The funny thing about money is that while we refer to it as cold, hard cash, it can elicit a wide range of emotions; happiness, fear, greed, anguish, envy, elation, to name a few. Our reactions to money depend on three primary factors: our current financial circumstances, the amount of money in question and our money mindset.

Long-term financial outcomes for lottery winners vary greatly, often due to differences in their money mindset. The amount people save over their working lives varies more than can be explained by income levels or family circumstances. Again, it is money mindset that matters.

The financial circumstances you’re born into play a part. Starting life in extreme circumstances – poverty or significant wealth – can have a huge impact, although not necessarily a predictable one. For example, living in poverty can create a ‘poverty mindset’ that leads people to believe that they are destined to a life of poverty and are not deserving of wealth. This can become a self-fulfilling prophecy.

On the other hand, a deprived background can make people more determined to achieve and maintain financial success. Money-related sayings can also influence how we think about our finances. We can all remember sayings like ‘money is the root of all evil’ or ‘money doesn’t grow on trees’. Hearing these repeated at a young age can influence attitudes and behaviour for a lifetime, particularly when you’re considering an impulse purchase!

Good or bad financial experiences also help shape your money mindset. Failed investments, failed businesses and failed relationships can all lead to a more cautious attitude towards money. The Great Depression was a significant influence on financial attitudes and behaviour for at least two generations. On the other hand, financial success can lead to a more confident approach with money.

Your money mindset changes throughout your lifetime. Typically, young people have a more carefree attitude towards money and treat it as something that is there to be spent to provide instant gratification. Bringing up a family can be financially stressful as most parents want to give their children the best possible standard of living, which is often just beyond what their incomes can sustain. At this stage, money is treated conservatively with an emphasis on lifestyle consumption.

Later in life, the accumulation of wealth provides a safe backdrop against which more financial risk can be taken. Some people take on new ventures at this stage, such as setting up a business or changing career. Then in retirement most adopt a more conservative approach because, of course, without a steady source of income, money lost cannot be easily replaced.