FIXED VS GROWTH: TWO BASIC MINDSETS THAT SHAPE OUR FINANCIAL LIVES
Why are some people good at managing money, being able to save for their goals and pay off their bills? And then there are others who find themselves falling deeper and deeper into debt despite earning similar amounts? Is there any difference between these people?
I have often wondered about this. Have you noticed some inherent qualities that separate these two types of people?
I have felt there is an intrinsic difference among people that drives their behavior and relationship with money. Those who repeatedly run after questionable financial decisions somehow appear to do so because of some characteristics of their personality.
I was not able to identify the exact trait(s) that separated these two until I read an article in the Brain Pickings blog. This article summed up some pretty interesting research by Standford psychologist Carol Dweck in her insightful work Mindset:The New Psychology of Success.
The Two Basic Mindsets
Carol Dweck terms the two basic mindsets that shape key aspects of our lives as ‘Fixed’ and ‘Growth’.
A fixed mindset
“assumes that our character, intelligence, and creative ability are static givens which we can’t change in any meaningful way, and success is the affirmation of that inherent intelligence, an assessment of how those givens measure up against an equally fixed standard; striving for success and avoiding failure at all costs become a way of maintaining the sense of being smart or skilled.”Maria Popova, Brain Pickings
A growth mindset
“thrives on challenge and sees failure not as evidence of unintelligence but as a heartening springboard for growth and for stretching our existing abilities.”Maria Popova, Brain Pickings
These people believe that intelligence and personality can be developed with effort. These are not qualities that are ingrained in us in pre-defined quantities.
Mindsets and Our Ways Of Life
The research shows that it is out of these two mindsets that we get a great deal of our behavior, our relationship with success and failure, both in professional and personal contexts and ultimately our capacity for happiness.
“The view you adopt for yourself profoundly affects the way you lead your life.”Carol Dweck, Ph.D., Mindset:The New Psychology of Success
|Fixed Mindset||Growth Mindset|
|Intelligence is static||Intelligence can be developed|
|Leads to a desire to||look smart and therefore a tendency to:||learn and therefore a tendency to:|
|Challenges||Avoid challenges||Embrace Challenges|
|Obstacles||Give up easily.||Persist.|
|Effort||See effort as fruitless.||See effort as the path to mastery.|
|Criticism||Ignore useful negative feedback.||Learn from criticism.|
|Others’ success||Feel threatened.||Find lessons and inspiration.|
|RESULT||Plateau early. Achieve less than their potential.||Reach ever-higher levels of achievement.|
Dweck and her team of researchers found that a fixed mindset occurs more commonly in people who have an inherent ability or intelligence.
These people believe that their qualities are cast in stone. They have the need to prove themselves continuously in order to prove that they have them in healthy doses – be it in their classroom, careers, relationships or with their money.
People with a fixed mindset see risk and effort as potential giveaways of their shortfalls and inadequacies. They are afraid to reveal that they have come up short.
People with a growth mindset that you can cultivate your basic qualities through effort. Everyone can grow with “application and experience”.
The important thing is these people measure success in effort, toil, and passion. A failure does not discourage them as they see themselves learning and growing through the experience.
Mindsets and Our Finances
So how do these relate to managing our money?
I thought hard about the article and if this explained the difference between people who are good at managing their money and those who aren’t. It did!
In the world of people who have a fixed mindset, success is about proving yourself constantly, about validating yourself.
In order to achieve ‘success’, they resort to sub-optimal, low effort money management strategies. It is easier for them to use their credit card to make a purchase rather than plan and save up for something.
Constantly buying new things gives them validation and a sense of accomplishment. Paying off debt means they are acknowledging that they have come up short in the past and must now put in the effort to work their way out of it – two things that don’t quite agree with them.
Those with a growth mindset keep trying. If something is difficult, it does not mean it can not be done. They make the effort to budget and plan their expenses. They passionately track their expenses. If a strategy brings them sub-optimal results, they see it as a learning experience and set forth to fix it the next time. They don’t retreat into a world of not trying or start incurring more debt.
If an investment does not give them the returns they expected, they try harder.
The good news is that these two mindsets are not hard-wired in our brains. Carol Dweck explores how we can work on our cognitive habits to adopt the growth mindset of constant learning and constructive action.
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