The difference between wealth and prosperity | Job Binary

Hetty Greene became known as the “Wizard of Wall Street.” She got this name partly because of the single, brown, black dress she wore every day, but mostly because of her reputation as a quarrelsome and greedy woman whose miserly ways led to her son losing his leg.

During the Gilded Age of Wall Street, when the Carnegies and Rockefellers were building their fortunes and mansions, Hetty inherited her small fortune of $5 million. Through smart investments, she turned her fortune into $100 million (more than $2 billion in today’s dollars), making her the richest woman in the world at the time. Unlike her famous contemporaries, who left legacies in business and philanthropy, Hetty left a legacy of austerity and self-delusion.

As the story goes, when Hetty’s son injured his leg, she could have taken him to the best hospitals in the world, but instead chose to wear rags and take him to free clinics in New York City. To protect Hetty, he took her to the best doctors, but he refused to pay them, instead finding out what hours they volunteered at the free clinics and then went. The time spent searching for this free treatment led to an incurable disease, and doctors removed the leg instead of treating it. When he himself suffered from a hernia, he refused to perform surgery, and when necessary, put the internal organs back into place with a stick.

Sound Investments, Bad Mind

Hetty amassed her fortune by buying undervalued assets and holding them until they were in high demand. He sold only when buyers came stalking, and often turned them away. He also led a very frugal lifestyle. While others built family compounds, Hetty lived in a small apartment. He bought a new shirt only when his current shirt was worn out.

Some might consider Hatt a paragon of smart money management, and he was a very good investor. It could be argued that by any financial measure Hetty was in a very good financial position, but I disagree. He lived a simple life, but he was not satisfied. He spent many years of his life in a legal battle with his family over assets that he believed should be given to him, not charity. Although Hetty had objectively more money than almost everyone else in the world, she still believed that it was not enough. He trusted her so much that he sought more out of his life and broke off their relationship.

What is financial well-being?

I tell Hetty’s story because it helps illustrate an important fact: financial well-being is not just about numbers. That’s about it the stories we tell ourselves depending on those numbers.

Financially healthy people enjoy the emotional security that comes from knowing they have enough to weather life’s storms, bounce back, and rebuild if necessary. In addition to basic security and stability, financially healthy individuals experience a sense of contentment and satisfaction in their financial lives.

Does wealth equal well-being?

The purpose of wealth is to support well-being, but well-being is not a necessary or guaranteed product of wealth. Yes, financial stability can help reduce all kinds of stressors in life, and research shows a positive relationship between income and life satisfaction, but more wealth doesn’t necessarily increase quality of life. The idea that wealth = well-being is a mental shortcut that cannot be controlled.

To illustrate this point, we conducted a small survey in 2021 in which we asked nearly 500 US residents about their emotional experiences with money. People reported how often they experienced certain emotions related to their finances over a three-month period. There were five positive emotions (joy, peace, satisfaction, pride, and satisfaction) and five negative emotions (anger, sadness, helplessness, fear, and stress). For each emotion, they answered Never = 1 and Always = 5 on a scale of Never to Always.

The responses allowed for a rating of financial emotions ranging from negative 20 to positive 20. A negative score of 20 indicates that someone consistently felt five negative emotions and never felt any of the positive emotions. A score of 0 indicates equal frequency of positive and negative emotions, and a score of 20 indicates constant positive feelings and no negative emotions related to their finances. Using this score, we looked for financial and psychological factors that contribute to a purely positive emotional experience with money.

We found that people with higher incomes had more positive emotional experiences, as shown below.

Graph showing financial emotions by income group.  Low-income groups have mean financial emotions below zero, and high-income groups have mean emotions above zero.

Financial emotions by income group

There was a clear, positive correlation between income and financial emotions, but that doesn’t tell the whole story.

We also asked survey participants about their beliefs and attitudes toward money. Specifically, one question asked how much they agreed or disagreed with the statement, “I can afford everything I can afford financially,” where 1 = “strongly disagree” and 10 = “strongly agree.” This was used to measure their financial confidence, or belief in their ability to bounce back from adversity.

Using this confidence measure, we grouped people according to whether they mostly agreed or disagreed with the statement, and then reexamined the relationship between income and financial emotions. The results tell a very different story as shown below.

Graph showing financial emotions on income and confidence.  Individuals with high confidence reported positive financial emotions regardless of income group.  People with low self-esteem reported negative financial emotions in every income group.

Financial emotions by income group. Individuals with high confidence reported net positive financial emotions regardless of income group. Individuals with low self-esteem reported net negative financial emotions in every income group.

year each income group, People who believed they could overcome financial difficulties reported experiencing predominantly positive emotions about money and in each income group, those who did not believe they could overcome the challenge experienced mostly negative emotions. In other words, confidence appears to be more important to financial well-being than income. For statistical indifference among my readers, the standardized beta coefficients when regressing financial emotions on income and trust were 0.108 and 0.576, respectively, giving five times the effect size of trust over income.

In short, when it comes to the emotional side of financial health, income is important, but our beliefs about money and our ability to manage it are more important. A person can have a high income, but if their financial mindset is weak, they may still have a poor quality of life in relation to their money.

Building financial confidence

Everyone has stories in their mind about their financial circumstances, abilities and status. Some stories are true and some are not. Some are healthy and some are not. By examining and working on our financial beliefs, we can improve our financial health and quality of life, even if the numbers in our bank accounts stay the same.

My goal as a financial psychologist is to help people achieve financial well-being wherever they are on their financial journey, even before reaching their long-term financial goals. To that end, I believe it’s important to build a sense of financial confidence that is tied not to people’s income or net worth, but to their ability to manage resources well, make quality decisions, and creatively face inevitable failures. and grace. These skills can be developed regardless of your current income or net worth.

If your financial confidence is low, here are some tips to help you build confidence that you can handle anything that comes your way. Some of them are for beginners and others for those who have accumulated some assets. Take what fits and leave the rest:

1. You’ve done it before. You can do it again. Think of a time in the past when you failed. How did you win? What safety net or resources did you rely on to help you rebuild?

2. Calculate the safety net. This includes emergency cash, liquid assets (anything you can withdraw in a week without penalty), unemployment insurance, debt deferment programs, and even friends and family members who can lend a hand if you fall, a home or moral support. in difficult times.

3. Evaluate your insurance policies. Will increasing your coverage help you better prepare for a disaster?

4. Diversify your assets: stocks, bonds, real estate, treasuries, cash, and more. By holding multiple types of assets, you reduce the chance of losing them all in a downturn. The stock market may fall, but your other assets may perform well, or vice versa.

5. Assess your human capital. If you were to lose your job, the value of your time, skills, and experience would be greatly diminished. You will only lose a buyer. In fact, your job may have increased in value since you were hired, so losing one position can be a springboard to a much better position.

6. Most importantly, remember you are more than your money. People who associate their worth with their net worth are at higher risk of depression and life dissatisfaction.

The example of Hetty Green reminds us that wealth alone is not enough for prosperity. A mindset of scarcity, anger, or fear is the opposite of contentment. On the other hand, if your financial attitudes and beliefs are healthy and empowering, you can find peace and prosperity even in the face of setbacks or losses.

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