Sometimes, it can be tempting to think that if you had a certain amount of money, your worries would go away.
But many people with this mindset find that as their wealth increases, so too does the number that is 'needed' to feel secure.
In a world where many dream of financial security, there exists a paradoxical fear among the wealthy...
The fear of loss.
Imagine having £20 million, but constantly feeling a need to earn more.
Now imagine having £100 million - would you still feel that way?
Many do. And it keeps them awake at night.
But doesn't wealth automatically bring peace of mind?
While research shows this is true when moving up from low levels of income, the boost to security and happiness tends to increase at a slow pace as net worth grows.
It all comes down to the psychology of the wealthy, the roots of their fears, the impact of loss aversion, and how childhood and life experiences shape their relationship with money.
The scarcity mindset
This way of thinking haunts individuals at all levels regardless of wealth.
It's characterised by a subconscious belief that you have limited resources or are unable to provide for yourself or others.
Maslow's Hierarchy of Needs provides a framework to understand that even with substantial wealth, the next three levels after, namely love and belonging, esteem, and self-actualisation, remain elusive:
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Love and belonging: This level encompasses the need for affection, intimacy, and acceptance from others. Can it be bought? Perhaps momentarily, but genuine connections are beyond the reach of money. Social poverty can hit even the wealthiest person.
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Esteem: The desire for respect, recognition, and achievement is inherent in human nature. While money can buy a semblance of it, it's akin to buying a fake —a fleeting imitation of true self-worth.
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Self-actualisation: The need to reach one's full potential and live a meaningful life is a pursuit that transcends money. True fulfillment simply can't be bought.
But there are deeper fears.
Beyond Maslow's Hierarchy, the wealthy struggle with core human fears that no amount of money can ease.
The fear of irrelevance, insignificance, and being forgotten.
The fear of unworthiness, unlovability, and loneliness.
The fear of being a bad person.
Paradoxically, the pursuit of wealth often stems from a desire to bury these fears.
Loss aversion
The fear of losing it all is deeply rooted in loss aversion.
Coined by psychologists Amos Tversky and Daniel Kahneman, loss aversion refers to the tendency of individuals to feel the pain of losing something more acutely than the joy of gaining the same thing.
This emotional response is hardwired into the human psyche and significantly influences decision-making, particularly in financial matters.
For the very wealthy, loss aversion is not merely a theoretical concept or numbers on a balance sheet, it's a visceral experience that can evoke profound anxiety and distress.
It becomes intertwined with their identity, status, and sense of self-worth.
A perceived threat to their core being.
Imagine someone with £100 million in assets.
To them, the thought of losing £10 million might not just be a reduction in wealth; it could be perceived as a blow to their social standing, a dent in their self-esteem, and a threat to the respect they command.
The fear is not only of financial loss but also of losing the lifestyle, the influence, and the recognition their wealth affords.
This emotional response is further intensified by the public scrutiny that often comes with great wealth.
The fear of being judged, ridiculed, or pitied in the event of financial setbacks can be paralysing.
As a result, the very wealthy may find themselves trapped in a constant struggle between the desire to protect their wealth and the fear of the psychological toll that potential losses might inflict.
Loss aversion can also be made worse by the perception that financial success is a reflection of personal competence and superiority.
For some, the fear of financial decline may be intertwined with the dread of losing a symbol of achievement and societal validation.
The prospect of going from "financially successful" to "financially struggling" can be a devastating blow to their self-esteem.
This is often an underlying reason for indecision, inaction, procrastination, internal resistance, apathy, wrong decisions and the ultimate cause of financial drift (that typically takes your finances in a downward direction).
Addressing loss aversion requires more than just financial advice; it demands a nuanced understanding of the emotional landscape that accompanies wealth.
Financial professionals and coaches need to acknowledge this, and provide support beyond traditional investment strategies.
Money personality
An individuals money personality, which is often shaped by childhood and life experiences, can be a driving force behind their mindset.
In short, it's the underlying, unconscious beliefs you hold about money.
In reality, people often make flawed financial decisions based upon our own unique view of the world; where ego, pride, marketing, and odd incentives are scrambled together without an underlying awareness of what's driving them.
Some flourish, many drift, others flounder.
Those who grew up in financially unstable environments may develop a heightened aversion to loss, driving them to accumulate wealth as a protective measure. On the other hand, individuals who experienced abundance may view money differently, perhaps with a more cavalier attitude that contributes to other financial challenges.
Your money beliefs significantly influence your financial well-being.
The solution: Understand the deep-seated fears and the psychological underpinnings of your wealth
While it may seem counterintuitive, wealthy people grapple with unique fears and anxieties related to their money, as much as someone with much less.
To help alleviate this, a holistic approach is needed.
Understanding this intricate relationship between loss aversion and the preservation of wealth is crucial. It's not just about numbers; it's about the complex interplay of emotions and perceptions that shape the decision-making process for the very wealthy.
Encouraging a shift in mindset from scarcity to abundance, fostering connections beyond monetary transactions, and promoting self-worth independent of financial standing, are essential steps.
Financial education and coaching can play a pivotal role in helping the very wealthy navigate their fears, providing tools to manage loss aversion and redefine their relationship with money.
Additionally, cultivating a sense of purpose beyond wealth accumulation can contribute to a more fulfilled life.
True security and contentment extend far beyond wealth.
It's a journey of self-discovery, redefining values, and embracing a holistic perspective on life—one that transcends the fear of losing it all.
