Sometimes, as part of poverty porn, people talk about how being poor granted financial superpowers. After living in poverty, they are now able to save more, are automatically content with less, and have mastered the art of “enough”.
This may be the result for some, but it’s also true that periods of real financial insecurity leave mental scars. For me, my childhood poverty had a long term impact on my money mindset. Only recently have I been able to understand and work to overcome these mindset challenges.
Let me be clear, this post is not about whether a simple mindset shift will lift you out of financial peril. I fall firmly on the side of acknowledging that systemic issues have a greater impact than mindset on many people’s ability to reach financial prosperity.
But, whether you believe that or not doesn’t really matter to the point of this post. Those who experience financial insecurity may struggle with psychological impacts even after they’ve achieved financial security. I certainly do, and work actively to counter those voices.
Financial Insecurity – Working Without a Net
Deep financial insecurity isn’t about just being unable to pay your bills temporarily. It’s not barely making rent and having to eat ramen for a few days until a check comes in.
It certainly isn’t having just a few dollars in a bank account and living with your parents in your 20s.
Those are challenges, and not to be diminished. Yet, they’re temporary and clearly survivable.
Those experiencing deep financial insecurity though, are working without a safety net of any type.
It’s not a question of stretching to the next paycheck once or twice. It’s not knowing when (if?) you’ll eat again.
It’s not the ignominy of living with family as an adult, it’s the worry of having shelter when the freezing weather is rolling in.
It sucks emotionally when your parents split up and have to sell the house you loved to move to an apartment. It’s different when you have to run without your belongings and no plan for housing in order to escape domestic violence.
You haven’t been able to find work and just sold the last of the things you own to pay for food.
Or, the only wage earner in the family has been deported or arrested.
What about not buying critical life-sustaining medicine for you or a loved one because you literally can’t afford it?
Each of those moments are real challenges that I’ve either personally experienced or watched families experience during my career as a public educator. Each one leaves a permanent impression.
Sure, they may provide motivation at some point, but in the moment it’s terrifying, demoralizing, and heart-rending.
Over years of personal reflection and conversation with parents and students I’ve come to understand that even after you’ve resolved your financial insecurity issues, the mindset impact can have long term negative effects on your finances.
Acknowledging those is important to helping yourself, and others, build a better financial future.
Mindset Impacts of Financial Insecurity

A huge part of our journey from clueless and broke to a high net worth and financial independence has been reflection. Through this process, I finally became aware of how a childhood of financial insecurity impacted my ability and willingness to think about money, invest, and make financial decisions.
These impacts are mine. Others have undoubtedly faced worse situations and have responded differently.
Personal finance is personal, but I believe that sharing our mindsets and approaches can help us navigate our personal choices better.
Here are my mindset challenges and how I do my best to counter them in my pursuit of financial independence.
Fear
The overriding impact of financial insecurity during my childhood is that money and fear are inextricably linked in my mind. Money is not linked to joy, opportunity, or pleasure.
When you associate something with fear you naturally avoid thinking about, learning about, or even interacting with it.
Someone who fears bees doesn’t intrinsically love gathering honey. Swimming in the ocean will likely never be a joy for someone afraid of water.
It doesn’t mean those things can’t be done. It just takes a lot more.
A huge part of our years of lifestyle inflation was my quest to earn enough and spend money without having to think about it. That is an entirely fear-based approach.
The result? We more than doubled our income, but it didn’t improve our financial situation.
It wasn’t until I realized how fear caused me to resist talking about money that we were able to start taking charge of our financial health.
How I Counter It
Quite honestly, I still get no joy from having money. We are financially secure, and closing in on financial independence. Yet, I still feel nothing but negative emotions related to our finances.
The key is to focus not on the money, but on what it can provide. It’s not about having more money, it’s about how we’ll reach our life goals. Money is fear, freedom is empowering.
Discussions with my partner are critical. When making decisions, we both work to acknowledge the emotions that may be impacting our choices. We review numbers and discuss the pros and cons of decisions frequently.
If we find ourselves resisting a decision that is crystal clear based on the spreadsheet – what is the emotion behind that? (Hint: It’s usually some type of fear.) Naming it doesn’t make it go away, but it lessens the power.
Scarcity Mindset
This is perhaps the most obvious impact. It’s inevitable to approach money as being scarce when you’ve…well, experienced money being scarce.

You pay attention only to money going out. Money that leaves your hand is unlikely to return.
I didn’t fully understand this until I went to college (on scholarship) and interacted with people who thought about money entirely differently. Money wasn’t tied to survival, it was about opportunity.
