to survive. While they eventually managed to sustain a living and generate a surplus of money, their experience left them with a deep-seated distrust of others and formal institutions, including financial ones. They opted to keep their extra money on the farm, fearing it could disappear or not be returned if handed over to others.

Despite consumer protection acts in place, Karl’s grandparents continued to avoid financial institutions, resulting in lost decades of potential compound interest growth. Their experience of being promised farmable land, but receiving unsuitable farmland, became their financial flashpoint, leading them to adopt a belief of money scarcity, frugality and a constant fear of their hard-earned money being taken away.

Flashpoints can have a generational impact

Despite the fact that Karl’s grandparents’ financial flashpoint occurred in the 19th century, it continued to impact their children, their children’s children, and so on. To this day, some 100 years later, Karl’s great-grandchildren still hold similar beliefs about money, such as frugality and scarcity, illustrating the enduring power of financial flashpoints and family money belief systems. This serves as a reminder that the experiences and beliefs of our ancestors can influence our relationship with money and our financial decisions. It’s important to examine and address them to improve our financial decisions, increase our wealth and enhance our overall financial well-being.

Each of us has our own financial flashpoints. These emotionally charged events shape our beliefs about money, resulting in our money scripts. Our money scripts, in turn, influence our financial behaviours, which ultimately create our financial outcomes. As we see with Karl’s family, our financial flashpoints can be passed down from generation to generation, affecting the money scripts of our children and grandchildren. These beliefs can continue to influence our financial behaviours and outcomes even decades later.

What causes financial flashpoints?

Financial flashpoints don’t always need to be large significant events, like immigrating to Canada. They can also be more subtle, like watching your parents struggle with money. Studies show that parents’ financial behaviours play a significant role in shaping their children’s attitudes and beliefs towards money.

Whether our flashpoints are positive or negative in nature, the key to harnessing their power is to take the time to understand them and recognize their influence, allowing us to make intentional choices that align with our financial goals.

Let’s look at some common flashpoints:

Growing up in poverty: This experience can be traumatic if the person has difficulty satisfying basic needs, like food and shelter.
Growing up wealthy: Wealthy individuals may feel guilty about their financial status and could have trouble with independence, since they have always been provided for.
Cultural impacts: Our beliefs and values, shaped by our culture, can impact our relationship with money. Indigenous people in Canada, for example, have faced challenges building wealth due to a history of oppression.
Specific life events: Life-changing events, such as the death of a loved one, divorce, job loss or financial scams, can lead to a lack of confidence with making financial decisions.
Societal events: The COVID-19 pandemic, for example, has created new financial flashpoints for many people, including job loss, reduced income and increased expenses, which have the potential to shape their future financial behaviours and beliefs.
Personal financial assistance: Assisting a loved one or someone you care about with their finances can be a kind gesture, but if done repeatedly, it can create a pattern of dependence.
Gender roles: While many women today aspire to earn more, underpayment of women persists as a systemic issue. Traditional gender roles instill the belief that managing money is not a “woman’s job” and discourage women from taking an active role in managing their finances. Men can face financial flashpoints by being taught that they are failures if their partners earn more than they do.

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Changing our money behaviours

Understanding financial flashpoints is crucial to making better financial decisions. Our past experiences with money can have a significant impact on our current financial health. When we face a financial situation with heavy emotions, our minds often make incorrect or unbeneficial assumptions. For example, Karl’s parents’ belief in extreme scarcity caused them to miss out on decades of compound interest growth by not investing with a reputable financial institution.

Exploring and considering our financial flashpoints is essential if we want to reconcile them in a healthy way. Now it’s your turn to reflect on a significant, emotional or memorable event that has shaped your beliefs around money.

Shaun Maslyk is the host of the Most Hated F-Word Podcast, a show that explores the psychology of money and helps listeners understand their relationship with it. As a Certified Financial Planner and Certified Financial Behaviour Specialist, Shaun brings a unique perspective to the show, offering insights and advice on personal finance and financial well-being. To hear how we can begin changing our financial behaviours, check out episode #116 of the Most Hated F-Word Podcast “How to Change Your Money Scripts Using IFS” with Rick Kahler.

About Shaun Maslyk, CFP

Shaun Maslyk is a Certified Financial Planner and host of The Most Hated F-Word podcast. He integrates psychology and coaching to help people awaken their money stories.