Finally, there is a fourth level. It moves us far away from the proximal perspective regarding the cost of soup. We move away from the slightly more distal level associated with the size of an insurance policy, or the income for the job I just accepted. This level moves us even further away from direct control than is the case with our stock portfolio, home value, or occurrence of intrusive life events. These are the economic factors that are associated with decisions made by our local, state and national governments. The worldwide economy is an even more distant factor. Economists speak of these dynamic factors as a matter of macroeconomics, whereas the more proximal perspectives on the monetary world are considered a matter of microeconomics. The challenge for each of us is to somehow navigate this multi-tiered world in a manner that is systematic (Meadows, 2008), thoughtful (Kahneman, 2013) and agile (Hesselberg, 2018). A big order!!!
Trust and Financial Tight Ropes
I often think of money management as a tight-rope carnival act. We are on a tightrope high above the three rings below. The issue is broached: how high above the rings is the tight-rope placed and is there a safety-net providing safety is I should fall off the rope. Many people grew up in a precarious financial condition. Their parents were living from day to day, spending all of the money that they brought in or lived off credit cards that never got paid off. There was very little trust regarding finances in the lives of these people.
As Erik Erikson (1963), the noted developmental psychologist, has noted, trust is a critical component of early childhood development. Without trust in childhood, there is not likely to be much trust later in life regarding interpersonal relationships, a secure sense of self-worth—or finances. We are likely to place the tightrope very close to the ground if we hold very little financial trust as an adult. We are also likely to insist on a safety net, since we may have seen our own parent all off the tight rope.
By contrast, if we grew up in a family where finances were never an issue, or where financial problems were carefully hidden by the parents, then as adults we can set the tight rope at a much higher height. We can take financial risks and live comfortably with a fairly large home mortgage or even a substantial credit card debt. We might want a safety net when living at this high altitude, but we may be indifferent to this safety requirement. A blithe assumption might guide us in our daily life: I can make it alright with regard to my financial welfare. I “know” that I can survive any financial challenges. I might want a “safety net” (such as a “rainy day” savings account or strong holdings of secure and diversified stock holdings).
