By Sydney Sekese, CFP^® professional and member of the Financial Planning Institute

During Heritage Month, South Africans reflect on their shared history, cultural traditions, and contributions to the country’s identity. Morgan Housel, in his book entitled “The Psychology of Money mentions that people’s lifetime investment decisions are heavily anchored to the experiences those investors had in their own generation; especially experiences early in their adult life.

Your financial decisions are not made in a vacuum. They are influenced by your personal history, experiences, and emotions. Understanding this connection is crucial to making informed financial choices that align with your goals and values.

The Impact of Upbringing and Family Dynamics:

Growing up, you may have learned financial habits and attitudes from your family. Perhaps your parents were frugal, teaching you the value of saving, or maybe they struggled with debt, instilling caution around credit. These early experiences shape your financial mindset and behaviour.

Life Events and Financial Trauma :

Significant life events, such as divorce, job loss, or medical emergencies, can leave lasting financial scars. These experiences may lead to:

1. Risk aversion or excessive caution

2. Overspending as a coping mechanism

3. Difficulty trusting financial institutions

Cultural and social norms also play a role:

1. Community expectations around spending and saving

2. Peer pressure to keep up with consumer trends

3. Access to financial education and resources

Emotions, biases, and heuristics influence financial decisions:

1. Fear-driven decisions (e.g., investing in times of uncertainty)

2. Confirmation bias (seeking information that confirms existing views)

3. Loss aversion (fear of losses outweighs potential gains)

By acknowledging the role of personal history and experience in your financial decisions, you can:

– Break free from limiting patterns

– Make informed, intentional choices

– Achieve financial well-being and peace of mind

Conclusion

World Financial Planning Day is just around the corner, happening on 9 October 2024. This global event aims to raise awareness about the importance of financial planning and the benefits of working with a certified financial planner. The goal is to educate individuals on how financial planning can help them achieve financial well-being and security. South Africa will observe Financial Planning Week from the 7th to the 11th October. You are encouraged to navigate this event via the FPI MyMoney123 link https://fpimymoney123.co.za/financial-planning-week-2024/#