‘I’m Just Bad with Money’: How Self-Fulfilling Prophecy Shapes Financial Behaviors

Here are some behavioral strategies, techniques, and interventions that financial planners can use to help clients whose money perceptions are self-defeating

Journal of Financial Planning: April 2023


Rowena Gillo, LCSW, is a licensed clinical social worker in the State of California. She is in private practice and specializes in individual therapy working with adults and older adults. She is currently a graduate student at Kansas State University in the personal financial planning master’s degree program.

Lisa Varani, CPA, has over 30 years of experience in public accounting, corporate and nonprofit organizations focused on financial management, budget, and controllership functions. She is currently serving as the associate dean for planning at the Duke University School of Medicine and is a graduate student at Kansas State University in the personal financial planning master’s degree program.

Blain Pearson, Ph.D., CFP®, AFC, is an assistant professor of finance at Coastal Carolina University.

Megan McCoy, Ph.D., LMFT, AFC, CFT-I, is an assistant professor of personal financial planning master’s program at Kansas State University. She serves on the board of directors for the Financial Therapy Association. She is also the co-editor of the Financial Planning Review. Her research focuses on financial therapy, financial well-being, and diversity, equity, and inclusion.


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William Isaac and Dorothy Swain Thomas developed the Thomas Theorem, which states, “if men define situations as real, they are real in their consequences” (Merton 1948, 193). The Thomas Theorem was used to explain how our lives are shaped by our projections. In particular, the theorem explains the process by which we seek out relationships and activities that will provide reassurance and confirmation of our expectations. The self-fulfilling prophecy concept is an expansion of the Thomas Theorem. Applying the concept at a societal level exemplifies how misleading beliefs or perceptions influence negative behaviors. Subsequently, Merton (1948) defined this as “a false definition of the situation evoking a new behavior, which makes the original false conception come true” (195).

Utilizing Merton’s self-fulfilling prophecy construct, this article explores individuals’ negative financial mindsets (i.e., “I am bad with money” and “I don’t have enough money”). Negative financial mindsets can result in poor financial outcomes (Kuhnen and Knutson 2011; Pearson 2021). However, when negative financial mindsets are reframed to a positive financial mindset (i.e., “I am good with money” and “I have enough money”), the self-fulfilling prophecy concept provides a path to shape positive outcomes.     

This article provides a literature review on self-fulfilling prophecy, its connection to behavioral biases, and how, when combined, it can shape personal financial planning decisions that perpetuate a negative self-view (Voss, Kornadt, and Rothermund 2017). Furthermore, this article will review the negative self-stereotype that pertains to the “I’m bad with money” and “I don’t have enough money” mindsets (Levy 2009). While most of the research assessing self-fulfilling prophecy involves at least two individuals (Stukas and Synder 2016; Madon, Willard, Guyll, and Scherr 2011) or focuses on societal interest groups (Rosenthal and Jacobson 1968; Merton 1948), there is little research found on self-fulfilling prophecy and its association with financial planning behavioral biases. This article contributes to the current literature gap and provides financial practitioners with intervention tools.

Self-Fulfilling Prophecy

Initially, self-fulfilling prophecy was understood as a macro-level concept, where initial studies focused on how a false belief held by collective groups can have the capacity to affect societal outcomes. For example, during the Great Depression, speculations about an economic downturn that would inevitably signal the collapse of the banking industry spurred numerous groups of individuals to quickly withdraw their funds from their banks (Merton 1948). The simultaneous large-scale monetary withdrawals eventually resulted in the closure of many banks, subsequently fulfilling the speculative prophecy of the collapse of the banking system. The prediction (the banking system failing) led individuals to change their behavior (withdraw funds) in a way that made the prediction come true (the bank failed).

Rosenthal and Jacobson (1968) were among the first to examine self-fulfilling prophecy on a micro-level. In their study, teachers were told that a group of special students was identified to have “greater intellectual growth” potential. Subsequently, this self-fulfilling prophecy shaped the teachers’ expectations of those students, influencing behavioral changes in both parties. The teachers became more attentive and supportive of the special students’ educational needs, which resulted in improved academic performance (Rosenthal and Jacobson 1968). The teachers’ belief that the special students had intellectual growth capability, combined with their positive expectations that these special students would exhibit their intelligence later that year, resulted in the self-fulfilling prophecy coming to fruition.

