Authored by Stephanie May, NBR Summer 2009 Intern
As promised, this is week two of a several week look at the psychology of money. "The Psychology of Money" is a great audio recording done by Carol Williams-Craigie, a psychologist turned financial planner. If you haven't gotten a chance to read last week's entry, do that first. If you don't, the psychobabble I'm about to feed you won't make any sense.
As we start to unpack Miss Carol's argument, we need to take a step back and examine the foundations of her theory. So to begin, I'm going to regale you with what I remember from my high school Psychology class -- knowledge I just refreshed with a visit to Wikipedia.org. First, you need to meet a guy named Maslow. Maslow was an American Psychologist who is considered the founder of Humanistic Psychology. He is most famous for creating the "Hierarchy of Needs," a concept we are going to talk about today.
The Hierarchy of Needs is a pyramid that ranks elements humans need to live their lives. At the bottom of the pyramid, you'll find basic or physiological needs like food and shelter. In the middle of the pyramid, you'll find safety needs, social needs, and esteem (as in self-esteem). At the top of the pyramid, you'll find something Maslow calls self-actualization. Self-actualization is a higher-level concept that includes things like things like morality, creativity, problem solving, and lack of prejudice.
If you are unfamiliar with the pyramid or need a refresher, check out the detailed diagram offered on the Wikipedia.org website. (I reviewed it for accuracy.) The most important thing you need to keep in mind as you consider the pyramid is you cannot move up the pyramid unless you have achieved everything in the previous level.
The pyramid really is genius. Think about it. If your biggest concern is figuring out whether you are going to be able to eat, you aren't really worried about creating a work of art or even protecting your property (if you have any property to protect). You are stuck in the bottom level of the pyramid. And once you have food and water, are safe in your environment, have a loving family and lots of friends, feel valued and respected by those people and have a healthy level of self esteem; you are at the top of the pyramid. You are ready to strive for even more abstract things like morality and creativity, which - as I hope we all know from first-hand experience - make us feel more fulfilled.
So why did I just give you this brief Psychology lesson? You shouldn't be surprised to learn Miss Carol uses this Hierarchy of Needs to explain why and how we spend our money.
In this week before I publish my next blog entry, try to identify which level of the pyramid you are occupying at any given time. Though an outsider might not easily notice it, your position in the pyramid can change. One day you may be feeling fully self-actualized until someone comes along and says something mean to you. All of a sudden, you are feeling terrible because you've lost self-esteem and have dropped to a lower level of the pyramid.
See you next week!
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Comments
The connection you make with the hierarchy of needs is an interesting one, the concepts explain a lot in terms of our behavior, depending on where we are in the scheme of things. I look forward to the next blog taking the connection even further. For me the bottom line is that fear is the greatest emotion in terms of affecting how people think and consequently, act. If more time was spent on how that emotion plays a role in our finanical lives and determining whether it is too strong an influence or too weak an influence, decision making would probably improve, leading to better quality of life!
Great blog, lots to ponder and build on....
I really like your analogy, but I don't know if I agree with the order of Maslow's pyramid ... I'm very curious/excited to see how you tie Maslow to my wallet next week!
Great job Stephanie.
I have found that, at least amoung my clients, the fear of loss is a much greater motivator than desire for gain. People are much more interested in protecting what they have than in investing for greater gains. They are also more concerned with the return of their money than with the return on their money. That is perhaps a sign of the times, but originally a quote from Will Rogers. Prophetic?
This all goes along very well with your 5th paragraph.
"The pyramid really is genius. Think about it. If your biggest concern is figuring out whether you are going to be able to eat, you aren't really worried about creating a work of art or even protecting your property (if you have any property to protect). You are stuck in the bottom level of the pyramid. And once you have food and water, are safe in your environment, have a loving family and lots of friends, feel valued and respected by those people and have a healthy level of self esteem; you are at the top of the pyramid. You are ready to strive for even more abstract things like morality and creativity, which - as I hope we all know from first-hand experience - make us feel more fulfilled."
The common financial planning pyramid tracks very nicely with Maslow's "Hierarchy of Needs"
I'm impressed that someone as young as you would make the connection.
I'm proud of you.
Chris Letizia
I think this is a really good way to analyze spending habits. I've been thinking about how life changes as we age and how that affects our level on the pyramid financially. After graduating from college, I was definitely at the bottom. As the years have passed and my family has accumulated assets, the issue has become more how to protect them. Money spent on insurance has become a much larger portion of our budget which prevents us from falling to the bottom of the pyramid. It's ironic that even if you do have money, your focus still has to be on how to survive potential losses. With careful planning through saving and buying the right insurance it is more possible to focus on the other levels of the pyramid rather than spending time worrying about survival issues. I haven't done enough future planning so as your blog has encouraged me to do, I am working on that now. This isn't as much fun as it used to be when I didn't consider the future and spent money more recklessly. I'm hoping that once our plan is in place, we will once again move up in the pyramid. Once again, good job Stephanie!
Stephanie -
Thank you for reminding me about Maslow! I'm going to share your blog feed with my 8th grade scout troop to help them put their spending habits into perspective.