Money on My Mind

Money on My Mind

Fledgling field of financial psychology finds foothold at Creighton

By Glenn Antonucci

"A wise man should have money in his head, but not in his heart." -Jonathan Swift

No doubt, Swift's commentary was on the pitfalls of greed. But his 300-year-old quotation is also applicable, if inadvertently, to a much newer phenomenon: the study of financial psychology.

In order to understand the psychological underpinnings of the human relationship with money, you have to go back - way back - across millennia and deep into the human psyche. Our beliefs about money, in fact, are learned in childhood - probably as 2- or 3-year-old toddlers. And those beliefs are passed down, generation after generation.  

This is according to a pair of pioneering researchers, who say there is evidence that our 21st-century behaviors regarding money derive from ancient hardwiring in our brains.

Now, those researchers - Paul (Ted) Klontz, PhD, and Bradley Klontz, PsyD, father and son - have brought their combined body of knowledge on the fledgling field of financial psychology to Creighton University, which they joined last summer as professors, and where they plan to further their research and help grow this emerging field of study. Together with Ed Horwitz, PhD, MBA'08, they have formulated a new certificate program within the Center for Insurance and Risk Management, part of Creighton's Heider College of Business.

What makes us really tick when it comes to money? Horwitz, the center's director, said it's a question that's been largely avoided in our cultural history.

"It's been sort of taboo," he says. "Why haven't we been studying this? Behaviors regarding money are the leading cause of things like divorce."

And, those behaviors are as widespread, and inherently misunderstood, as they are powerful.

"Financial psychology crosses national barriers," Horwitz says. "It-s a universal phenomenon.?

With this emerging field's two research stars on board, Horwitz - in his own right, a recognized leader in applied financial psychology for the financial services industry - and Creighton have taken a bold step in breaking down this longstanding taboo and exploring the psychological core of financial behavior.

An Epiphany Sparks a New Field of Study

Bradley Klontz's interest in the concept was first piqued when mulling his own puzzling financial behavior. He had just finished graduate school, acquiring his doctorate, along with about $100,000 in student loans. His middle-class background, he says, made him uncomfortable carrying that kind of debt. Meanwhile, his friends were having a run of good fortune trading stocks.

Bradley decided to give it a try.

"I sold everything I owned and put it in the stock market," he says. "I put it all in tech stocks, where all my friends were making six figures. But I came in at the peak of the tech bubble, and soon after, the market dropped and I lost 75 percent of my investment.

"I asked myself, 'Why would a reasonable human being do something so stupid with money?'"

He looked for answers, but there were none to be found.

"The entire (financial) field had ignored it," he says. "So I helped create the field out of necessity, because I was trying to find my own answers."

His father, Ted - an accomplished psychologist - was running a treatment center in Tennessee at the time. The two started discussing a melding of finance and psychology, and things progressed quickly.

In a single week in 2002, they designed a program specifically to treat money disorders.

Soon after, the Wall Street Journal got wind and covered the Klontzes' innovative new treatment program, launching it into the public eye. That sparked the first of several books the pair wrote on the subject of financial psychology.

"Money Scripts" and Origins of a Taboo

Central to the Klontzes? research is a concept they coined - money scripts,
which are underlying tenets, handed down by our parents and learned in childhood, that inform our financial beliefs and drive behavior. They are often partial-truths, and typically unconscious, but responsible for our financial outcomes, the Klontzes found.

They developed a test to identify their clients' personalized money scripts and make them conscious of why their financial behavior manifests the way it does. These scripts lurk behind the scenes and help explain why one is likely to be a spender, a saver or something more extreme, such as a hoarder or compulsive gambler.

If these money scripts, or embedded beliefs around finances, have such an impact on us, why isn't it more obvious to us, and hence more easily correctible? Ted Klontz chalks it up to that old societal taboo.

"If you go all the way back to Judeo-Christian stories, money is dirty," he says. "Look at our history books. They're filled with examples of figures - call them villains - who were associated with money.

"Even today, those with money are vilified," he continues. "It's dirty; it's ugly; it's not 'higher-level thinking.' There's a significant prohibition against having a healthy relationship with it."

Ted Klontz compares the taboo to that which used to be wrapped around sexuality. Not all that long ago, it was considered indecent to talk about it, much less admit one had a problem related to it.

So how do we do the same with personal finance and start prying away the stigma surrounding it? We examine it, and its history, through an academic lens.

Old Wiring in the Attic

"Typically," Ted Klontz says, "the people who do well, come from wealth. The people who tend to struggle financially typically come from nothing." In our species' history, he says, "we live off each other. If someone has a windfall, the whole tribe shares it. And if you don't share, you risk losing your tribe, and that's the worst outcome."

Klontz says there is a financial "comfort zone," and as long as we stay in that zone, we feel comfortable in the context of our tribe, and others in the tribe continue to like us and be comfortable with us.

If we stray from that zone, however, "people start rejecting us, because you're exceeding - or falling behind - the cultural norm."

This context, he says, was formed in us long ago, and continues to carry through today.

"It's how our brains are wired," he says. "We are wired for tribe. The key is to accept that our brains were wired 100,000 years ago. Let's accept it, and learn to deal with it."

For example, one of Ted Klontz's pro-athlete clients, who came from humble beginnings, was having financial problems related to his newfound wealth. He was being generous and benevolent to a vast array of extended family and friends in his hometown community, at such a rate and scale that his once-healthy bank account was diving deeply into the red.

"Performers and athletes don't typically come from wealth, and that was true of this client," Klontz says. "Now he was in a position of having received this windfall, and he was trying to do the right thing by his community, his tribe."

Klontz stepped in, applying his and his son's financial psychology research, and devised a strategy for the client. Ted recommended he contain his philanthropy to a single, collective kindness rather than a great many individual ones. He suggested the client buy an abandoned building in town and turn it into a community center, then host a potluck dinner each week and feed everyone in town. Thus, the "tribe" was taken care of, but at much lower, more predictable and, ultimately, more manageable personal expense.

"We took his cultural thinking, and instead of trying to change it into an upper-class thinking, we adapted it so he could be a hero to his tribe," Klontz says. "If we had not intervened, he would quickly have been bankrupt."

Taking It to the Next Level

Horwitz and the Klontzes have taken a decade-plus of their research and practice to design a five-course, online program for graduate students. The program nets students a certificate in financial psychology and behavioral finance.

More importantly, Horwitz said, it gives them a leg up in the field of financial planning. His graduates who have been introduced to the concept and mechanisms of financial psychology already are finding success in their respective firms.

It's made possible, he said, by the groundbreaking findings of Bradley and Ted Klontz.

"They bring a great deal of experience and wisdom to Creighton," Horwitz says. "These are the two leading researchers in the field, the pioneers, and so our University is now the leading institution in this area of study."

The new online program is a prime example of the University's innovative nature, as well as the vision of Anthony Hendrickson, PhD, the dean of Creighton's Heider College of Business, Horwitz says.

"This program - both in the way we've built it and in terms of research - is very cutting-edge. There's an academic fascination with this that we're tapping into, and it was a bold move by the dean to make this happen," Horwitz says.

Bradley Klontz says he's excited to be working with Creighton.

"There's an appreciation and support of innovation here that is extraordinary," he says. "A willingness to explore new territory and think outside of the box."

Klontz says Creighton's mission and values served as a compelling draw to come to the University, because they matched up well with his own.

"There's a real commitment to values here, and instilling those values in students. It's not just about achievement, but how you do good in the world. That's hugely important to me - this work is about benefitting society, doing good for others. And that resonates with my own personal mission, to bring hope and healing to the world."