Madon, Willard, Guyll, and Scherr (2011) described the self-fulfilling prophecy concept as involving two parties and three events: the perceiver (first party) who has a false belief (first event) about the target (second party) followed by the perceiver treating the target in a way that aligned with their false belief (second event), resulting in the target acting in alignment with the false belief (third event). Stukas and Snyder (2016) showed how a self-fulfilling prophecy could arise in social interactions between the perceiver and target when one or both parties have pre-conceived stereotypical beliefs about the other. Madon, Willard, Guyll, and Scherr (2011) showed that a self-fulfilling prophecy could also occur when a person becomes both the perceiver and the target due to their self-view. Thus, a self-fulfilling prophecy can have a crucial intrapersonal element.

Perception and expectation have been researched in other life domains. Almadi (2022) conducted a comparative meta-narrative review on self-fulfilling prophecy in 10 different research areas that included accounting and finance-mathematics, archaeology and history, business and economics, education, ethics, management, medicine and health, politics/law and international relations, psychology, and sociology. Almadi (2022) concluded that self-fulfilling prophecy is “a ubiquitous concept surrounding us in everyday life and research” (251). Levy, Slade, Kunkel, and Kasl (2002) found in their study that positive self-perceptions of aging increased longevity. Levy (2009) expanded the research into the psychosocial impact of negative and positive stereotypes geared toward older adults, and how, over time, these stereotypes are internalized and become “self-stereotypes” that impact the aging process (261). Research on self-fulfilling prophecies in the health domain has shown that current self-views influence present actions, which lead to health outcomes (Voss, Kornadt, and Rothermund 2017). For example, if you see yourself as a healthy person, you may be more likely to be physically active, which would lead you to become a healthy person.

Given that current self-views can influence present actions, the self-fulfilling prophecy concept can be applied to many areas within the personal finance domain. For instance, research has provided evidence of an association between investment risk-taking and increases in feelings of excitement (Kuhnen and Knutson 2011; Pearson and Guillemette 2020). A negative mindset about how one manages money could be connected to more risk-averse financial decisions. Relatedly, even speculation about a future economic change could impact personal finance decisions, in that such speculation becomes a self-fulfilling prophecy (Petropoulos Petalas, van Schie, and Hendriks Vettehen 2017).

Negative Money Mindsets

In their book Money Mammoth, Horwitz, Klontz, and Klontz (2020) described how negative money mindsets might not only be the result of what we learn from our parents, but these mindsets also have long historical and cultural roots. In early cultures and tribes, resource sharing was not only an expectation, it was necessary for community survival. Resource hoarding was a cause for exile from the community or even death. Fast forward to the modern age where survival in retirement requires some degree of resource hoarding, money mindsets such as “I am bad with money” or “I don’t have enough money” are now counterproductive to achieving future financial security and may lead to self-fulfilling prophecies that prevent the achievement of financial goals.

Behavioral Finance

Understanding how individuals and groups make financial decisions is a key behavioral finance pursuit (Pompian 2011). In contrast to standard finance theory, where individuals are perceived as “rational,” behavioral finance posits that individuals are “normal” (Statman 2019, xi). While “rational” investors in standard utility theory make investment decisions that maximize wealth, “normal investors” make their decisions based on emotional and cognitive notions, which provides “utilitarian, expressive, and emotional” benefits (Statman 2019, 9). Psychologists Daniel Kahneman and Amos Tversky posited through their prospect theory that under conditions of uncertainty, “normal” investors evaluate losses and gains based on reference points, and “normal” investors utilize heuristics, which can result in cognitive and emotional errors known as behavioral biases (Pompian 2011).

Behavioral biases are classified as either cognitive or emotional (Pompian 2011), where cognitive biases are based on “faulty cognitive reasoning” and emotional biases are based on “reasoning influenced by feelings or emotions” (46). According to the Behavioral Finance (BeFi) Barometer 2021 survey (Cerulli Associates 2021), where 301 financial advisers were surveyed, survey results showed a significant increase in behavioral biases affecting clients. Mitigation techniques to limit the negative impact of these biases were also included in the survey report. Additionally, the survey findings were the top behavioral biases most observed in clients by their surveyed financial advisers, based on clients’ generational groupings.