They spent without thinking about it. They didn’t worry about a few dollars here and there. They believed there would always be more.
Mindless spending isn’t good, but neither is holding onto money at all costs.
The problem here is the old trope “you have to spend money to make money” is true. To grow a business, you have to invest in the business. To improve your skills and earning potential you must invest in yourself.
It’s hard to do those things when every dollar going out feels like a permanent loss.
You miss opportunities to build connections because they cost money. You buy the cheapest thing you need, instead of the best value. Every dollar spent is one you’ll never have again.
How I Counter It
This one takes time and is a constant struggle. I can’t give a quick or easy key here. Instead, it’s become easier for me simply because I’ve finally accumulated enough money to build a comfortable foundation.
For new projects, I intentionally identify an amount of money that I’m going to invest. I then count that money as already gone. Then, I can spend it without the agony of fighting scarcity.
Over time, enough of these experiences build up and (hopefully) pay off that it becomes a bit easier each time.
Risk Aversion
Risk aversion is related to the scarcity mindset, but isn’t the same thing. You’re less likely to risk a dollar for fear you’ll lose it.
Everyone feels loss more than wins. Loss aversion is well-researched. I think those who have experienced financially insecurity feel it even more intensely. If you’ve lost a dollar, you believe in your bones that you may never get another.
A positive result is I’ve never been tempted to gamble more than I’m willing to lose. I enjoy the occasional wager on sports to increase interest, but will never have a gambling problem. I don’t accept risk easily.
Unfortunately, investment requires assuming risk. It’s easy to sit on cash and earn low, but certain, interest rather than risking the money to earn a higher return.
How I Counter It
Two big things have helped me overcome risk aversion related to investments: education and automation.
Education related to investing:
- Understanding that while keeping money in a savings account may feel secure, it’s actually a guaranteed loss due to inflation.
- Great books like The Simple Path to Wealth and A Random Walk Down Wall Street convinced me there are ways to invest that are likely (never guaranteed!) to result in solid returns over long periods of time.
Automating my investments also helps immensely. Once I convinced myself that I should be investing, reducing the decision-making frequency is key. Just setting up an automatic investment rather than constantly needing to push that investing button means I don’t agonize or worry about the loss each time.
Instead, we are investing more than 50% of our income now without thinking about it. Automaticity helps overcome risk aversion.
Consumption As a Reward
While financially insecure, there were so many things I wanted that I couldn’t have. Some were just wants, others were needs. Regardless, having things became the purpose of money in my mind.
For years after starting to earn money, I rewarded myself with consumption.
Meet a fitness goal – buy the trendy electronics.
Earn National Board Certification? That’s a new bike.
Become a school principal? Buy a new car! I didn’t actually do this, but almost all do. I’d done worse and bought the new car earlier as part of a less-substantial raise.
The cause and the problem are the same here – progress is associated with acquiring more rather than saving for the future.
How I Counter It
Once I realized this, it was easier for me to counter than the others. My work as an educator helped a lot because I’ve paid attention to the research around effective rewards.
Rewards are most useful, and effective, when they are related to the behavior you’re trying to encourage. If the goal wasn’t related to money then it made no real sense to have the reward connected to consumption or acquisition of stuff.
Now, we only use acquisition of something as a reward if it’s related to the goal. As an example, if we make a behavior change that results in a significant savings, a small portion of that savings can be used to purchase something we wouldn’t otherwise purchase.
I recently bought a new laptop for writing this site only after earning enough extra to pay the cost. Now, Job Spotter is just extra money for savings.
Goals that don’t have to do with saving don’t result in acquisition.
Pessimism About the Future
Despite the fact that my life has been on a pretty constant upward trajectory since childhood, I still fall easily into believing the future will be worse. I’m working hard to overcome my lifelong cynicism, but it’s persistent.

Negative financial news makes immediate sense to me. I’m drawn to pieces that talk about why the economy will go south or how the current economic order can’t stand.
Now that I can almost believe I’m financially secure, I see a potential black swan event around every corner. The world economic order must be destined to collapse!
This is an incredibly dangerous mindset for an investor. A downturn could lead to a sale. I could easily justify not putting more money in because I know the market run can’t last. Or justify pulling money out to avoid that drop.
How I Counter It
Recognizing the incredible financial danger in this mindset, I’ve focused on putting systems in place that keep me from making fast decisions. This helps me resist the dangerous combination of my bias for action and natural pessimism.
