How Your Money Past Might Be Holding You Back

Want to understand your financial present? You might need to reflect on your money past. Your financial background, history, and choices can define your current relationship and experience with money. 

Taking space to reckon with the past that’s shaped your money beliefs and behaviors can help you understand your financial journey. And once you know how you got to where you are now, you’re ready to figure out what changes need to happen to reach the financial future you want. 

Here’s a look at financial experiences in your past that might be holding you back, and ways you can grow past your money past.

You’ve experienced poverty

Central to your financial past is the socioeconomic status you’ve held throughout life. Experiencing poverty of any kind leaves you vulnerable to financial risks, and makes it tricky to get money and build stability. Growing up in poverty blocks opportunities and resources; young people from low-wealth families are less likely to complete college or upwardly mobilize. 

Parents’ class and earnings positively correlate to their children’s’ employment and earnings in adulthood. Adults who grew up in poverty are less likely to be employed, and when employed earn lower incomes compared to peers from middle-class backgrounds. 

Yet poverty from childhood to young adulthood is fairly common in the U.S.:

  • 1 in 10 children spend at least half their childhood and adolescence in poverty
  • 2 in 5 children will be poor for at least a year from ages 0 to 17
  • 1 in 5 young adults ages 18 to 24 lived below the poverty line in the past decade, per a June 2019 report from the Berkeley Institute for the Future of Young Americans

How to overcome it: Seek out information, resources, and opportunities you can use to chart a path to greater financial security. Take full advantage of social safety nets for low-income people (a great place to start: this wiki for the PovertyFinance subreddit). 

Work toward increasing income, too. Pursuing jobs with clear promotion paths and gig work can also help you boost your income. Consider student aid, especially gift aid such as Pell grants and scholarships, to complete a vocational training or college degree that can grant access to higher-paying jobs. 

Lastly, build a savings habit and an emergency fund. Even a small buffer can protect you from falling back into poverty.  

Outgrowing a financially disadvantaged background isn’t always simple or easy, of course, but it’s possible. Financial literacy helps you identify your options, make progress, and build financial security.

You lacked positive money role models

The way your family and culture of origin talked about money (or didn’t) is formative to your relationship with your finances. 

Perhaps your parents struggled financially, lacked financial know-how to pass on, or modeled unhealthy money behaviors. Even if your parents were financially responsible, they might not have talked openly about money to provide you an adequate financial education.

The combination of money skills, beliefs, and knowledge passed onto us often gets carried forward into adulthood. They combine into “money scripts,” a concept developed by financial psychologist Dr. Brad Klontz, which are the often-unconscious beliefs that drive financial behaviors. 

How to overcome it: As an adult, you no longer have to rely on parents or teachers to guide you. You have the power to fill in the gaps in your financial education by seeking out money tools, books, and courses.

You might want to read up on money scripts, for example, and reflect on your own default attitudes and beliefs toward money. Then reflect if you think those beliefs are healthy and helpful.

Lastly, it’s never too late to find positive financial role models. Find money experts and financial content creators you enjoy and subscribe to their posts, email list, or social media to learn a little at a time. Find a friend who’s good with money to act as your money mentor or accountability buddy.

Your income has stagnated

Our income is often based on past career moves: educational attainment, professional training, networking, and promotions or pay raises.

Income growth has a way of compounding over time because many employers base salary offers on your most recent wage. Accepting a below-market wage could lead to lower pay at your next job, too — which can set you back $1 to 1.5 million over a lifetime, economist Linda Babcock estimates.

It’s not just income growth that matters, but your growth as a worker, too. A dead-end position is not only frustrating but can stall your earning potential. Or you might find that job market shifts have left you with an outdated resume.

How to overcome it: Do some job market research to figure out if you’re underpaid and by how much, through tools like PayScale, Salary.com or Glassdoor. Take note of skills employers are asking for in job postings, too, that you can learn or demonstrate to stand out. You could even look for independent study and certifications to gain more marketable skills or even help you transition into a new (hopefully, higher-paying) position or field.

If you find your earnings are below-market for your experience and skills, open conversations with your current employer about a raise or promotion to close that gap. Then, start applying for other jobs; most major pay jumps result from starting a new job, rather than getting a raise from your current employer.

Brush up your job-hunting skills, too. Update your resume and cover letters so you’re primed to jump on new opportunities. Read up on pay negotiation tactics so you’re ready to ask for more from a current or new employer. And practice interviewing and negotiating so you’re comfortable doing both.

You’ve made some credit and debt mistakes

Our past financial choices have a way of sticking with us long after they’re made. Credit missteps like a late payment or account that’s sent to collections typically linger for about 7 years on credit reports. That means 7 years of having your credit score dragged down by a mistake — and paying the price with bad credit.

Debt can follow you around even longer. The average length of new car loans passed 70 months for the first time in March, just under 6 years. The standard repayment period for federal student debt is 20 years for balances of $20,000 to $40,000, for example. And the most common mortgage term is 30 years. And it’s all too easy to over-borrow and over-buy, and wind up over-budget thanks to debt payments.

How to overcome it: Work on managing debt and credit well, and you can come back from these past mistakes. Request your free credit report and review it to be sure there are no errors. Learn how credit scores are calculated and update your habits to give yours a boost. Get spending under control so you’re not getting into further debt each month. 

Review your debt and make a plan to repay it faster through extra debt payments. Target high-interest debt first with a debt avalanche, as it will cost you the most to keep around. Consider debt consolidation or refinancing as an option to lower your interest rates or adjust your loan terms to keep debt more manageable.

You didn’t save when you could

Most people have had that moment when they needed money they’d already spent, and wished they saved money when they had it. 

In the middle of so much economic uncertainty, the most common financial regret: not saving enough for emergencies, per Bankrate. Without an emergency fund, you can find yourself stretched too thin with few options during a financial hardship or job loss. 

The next most-common regret: not saving more for retirement. Starting early is a key strategy to financial health, as this gives invested retirement funds more time to grow and for returns to compound. A dollar invested at 25, for example, is worth twice as much by retirement age as $1 invested at age 45, according to Vanguard.

How to overcome it: Pay yourself first by making savings a line item in your budget or spending plan. Set up automatic transfers into savings, or consider having a portion of your paychecks direct-deposited into a savings account.

Building an emergency fund should be the priority with saving. Start your e-fund with extra funds, such as a tax refund. Aim to have at least one month’s worth of expenses on hand, and build from there.

Check your employer’s retirement benefits, and if they offer a savings match make sure you contribute enough to maximize it (it’s free money!). If you don’t get retirement benefits, open an IRA on your own. Start contributing what you can afford, and aim to increase these savings as you go. If you get a pay raise, for example, you could put most or all of those new earnings into an IRA or 401k.

Your money past doesn’t define your financial future

Unpacking your financial past can grant you insight into how you manage money — and a powerful opportunity to change. As you see the financial path you’ve been on so far, you can decide whether to continue or change course. You can hold yourself more accountable for the choices you’ve made up to now, and work toward healthier money decisions in the future.

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