Your Brain on Finance: Reflect vs. Deflect for Wealth Planning

Intro

When it comes to managing your money, many people look to fee-for-service or fee-only financial planners for guidance. Having a good financial advisor is important, but real financial success also depends on how you handle your money day-to-day. This includes being aware of your spending habits and knowing when to get extra help from professionals like financial therapists or counsellors. These experts can help you change the way you think about money. In this blog post, we’ll explore the reflector and deflector personality traits and how they affect your financial health, backed by research and neuroscience.

Understanding the Reflector and Deflector Personalities

From my experience, people usually fall into one of two categories: reflectors or deflectors. Reflectors take a mindful approach to their finances. They carefully look at their spending habits, financial decisions, and any obstacles they face.

This kind of thoughtful self-examination helps them adapt their strategies for managing money, building habits that lead to better financial outcomes. Studies show that people who practice mindfulness make better financial decisions because they resist impulsive spending and think about long-term consequences (Schomburgk & Hoffmann, 2022). For example, a recent Sunlife study found that people who engage with their retirement plans online save more, feel more confident, and achieve better retirement outcomes. These digital engagers have balances 230% higher than those who do not engage and save 61% more than less proactive individuals.

On the other hand, deflectors avoid looking too closely at their finances. They dodge responsibility and leave financial decisions to their subconscious mind, which often leads to mistakes and bad choices. This avoidance stunts their financial growth and keeps them stuck in unhelpful patterns.

Understanding where you fall on this spectrum can be the first step to a healthier financial mindset. Your Locus of Control (LOC)—whether you feel in charge of your life or think external forces control it—can affect both your financial health and money problems (Taylor et al., 2017).

The Brain’s Role in Financial Decisions

Learning how our brains work shows us why we handle money the way we do. The prefrontal cortex helps us make rational, long-term decisions, while the amygdala triggers immediate, emotion-driven reactions like impulsive spending. Past traumas and unhelpful money habits make the amygdala more active. Each experience either reinforces these habits or creates new ones.

This push-and-pull between the rational prefrontal cortex and the emotional amygdala highlights the need for mindful financial reflection. Thinking carefully about our money habits activates brain pathways that favour logical responses. This neuroplasticity—the brain’s ability to change—allows us to form better financial habits. By choosing reflection over deflection, we can change our financial paths and make decisions that support long-term goals. Emotional regulation is key because impulsive reactions can lead to poor choices.

Understanding this brain interplay helps us make financial decisions with a balance of caution and calculated risk, fostering a mindset for sustained financial health. It’s not just about numbers; it’s about shaping a brain that supports smart financial planning.

Interesting fact: The brain’s prefrontal cortex, which is responsible for decision-making, can be strengthened through activities such as mindful meditation (Schuman-Olivier et al., 2020) and exercise, leading to improved financial behaviours.

A Holistic Approach to Financial Planning

The role of a financial planner is changing, with a growing emphasis on understanding clients’ psychology. Before the internet and AI, planners mostly provided investment advice or stock picks.

However, research shows that financial success is influenced by biology, the social environment, and psychological state (Mustafa et al., 2024). Genes can impact our relationship with money—for instance, certain genetic traits are linked to impulsivity (Bevilacqua & Goldman, 2013), which can lead to debt and overspending. We also learn money habits from our parents and socioeconomic background.

Cognitive-behavioural therapy (CBT) is effective for those struggling with unhelpful financial thoughts, helping them develop better money habits. Financial therapy, combining financial planning and mental health counseling, is becoming popular as people recognize the link between mental wellness and financial health.

The Power of Reflection in Wealth Planning

Taking time to think deeply about your financial decisions can change the way you manage your money. This approach isn’t just about numbers; it’s about understanding why you spend, save, and invest the way you do.

Have you ever collected all your receipts for a few months and totalled up your expenses? How did that go for you? What did you learn? If you haven’t tried this, I encourage you to gather your receipts for a few months and reflect on your spending at the end of each month. Feel free to reach out and share any insights or stories you discover.

I had to track every penny when we bought an investment property during a time of rising interest rates. This was a big learning moment for our family. It made me rethink my financial habits, the influences from my childhood, and my beliefs about money. I also noticed how my husband’s background affected our family’s approach to money. Together, we figured out how to move forward.

This experience led me to quit my job as a financial planner at a large firm. I went back to school to study Counselling Psychology and Financial Therapy. I saw how companies used clients’ emotions to sell financial products based on fear and impulse. I couldn’t be part of that anymore. Now, I run a financial planning practice focused on helping others build lasting wealth by addressing both their financial strategies and mental well-being.

Regular self-reflection can help you take control of your finances instead of just reacting to them. It allows you to question your financial strategies and learn continuously. Reflection can turn struggles into strengths, helping you identify areas where you excel and areas that need improvement.

Think of incorporating reflection into wealth planning as laying a strong foundation for a house. It ensures that everything built on it is stable and can withstand challenges. This is crucial for developing financial independence and literacy, one thoughtful insight at a time. Many poor financial advisors push clients into buying products that harm their long-term wealth, like credit, insurance, and high-fee mutual funds. Sadly, people who avoid thinking about their finances often fall for such advice.

