Financial Psychology and Transactional Analysis: Understanding and Solving Financial Problems Through the Prism of Childhood

How subconscious beliefs formed in childhood affect an adult's financial decisions, and how transactional analysis can be applied to change these patterns and achieve financial well-being.
5 min

Imagine you are in a coffee shop and you see a beautiful picture of a cake, over which chocolate flows so gently and smoothly. And one of your inner ‘selves’ tells you: ‘buy this pastry, it looks so delicious,’ and you imagine how tasty it will be to eat this pastry. This spontaneous voice that urges you to make the purchase is your inner ‘Child’. It is driven by desires and emotions, sometimes ignoring long-term consequences. Then suddenly another voice appears, saying: ‘Wait, this doesn’t fit into our budget, we came just for coffee, and by the way, you already had breakfast, we don’t need the pastry’ This is the voice of your ‘Adult’ – rational, analytical, weighing all the ‘pros’ and ‘cons’. And finally, there might appear a voice saying: ‘We shouldn’t spend money on unnecessary things and similar desires,’ this is the voice of the ‘Parent,’ reflecting our internal rules and values, often internalized from childhood. So, it is this trio that I want to explore with you today from a financial perspective.

Once again, who is who:

👼Child: This state is characterized by emotional reactions and often manifests in the form of impulsive purchases or the desire to satisfy immediate needs.

🧓Adult: This state represents a logical and rational approach to finances, based on facts, analysis, and planning. It is responsible for the balanced decision-making in financial matters.

👨‍👦Parent: In the financial context, this state reflects the influence of our early script upbringing and beliefs related to money. This can be an ingrained notion about the need to save, or certain financial constraints, or on the contrary, spending habits that we have unconsciously adopted.

The difference between the ‘Adult’ and the ‘Parent’ in motivation: the adult is your logic and reasonableness, while the parent is the inner voice of your upbringing and social conditioning.

All these ‘self-states’ are important in their own way and participate in your decisions, which create unique situations in life, or help to create them.

Often the ‘Adult’ and the ‘Parent’ can engage in internal conflicts. For example, the ‘Adult’ may recognize that an investment is risky but potentially profitable, while the ‘Parent’ will insist on saving and avoiding risks at all costs. In some cases, the ‘Child’ can become an ally of the ‘Adult’ or the ‘Parent’, depending on the situation. For instance, the ‘Child’ might encourage the purchase of something for pleasure, and the ‘Adult’ might support this if it is deemed rational and not negatively impacting the financial situation.
It’s interesting that in different cultures, the ‘Parent’ can take various forms. For example, in some cultures, there is a strong tradition of family business or saving, while in others, more emphasis is placed on individuality and personal financial freedom.

Understanding how these ‘self-states’ interact and influence your financial decisions is key to developing a healthy approach to managing finances and achieving financial well-being.
Working with financial scripts and changing subconscious beliefs.

💌Financial scripts are repetitive patterns of behavior that are often shaped by our early experiences and subconscious beliefs. For instance, if a person observes in childhood that money is a problem or a source of conflict, they may unconsciously develop an avoidance of financial matters or a fear of responsibility for their finances. And thus, you really start to perceive money as a problem or a source of conflicts

If you have noticed such repetitive situations that prevent you from achieving your goals, what should you do?
Based on scientific methods and research, we have several options:

  1. Structural Analysis

This analysis helps identify which of the three states of personality (Child, Adult, Parent) are active in different financial situations. For example, understanding that impulsive purchases are often driven by the “Child” state, you can develop strategies to activate the “Adult” state to make more considered decisions.

What to do:
Self-observation: Record the financial decisions you make and identify which state you acted from – “Child”, “Adult”, or “Parent”. Watch yourself for at least a couple of months.
Analysis of reactions: Pay attention to the emotions and motives behind each decision. For example, do you buy something for pleasure (“Child”) or for rational reasons (“Adult”)? Understanding your emotions makes it easier to determine who is who.”
Conscious regulation: Try to consciously activate the ‘Adult’ state when making financial decisions, especially in moments of impulsivity or when feeling pressure from the ‘Parent’. For example, you can imagine a game where you include the role of ‘Adult’ or ‘Parent’ in your introspection. Such a habit can be developed based on such imaginative games.

2. Transactional Analysis

Transactional analysis allows studying communication between different states of personality. It helps understand how these states interact and influence financial decisions. For example, identifying and understanding conflicts between the ‘Parent’ and the ‘Child’ can help resolve spending issues.

What to do:
Transaction Identification: Determine the types of transactions that occur between your internal states during financial decisions. For example, whether your ‘Adult’ conducts a rational dialogue, but ‘Child’ still dominates with impulsive desires.
Analysis of Interaction between States: Observe how different states influence each other. Is the ‘Parent’ too critical, prompting the ‘Child’ to resist and spend?
Development of the ‘Adult’ as a Mediator: Learn to use your ‘Adult’ state for mediating and balancing internal conflicts. For example, use logic and rational analysis to find a compromise between the desires of the ‘Child’ and the limitations of the ‘Parent’.
Practice of Conscious Choice: Try to consciously make a choice that takes into account the needs of all your internal states. For example, when deciding to buy something expensive, consider how it will affect your emotional well-being (‘Child’), financial stability (‘Adult’), and long-term goals and beliefs (‘Parent’).

