Posted by kdadmin on March 22nd, 2017.
This image represents the brain activity of two different groups of students as they confront a personal error. The group on the left has a fixed mindset and demonstrates very little brain activity. Whereas the group on the right has a growth mindset and their brains are literally ablaze with activity. Now, which group do you think will likely do better when confronted with a financial challenge later in life?
As Carol Dweck points out, in her book, Mindset, there is an incredible difference in the cumulative results of students who believe that their personal abilities are predetermined at birth (fixed mindset) and those who believethat they can be improved and developed over time (growth mindset).
In the image above, when those with the growth mindset (right) are confronted with an error, their brains are extremely active processing the feedback, trying to understand the mistake, looking for solutions, and figuring out how to improve. Whereas those with a fixed mindset are not. According to Dweck, those with a fixed mindset will instead ignore the useful feedback, justify the failure, blame others, and/or shy away from the challenge.
Throughout my financial career, I have observed nearly exactly these two approaches to personal financial matters. Some people confront financial setbacks as an opportunity to learn and grow, and others avoid acknowledging financial setbacks and look for someone to blame. So, reading Dweck’s book was a validating experience for me. As you can imagine, people with a growth mindset tend to do far better, not only in financial matters, but in a quest to Live the Life You Love, than people with a fixed mindset.
For example, think of all the parts of running a successful financial life – things like budgeting, cash flow, insurance, risk, mortgages, loans, gains, losses, estate plans, tax planning, starting a small business, semi-retirement, retirement, and on and on. Imagine approaching each of these from the perspective of “If I fail, how can I ignore it or who can I blame?” versus, “If I fail, what can I learn or how can I later succeed?” The first path almost certainly leads to despair. The second almost certainly to accomplishment. Now compound these perspectives over a lifetime through all sorts of financial opportunities. Imagine the difference in quality of lifeat the end.
All other things being equal, I have discovered that the small business owners who have significant success are of the growth mindset. Whereas those who have marginal success or endure failure are of the fixed mindset. It’s literally nearly that cut and dry.
To be fair, most small business owners have at least some bent towards a growth mindset, otherwise, they wouldn’t have the gumption to start a small business. However, many still get tripped up with the fixed mindset limitation of “ignoring an issue and looking for a distraction.” Nowhere is this more prevalent than understanding their financial statements.
Let’s face it, financial statements can be intimidating. But they are also the key to exactly what is going on in the business. Consider the top concerns of a small business owner:
Each one of these questions can be quickly and effectively answered by the financial reports listed in the brackets, and are easily available in nearly every financial accounting software on the market. Can you imagine the advantage that the small business owner would have if they had clear and current financial data and knew how to read these reports?
My point here is not to vilify a fixed mindset, per se, but to warn of how its limitations can have a systemic, and negative, impact on your financial life. Further, to suggest that if you find yourself stuck in such a perspective, then to consider how you can move towards the growth mindset. Reading Dweck’s book would be a great start. As would reaching out to me to for the financial education and insight you need to be empowered to grow.