I know making significant changes is hard, but with the right support, it’s possible. As you go through this journey, your self-worth will increase, leading to greater life satisfaction. Life will feel less like a struggle. You’ll be in control, making choices and enjoying the things you truly love.

Regularly reflecting on your financial planning builds wealth and improves your overall well-being and quality of life.

Interesting fact: Individuals who prioritize experiences over material possessions tend to be more creative, curious, and adventurous, which are traits associated with greater life satisfaction and well-being. Neurological studies suggest that the brain processes information about experiences differently than it does about material possessions, with experiences triggering greater activation in regions associated with positive emotions and social cognition (Kumar et al., 2020).

The Downside of Ignoring Financial Realities

Ignoring your financial situation can seriously harm your path to financial freedom. Avoiding your finances makes it harder to spot potential problems and seize opportunities for growth.

This behaviour can lead to financial stagnation or decline, making goals like building wealth, planning a legacy, and preparing for retirement seem out of reach. Not facing financial truths means giving up control and letting bad habits dictate your financial future.

Without confronting these realities, you risk staying in a cycle of short-term gratification at the expense of long-term prosperity. Recognizing the impact of your financial decisions is crucial to breaking free from this cycle and paving the way for a secure financial future. You can refer to a study by Taylor et al., 2017, about external LOC and money disorders, and the book “Mind Over Money” by Ted and Brad Klontz for more insights.

Interesting Fact: Money avoidance is common among healthcare workers and people in helping professions. One theory is that the demands of the job can lead to emotional exhaustion and burnout, leaving little energy for financial planning. When someone is fatigued or stressed, being mindful is harder, leading to more mistakes and impulsive decisions (Chaffin 2018). Fee-only advisors are crucial for vulnerable clients as they offer objective advice to protect their clients’ best interests.

If you’re in a helping profession, you may be prone to money-avoidant behaviours. Budgeting, monthly meetings with your spouse to review finances, and quarterly meetings with your financial planner can help rewire your brain for success. Training your brain takes effort but pays off in the long run. An experienced financial planner in financial therapy can create an environment for sound decision-making.

Teaming Up: How Experts Can Change Your Money Mindset

Working with a smart financial advisor who understands your needs, along with a supportive life coach, can really change how you think and feel about money. Choosing experts who specialize in fee-only financial planning and wealth management can open doors to personalized strategies just for you. These professionals act like guides, helping you build good habits that lead to smart money choices instead of quick, regrettable ones. Their advice helps you focus on long-term benefits and stability, setting you up to be careful with your finances.

By teaming up with these advisors, you’ll learn how to grow your wealth and plan for the future in ways that make you feel confident. This partnership builds a mindset ready for financial success, ensuring your financial plans can adapt to changes in the economy. Together, you’ll make a great team: your financial planner offers strategies, new perspectives, and keeps you on track, while your job is to keep practicing and staying focused. Remember, being mindful about your finances takes dedication.

References

Bevilacqua, L., & Goldman, D. (2013). Genetics of impulsive behaviour. Philosophical transactions of the Royal Society of London. Series B, Biological sciences, 368(1615), 20120380. https://doi.org/10.1098/rstb.2012.0380

Chaffin, C. R. (2018). Client psychology. John Wiley & Sons, Inc

Gonzales, F. (2024, July 4). Digital Tools Boost Canadians’ retirement savings, study says. Wealth Professional. https://www.wealthprofessional.ca/investments/retirement-solutions/digital-tools-boost-canadians-retirement-savings-study-says/386330?fbclid=IwZXh0bgNhZW0CMTEAAR3JeHkVwVu8oFzT1DXSnX9EmxM15-ylhQ3VndV6nj1LehyCkELzNZNRbx8_aem_JVPjfUpJ5Tfci7BGyE3rHw

Kumar, A., Killingsworth, M. A., & Gilovich, T. (2020). Spending on doing promotes more moment-to-moment happiness than spending on having. Journal of Experimental Social Psychology, 88, 103971. https://doi.org/10.1016/j.jesp.2020.103971

Mustafa Abro, A., Ali Maitlo, A., Darya Khan Mughal, D., Sangah, S., & Mughal, I. (2024). Mediating role of financial literacy in relationship of factors affecting the money management skills. Journal of Asian Development Studies, 13(1), 626–642. https://doi.org/10.62345/jads.2024.13.1.52

Schomburgk, L., & Hoffmann, A. (2022). How mindfulness reduces BNPL usage and how that relates to overall well-being. European Journal of Marketing, 57(2), 325–359. https://doi.org/10.1108/ejm-11-2021-0923

Schuman-Olivier, Z., Trombka, M., Lovas, D. A., Brewer, J. A., Vago, D. R., Gawande, R., Dunne, J. P., Lazar, S. W., Loucks, E. B., & Fulwiler, C. (2020). Mindfulness and Behavior Change. Harvard review of psychiatry28(6), 371–394. https://doi.org/10.1097/HRP.0000000000000277

Taylor, C. D., Klontz, B., & Lawson, D. (2017). Money disorders and locus of Control: Implications for assessment and treatment. Journal of Financial Therapy, 8(1). https://doi.org/10.4148/1944-9771.1121