As I mentioned before, my investments are largely automated. The money goes in, through retirement accounts, and automatic brokerage withdrawals, before I really touch it.
Critically, we’ve developed a personal investment policy statement that describes how, and when, we’d react to market changes. It captures our overall philosophy of investing and long-term goals. It sets up rules for selling or staying the course. It imposes timelines on decisions that prevent quick reactions.
This removes, as much as possible, the emotion and inherent pessimism from any decision.
Trust in Institutions
My experience watching my single mom try to navigate finances convinced me that financial institutions exist to separate people from their money, not support them.
I am unable to look at banks, brokerages, or insurance companies without believing they are inherently evil. What I’ve learned about the awful options that are offered to many teachers in their 403b plans only reinforces this.
Unfortunately, in order to secure your money (without burying it in your backyard), purchase a house, or invest you are required to do business with these institutions. Being unbanked isn’t an option, or even a wise choice.
How I Counter It
I don’t consider this one all bad. We all should approach financial transactions with skepticism. I just may simply overdo it.
I do my due diligence before undertaking any financial transaction or relationship. I read contracts carefully, confirm fees are better than (or at least equal to) industry standard, and immediately cut ties if I see anything as an attempt to take advantage.
I have no doubt that this has caused me to miss some opportunities that may have been above board. Yet, I have a selection of institutions that I at least know aren’t trying to rip me off. That’s worth a bit of potential missed optimization to me.
Security Over Flexibility / Optimization
Speaking of optimization, I miss out on some possibilities as a result of my financial insecurity.
The math of renting over buying makes sense in many cases. The increased flexibility is also appealing to some.
I can’t do it. We tried it this year after downsizing our home. After moving dozens of times as a child, renting leaves me feeling like I could lose my home at any time. The optimization and flexibility isn’t worth letting someone else control my housing.
It may be less optimal, but ultimately owning a house means I’ll have a place to live even if everything else goes wrong. That’s critical to me.
I know that owning a house still costs money in the form of maintenance, taxes, and insurance. You know what? Those costs are in your rent too. I believe personal needs are under accounted in the rent vs. buy debate. The same is true in the “invest vs. payoff mortgage” debate and is why I chose mortgage freedom over optimization.
This also shows up in my choice of transportation. I grew up riding in beater cars. I spent a lot of time on the side of the road, or stranded miles from my home, or hitch-hiking. I don’t need a new car, but the moment a car starts showing signs of unreliability – I’m out.
How I Counter It
I’ve realized I can’t fully counter this. I sometimes need to choose a feeling of security over optimization. It may not be perfect financially, but squeezing out a few more dollars isn’t worth the significant stress it causes me.
Instead, I work to mitigate it. I don’t choose expensive new cars. We’ve worked hard in the past two years to choose appropriate housing.
We spend in the ways we need to spend, but avoid spending more than we need to. It’s the best I can do with this one.
SUMMARY – Overcoming the Mindset Impacts of Financial Insecurity

The financial insecurity of my childhood left indelible imprints on my mindset. My conditions were no worse, and in some cases considerably better, than those faced by others.
Acknowledging the reality, and resulting impact on mindset is empowering and ultimately required to make changes. It has nothing to do with the proverbial (and ridiculous) refrains of victim mentality.
Quite the opposite – recognizing, naming, and intentionally resisting the mindset scars has allowed us to turn the corner and take charge of our finances.
You can do the same for yourself, or give grace to others who may be struggling with their own realities. Trust me – you’ll be a happier and better person than those pretending it’s just a matter of flipping a mindset switch.
While the tenets of money can’t buy happiness make sense, it can buy security – and that matters a lot!
Financial insecurity has long term mindset impacts. They can be overcome with reflection, effort, and support.
Great post, Educator FI. The financial insecurity mindset is one of the major reasons that poor people remain poor. It’s not just fear and risk aversion, but here in Australia and probably also in other Western countries we also see intergenerational poverty – families who basically learn how to be, and stay, poor because they simply can’t break the cycle. This feeds an attitude/belief that this is how it is and it becomes a kind of perpetual motion machine. They’re literally incapable of believing that a better financial life is possible – at least, not for them. I wish there was more focus on personal finance in schools, so that everyone can be exposed to the knowledge they need to overcome this.
Yes, education and believing in the possibility is important. I’m also careful to recognize that in many cases there are systemic issues impacting those communities. It’s a combination of systemic change, information and instilling/supporting belief. The toxic stress of insecurity is really hard to overcome and so persistent.
Thanks for reading and commenting!