Recency Bias

Recency bias is the tendency to be more influenced by recent events than those that occurred in the more distant past. Recency bias can be observed when individuals are overly influenced by recent stock market trends when making investment decisions. These individuals may tell themselves, “It’s different this time.” Clients with recency bias may make financial decisions that reinforce their negative money mindsets, contributing to negative self-fulfilling prophecies. Financial professionals may help clients with recency bias by increasing client awareness of this bias, sharing data and historical trends as the basis for decision making, and providing continuous education on the importance of asset allocation. These strategies can help clients shift to positive money mindsets, which can set in motion self-fulfilling prophecies that can help clients achieve their financial goals (Cerulli Associates 2021).

Confirmation Bias

Confirmation bias is the tendency to selectively seek out, process, or interpret information that confirms a person’s existing beliefs, even when those beliefs may be untrue. Confirmation bias may cause an individual to ignore, reject, or devalue contradicting information or information that is not consistent with the individual’s beliefs (Pompian 2011; Nickerson 1998; Wason 1960). In the investing world, investors who have confirmation bias may only focus on information that supports their investment decisions, which may lead to investment choices that are too risky, too conservative, or not diversified sufficiently (Cerulli Associates 2021). Challenging or contradicting clients’ investment choices who experience confirmation bias may trigger other cognitive or emotional biases, such as cognitive dissonance, which describes the mental discomfort that can occur when newly acquired information contradicts current beliefs (Pompian 2011).

Financial professionals may help clients with confirmation bias by (1) facilitating and engaging in open communication with clients, including asking questions about their investment sources (Cilley and Pearson 2022); (2) cross-verifying investment decisions from all viewpoints (Pompian 2011); (3) shifting clients’ focus from short-term market trends to long-term investment goals (Cerulli Associates 2021); and (4) simply being aware that confirmation bias exists. These are some strategies and techniques that financial professionals can use with their clients to effectively manage confirmation bias, which in turn, may lead to change, neutralize, or shift their clients’ personal finance self-narrative mindset into “I’m good with money” or “I have enough money.”

Loss Aversion

Loss aversion is the tendency to feel more pain from a loss than enjoyment from equivalently sized gains. Individuals are naturally loss averse, and, at some level, hold onto the fear of loss. A consequence of loss aversion, coupled with investors who hold a “bad with money” mindset, is that they may become severely risk-averse to losing money. Investors with a self-stereotypical belief that they “don’t have enough money” may engage instead in risk-seeking (“nothing to lose”) behavior. Additionally, the endowment effect, an emotional bias, often accompanies loss aversion. Investors who already fear losing money may experience the endowment effect, especially with securities they already own and feel emotionally attached to. Consequently, influenced by the endowment effect combined with all the other behavioral biases described above, investors with “bad with money / don’t have enough money” mindsets may experience status quo bias and not make any changes to their investment portfolios, instead choosing to stay with their current investments despite poor returns. (Pompian 2011).

Overconfidence Bias

Overconfidence bias is the tendency for people to be more confident in one’s own abilities than is objectively reasonable. Overconfidence, as defined by Pompian (2011), is unwarranted faith in intuitive reasoning, judgments, and cognitive abilities. Overconfidence bias is also a matter of character and ethics, which are often taken lightly because most people believe they would do what is right when challenged ethically. In fact, most generally believe that they are more ethical than others. As a result, there is the tendency to underestimate risk and overestimate one’s abilities or performance because “people think they are smarter and have better information than they actually do” (Madan 2020, 51). Believing one over the other is a self-fulfilling prophecy. Overall, millennials tend to be optimistic about the success of their future as it pertains to their personal financial situation, which is an indication of overconfidence. However, this generation is not consistently overconfident about their future as it relates to their past financial state of affairs. Consequently, this is a sign that millennials are generally more optimistic about the future state of the economy than they are about the past.

Through the literature reviewed on self-fulfilling prophecies, behavioral biases are contributing factors that promote and perpetuate self-fulfilling prophecies and stereotyping. Additionally, the diverse body of research on self-fulfilling prophecy illustrates that the concept of self-fulfilling prophecy exists everywhere in our world. More recent studies show that behavioral finance integration has increased in financial institutions, specifically in financial planning and investing. Adhering to generational surveys that highlight a particular generational group as financially “in trouble in the future” (Adams-Price, Turner, and Warren 2015, 707) may exacerbate negative money beliefs that consequently result in promoting or perpetuating self-fulfilling prophecies and self-stereotyping processes on the targeted generational group’s future financial outcomes.

