It’s Mental Health Awareness Month and one feature of poor mental health is a skewed sense of optimism, so this post is about that.

Optimism is a funny thing.

Too much and you don’t prepare for the worst. I’ve been vocal about how often people don’t buy insurance or save for emergencies because they assume bad things happen to other people.

On the other hand, if you’re too pessimistic, you won’t take the action you need to improve your situation, because, well… what’s the point?

So we want to build a Goldilocks mindset around money and get amount of optimism just right.

Thankfully, there’s some great evidence about what can help us to think more positively without losing sight of reality. Positive Psychology is the study of happy, mentally healthy people with the aim of learning how everyone else can be more like them.

The founder of positive psychology, Martin Seligman, identified three key attitudes towards life’s challenges that lead to either a more optimistic or a more pessimistic viewpoint, with the optimistic view generally leading to better outcomes overall. These are called the “three Ps” of pessimism.

People who are pessimistic tend to see setbacks through the lens of Personalisation, Permanence and Pervasiveness. What do these mean and how do they play out in terms of our finances?

Personalisation

“It’s all my fault!”

Personalisation means assuming that bad events happen to you because of something about yourself. It means assuming all the blame, whether that’s realistic or not.

Financial examples:

At the less harmful end of the scale, this might look like a homeowner who engages a builder and finds the final bill is higher than expected. The builder may have been unclear about their costings or have inflated a price somewhere, but if the homeowner tends to personalise they will feel angry at themselves for not having checked the costs more thoroughly sooner.

At its most harmful, this could look like a person who feels cursed with bad luck on some level so that they blame themselves when things happen that are completely outside of their control. For example, their chosen retirement date may happen to coincide with a small fall in the stock market (leaving them with a smaller pension pot than they had expected) and they feel in some secret part of their heart that the stock market fall happened because they were due to retire that day.

The optimistic view

A person with an optimistic viewpoint understands that the must take responsibility for their actions, but only in proportion to their potential effects. They do not automatically assume that they are at fault if things go wrong and they certainly don’t blame themselves when the outcome is largely or entirely due to chance.

Advice

If you tend to assume that setbacks are always your fault, try to challenge this by thinking about who else influenced events and what role chance played in the outcome.

Permanence

“It’s never going to get any better.”

Permanence assumes that any change for the worse is going to last forever. It says that once something goes wrong, this is just how things are now.

Financial examples:

A person asks for a pay rise and is refused. They assume that their employer will never agree to pay them more or promote them in future. They become discouraged and underperform or look for a new job.

Another example, a person accidentally misses a bill payment and it shows up on their credit record causing their credit score to fall. They assume that this means they could never get a good deal on a personal loan, let alone a mortgage.

The optimistic view

Things change all the time and there are often solutions to issues, even if you don’t know what they are when the problem first arises. Just because things are difficult now doesn’t mean they can’t improve.

Advice

Think of a time when you faced difficulties in the past that no longer affect you. Things may have seemed bad then but now you' barely remember it happened. Whether through resourcefulness, hard work, luck, or just letting time pass so that an issue became less relevant, you have overcome and moved on. Times always change, and nothing is permanent, including your troubles.

Pervasiveness

“One thing went wrong - everything is terrible!”

In this mindset, a small difficulty or embarrassment is a sign of a much larger problem. Specific issues that could be fixed with specific actions are generalised into fundamental flaws or failings to big and all-consuming to solve.

Financial examples:

A person whose card is declined declares themselves “hopeless with money”, even though with a bit of practice at planning and avoiding overspending they could avoid this happening in future.

A person makes a failed insurance claim and says “all insurance is a scam”, even though the problem is just with this single claim and they have many steps they could take next including: checking their policy terms to make sure they claimed under the correct part of the cover; submitting more evidence to the insurer; or making a complaint.

The optimistic view

The optimistic person gives life a second chance and waits for a clear pattern to emerge before generalising. The take each issue as it comes and try to find solutions to each one.

Advice

Listen to how you speak and identify when you’re using words like “everything”, “nothing”, “always” and “never”. These are often a sign of Pervasiveness in your thinking. Other signs are using generalising/labelling phrases like “I’m so…” or “Banks are…”.

When you catch yourself using this language try to replace it with the specifics of this incident. That will give you a more realistic viewpoint and potentially help you identify solutions to the issue at hand.

Learning to drop the three Ps will help you keep negatives in perspective so you will feel more in control of your money.

Did you find this useful? Comment below if there’s a mental habit you’re going to change.

To learn more about money mindsets listen to my podcast Squanderlust.