What your bank statement is hiding from you and why it matters

How many bank accounts do you have?

Maybe you have a savings account, a checking account, a money market account, a retirement fund, to name a few. What's the difference between these types of accounts? For one, the limits on when and how often you can access your funds. Another is the rate of return on your investment. And while you may weigh these factors when deciding where to put your money, you don't spend time worrying about what your money is useful for.  You already have plenty of ideas about that.  But maybe you should spend a little more time thinking about that question after all.  In fact, let's think about it right now.

Why do people value money?

That seems like a silly question, but have you ever stopped to think about why so many people love money? First of all, let's talk about what money is.

What is money, really?

Ask anyone what money is and they'll probably tell you it's a medium of exchange. They'll tell you it's a step up from the barter system. Of course there's truth to both statements but we lose a lot if we stop there. Fundamentally, money gives us a way to measure value.More fundamentally, money is about trust. When people compare money to bartering they are comparing two things that are fundamentally about trust, more specifically, about lack of trust. When two people make an exchange of goods, either directly or using the medium of exchange (at various times in history, cowry shells, coral, gold, silver, paper, and most recently, encrypted numerical codes), they are using that medium of exchange to create a level of trust. Just think: If we could trust everyone, 100% of the time, would we need money? We would just give the item to the person who requested it, trusting completely that they will return the favor for us at their first opportunity. Of course this does actually happen in real life today, for example when a person offers credit to another as a favor. This is a concrete example of a relationship bank account taking the place of money, at least temporarily. This point deserves an article all its own, which I plan to write, but for now I'm including this point here because it's important enough. 

Money is a step up from the value system in the same way Arabic numerals are a step up from Roman numerals. Just as it's much easier to add 32+68 than it is to add XXXII + LXVII, it's easier to use money to exchange goods. Imagine some ancient marketplace where a buyer haggles with a seller, offering three dozen eggs in exchange for a bolt of cloth. The seller counteroffers four dozen eggs, wherein the buyer offers to add five sparrows to the three dozen eggs and a deal is made. Fast forward a few thousand years and the same thing is done with money. Or look around yourself in the present Western world and see fixed prices that suggest we're too smart for haggling these days.And then ask yourself, who convinced us fixed prices were best? The consumers or the merchants? But that's a subject for another time.

Money removes us from needing to think in terms of cloth or sparrows and gives us something that's much easier to standardize. Money can represent the value of goods. It can represent the value of a person's time. It can represent the total output of a nation's efforts. It lets us do big picture thinking. There's a whole field of study dedicated to considering how people interact with things they value. It's called economics, the study of "production, distribution, and consumption of goods and services."From Economics article on Wikipedia.  Economics has also been described as dealing with the allocation of scarce resources among competing ends.  But you already knew that.

Do you know where the word economics comes from? It comes from two Greek words, together meaning household management. οἰκονόμος (oikonomos) from οἶκος (oikos), home/household, and νέμω (nemo) to manage/dispense (literally, law) The original meaning of the word, we now refer to as "microeconomics". