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Understanding Financial Flashpoints


financial flashpoints result from stressful events
❝An abnormal reaction to an abnormal situation is normal behavior.❞ -Viktor Frankl

After much debate, Frank has decided to buy a new car. He goes upstairs into his closet. There's a safe in the back where he keeps all of his cash. He has hundreds of thousands of dollars in his closet. He doesn't put his money in the bank, much less the stock market. Investing is for suckers. He watched his dad lose all of their money in the Great Depression when the banks literally closed. That was stressful for his family, and he remembers from then on that he would never put money in the bank and only pay cash for his purchases. He has not made any interest on his money, and in fact, his money is worth less than it used to be because of inflation. Not only does Frank not fully understand this, but he wouldn't care if he did. Banks are not to be trusted.


Waking up from a nap, Mike checks his trading app and see that his positions are up $5,000 over the course of a couple of hours. Over the past week, he's made $40,000 trading options. The next day, Mike dabbles in the options markets more, this time losing not only his $40,000 profit, but also three-quarters of his initial investment. He doesn't even care. Money is not important to him, and he would rather lose all of his money trying to take down hedge fund managers than wait for hedge fund managers to take advantage of him in the future. Mike's dad lost his company in the Great Recession and never recovered. They lost their home, and his dad turned into an alcoholic. He remembers the stress that came from watching hedge fund managers and other bankers receive government bailouts while the little guys lost their homes. He would rather risk any money that he would ever accumulate just to try to spite hedge fund managers.


Mike's friend Tim has been hearing about all of his friends making money trading options. He's jealous. He's heard of so many people turn $5,000 into $100,000, and if it's that easy, he might as well do it. He tries, but he doesn't understand trading, much less what options are and how they work. As a result, he lost his stimulus money and some of the student loan money that was supposed to pay for his education.


Frank, Mike, and Tim have all have their beliefs about money shaped by highly intense experiences that they have either experienced themselves or watched others experience. They have experienced intense financial flashpoints.


Financial Flashpoints: Financial Trauma


Financial flashpoints are highly intense emotional experiences that shape or change how we think about money. You can think of financial flashpoints as being the money equivalent of trauma. The analogy is not perfect, but it's a good starting point. True financial trauma would count as a financial flashpoint, but financial flashpoints aren't necessarily trauma. For example, a financial flashpoint could be a good event that happened to you. Financial flashpoints don't even need to be a significant event. They can be big or small, positive or negative.


If something happened that was outside of your original views about money, and this event changed how you think about money, that would be a financial flashpoint.