3. Scenario Analysis

This analysis helps recognize life scenarios that we unconsciously repeat. For example, if you recognize that you are repeating the ‘money brings problems’ scenario, you can consciously work on changing this scenario.

What to do:
Scenario Identification: Determine which financial ‘scenarios’ you often reproduce. For example, do you often find yourself in the role of a victim in financial situations? What feelings do you often experience when making financial decisions?
Link to Childhood: Analyze how your early experiences influenced these scenarios. Perhaps your parents always emphasized the importance of saving, and you unconsciously avoid risks.
Rewriting the Scenario: Consciously work on changing these scenarios. Create new, positive scenarios and repeat them through visualization and affirmations. For example: “I will save up this amount and will enjoy new purchases.”

4. Game Analysis

In transactional analysis, “games” are repetitive patterns of behavior that often lead to negative outcomes. Understanding which “games” you play in financial relationships (for example, “I’m always in debt”), you can change these patterns.

What to do:
Understanding the Consequences: Evaluate how these ‘games’ affect your finances and emotional state. Do they lead to permanent debts or financial stress?
Changing Patterns: Consciously work on changing these repetitive patterns. Use strategies that will help you avoid automatic reactions, for example, refrain from impulse purchases or reflexive borrowing of money.

5. Autonomy Analysis

This includes considering how independent you are in your financial decisions and to what extent your decisions are influenced by external factors (such as the influence of parents or social norms).

What to do:
Self-Analysis: Evaluate whether your financial decisions are based on your own beliefs and desires or are influenced by external factors.
Impact of Family and Social Institutions: Consider whether there are any financial beliefs or practices that you have adopted from your family or society that limit your financial behavior.
Development of Independence: Work on making more independent and conscious financial decisions. This may include educational events, developing your own financial strategy, or consulting with financial advisors

Examples of using transactional analysis to solve financial problems:

1) Overcoming Impulsive Purchases

Situation: A person regularly makes impulsive purchases when feeling emotional discomfort and then feels regret due to thoughtless spending.

Application of TA: Keeping a diary to identify the moments when the emotional state of the “Child” leads to purchases, and learning to activate the “Adult” to assess the real need for a purchase before making it. An action plan can be effective, which stipulates that if you want to make an emotional purchase, you need to pause, take a breath, go home, and think about whether you need this thing. If the decision remains positive the next day, the purchase can be made.

2) Development of the Financial Strategy

Situation: A person hesitates with investment decisions because of the fear of losing money, and as a result, often avoids risks altogether.

Application of TA: Analysing fears and risks with the help of the “Adult”, taking into account the “Parent’s” advice on safe investments and using a logical approach to develop a balanced investment strategy. It is important to ask questions: “How can I make my investments safer? What other investment options are available?”

3) Debt management

Situation: A person is constantly in debt due to uncontrolled spending on entertainment or other reasons.

Application of TA: Identify recurring “games” that lead to debt and use the Adult to develop a debt repayment plan and take control of finances. It is important to keep a budget, have a spending strategy and distribute your income, for example, according to the 50/30/20 principle.

4) Changing financial scenarios

Situation: A person adheres to strict financial guidelines, as a result of which they constantly deny themselves important or desirable purchases, blocking their inner state of “Child”.

Application of TA: Developing new financial scenarios where the “Adult” helps to understand that reasonable spending can improve quality of life, and reduce the impact of restrictive attitudes of the “Parent”. It is important to “let go of the Child” with a certain amount of money for expenses, for example, set a budget of $100 per month for purchases that increase happiness. And also to show themselves that an “Adult” can act spontaneously and emotionally, and it is quite safe.

5) Development of financial autonomy

Situation: The person depends on the advice of others or social norms for financial decisions, lacking confidence in financial matters.
Application of TA: Using autonomy analysis to strengthen the ‘Adult’, enabling them to make more independent and confident financial decisions based on their own values and understanding. It is important to study your preferences, values, and goals in life to formulate a personal financial strategy.

The different roles we take on in ourselves – “Child”, “Adult”, “Parent” – are not the cause of our financial problems. Instead, they are part of our psychological structure, which operates according to the attitudes and skills we have developed. We separate these states to better understand ourselves.

The key to dealing effectively with financial issues is not to blame yourself or your internal states but to better understand and use these resources to your advantage. That is, we should learn to be more conscious of how we react to financial situations and consciously include our “Adult” state for balance and rational analysis. Instead of punishing yourself or others for past mistakes or unconstructive habits, it’s important to focus on developing positive strategies and skills that will help you achieve your financial goals. This includes working to change unconscious scripts, managing internal conflicts, and using our internal resources to create a healthy and balanced financial future. Let’s be kinder to ourselves and use our inner resources not for self-criticism, but for the development and achievement of our financial and life goals.