How Knowing Your Money Ancestry Can Help You Avoid Investing Mistakes

Later this year, Cunard Line luxury cruises and Ancestry.com will combine two super-hot trends: cruise travel and family genealogy.

During a transatlantic crossing aboard the Queen Mary 2 from London to New York, guests will recreate their ancestors' voyages to the New World. Genealogy experts will be on hand to show guests how to search their family origins through census and military records, and to determine ethnic mix through DNA .

Generations of money beliefs

Some people are willing to spend thousands of dollars to learn more about their family tree, but shouldn't we get curious about our “money ancestry," too? After all, in many ways our money beliefs are also passed down from generation to generation. These family scripts influence our attitudes and behaviours about money and they can affect our relationships and careers, as well as our savings and investment decisions.

“I'm a first-generation Canadian. For my parents, tangible assets like land and gold are the best places to put their money," says Nida*, a new investor who works in the financial-services industry. “They don't invest in the stock market."

Today, Nida, in her early 20s, sticks to investments in cash and gold although she is now open to the idea of investing in the stock market. “I'm the first one in my family to do it," she says. “I like to think of myself as a risk-taker but, in reality, I'm very conservative and my investment choices are influenced by my parents."

When money attitudes are hard-wired, they often operate outside of our awareness. This makes them sticky and resistant to change. And, you can imagine the fun that ensues when conflicting beliefs about money show up in a marriage, family or business partnership.

What's your money script?

Academics at Kansas State University have identified four major money scripts that drive behaviour:

• Money avoidance
• Money status
• Money worship
• Money vigilance

The first three are associated with poorer financial outcomes, such as lower net worth and income and higher credit-card debt.

People with a money avoidance scripts such as, "Good people should not care about money" may overspend, give money away to avoid having it, be excessively risk averse or indulge in other acts of self-sabotage.

People with a money status script equate self worth with net worth. They are more likely to overspend, become financially dependent and even lie about their spending habits.

A money worship script equates money with happiness and helps explain the popularity of lotteries and the desire for a windfall to solve problems — despite evidence that after the initial thrill, lottery winners are typically no happier than the rest of us. Yet, money worship is a powerful belief that can lead people to take unreasonable financial risks, gamble, overspend or overwork.

Money vigilance scripts can cause people to continuously monitor and protect their money and avoid reckless behaviour such as gambling. However, it can also lead to excessive frugality and anxiety around money issues.

According to financial psychologists Bradley Klontz and Ted Klontz, who coined the term "money script," our core beliefs about money are usually unconscious, developed when we're children, passed down from generation to generation in families and cultures and are often only partial truths.

But additional research has shown that, once identified, any destructive money scripts can be challenged and changed to help promote financial health.

Another prevalent belief about money is that investing is only for tycoons, very high earners or the beneficiaries of a large inheritance. It's a limiting belief that can make people reluctant to invest in specific asset types, thereby risking missing out on capital growth that could build over a lifetime.

"Some of my friends invest in stocks, but it never would have entered my mind," says Nida. "I always thought I had to save until I had a large amount to invest. Now that I'm learning more about the markets, I will allocate more money there." Still, she plans to always keep a position in gold. “Our family rule is, unless it's life or death, never sell it."

*Name changed for privacy