Implications for Financial Planners

Our discussion of the extant literature has highlighted that behavioral biases are present in the financial world and how such biases contribute to self-fulfilling prophecies. The increased use of behavioral management strategies in the financial planning and investing spaces is promising and affords financial service professionals a unique opportunity to innovate their client–adviser relationship (Cerulli Associates 2021). Our article just provides a brief overview of the behavioral biases that may be present both in the clients and even the planner themselves. Financial planners will benefit from doing their own self-exploration around these potential biases to ensure they are not shaping their decision-making and their directives with clients. In addition, providing education regarding the characteristics of cognitive and emotional biases and how they tend to manifest within personal financial planning or investing provides insightful knowledge for clients. Further, using positive framing by financial professionals to shift clients’ negative mindset about their finances into a more positive one is essential, especially if clients are engaging in negative self-stereotypical or negative self-fulfilling prophecy processes, which often occur on a subconscious level. Just as the person who has the mindset that they are healthy will encourage themselves unconsciously to be more physically active, the client who has the mindset that they are financially healthy will unconsciously participate in more optimal financial behaviors.

Open communication with clients during the initial meeting to assess their financial situation that includes an understanding of clients’ investment sources in more effectively managing cognitive biases is important (Cilley and Pearson 2022). The initial meeting may include exploring underlying money beliefs clients have that may negatively influence their investment decisions, such as “Money Scripts” (Horwitz, Klontz, and Klontz 2020; Klontz, Britt, and Archuleta 2015), a topic that is beyond the scope of this article. Financial planners should be encouraged to seek continuing education in client psychology to gain more techniques and interventions that can be used with clients to address mindsets.

It is equally important to note that financial professionals should have self-awareness of their own behavioral biases, which may include potential stereotyping about clients’ age, gender preference, ethnic and cultural identity, socioeconomic status, and generational grouping. Additionally, there is a benefit from both financial service professionals and clients to have mindful awareness of their own Money Scripts (Horwitz, Klontz, and Klontz 2020; Klontz, Britt, and Archuleta 2015), including countertransference issues, or a professional’s unconscious feelings or emotions toward their clients. This level of self-awareness can increase the effectiveness of assisting clients who may hold the “bad with money / don’t have enough money” financial mindsets, and it may better prepare the financial service professional to help reframe the negative money mindset into a positive one.

According to Horwitz, Klontz, and Klontz (2020), positive change can occur with awareness of money mindsets; identifying Money Scripts (Klontz, Britt, and Archuleta 2015) and behavioral biases that are impacting financial actions or inactions; and self-reflection to determine triggers to ineffective financial behaviors, work to change habits, and interrupt old patterns to support financial decisions and behaviors that achieve financial goals (Horwitz, Klontz, and Klontz 2020). Additionally, if money disorders are present, assistance may be required from qualified mental health professionals.

Finally, understanding the power of positive expectation and the placebo effect (Howe, Goyer, and Crum 2017) in financial professionals’ work with their clients is necessary. Providing an open, genuine, and supportive environment that instills hope and begins at initial contact with clients will communicate—and facilitate—an authentic and mutually trusting client–adviser relationship that can shape and influence positive changes in clients’ future financial outcomes. Prioritizing and maintaining this kind of client–adviser relationship throughout the financial relationship may be a significant protective factor to avoid and overcome behavioral biases, and instrumental in creating positive self-fulfilling financial prophecies.


The intent of this article was to review the literature related to negative money mindsets and to contribute to how self-fulfilling prophecies appear in personal finance. The authors also explored the behavioral finance strategies and techniques that financial professionals can use to change, neutralize, or shift clients’ mindsets into positive self-narratives to support clients achieving their financial goals. Although research and surveys have been done in the intersection of several of these domains, there is a gap when looking at the interactions in considering generational impacts. More research is needed to inform generation-specific strategies to effectively neutralize and shift negative money mindsets to support achievement of personal financial goals


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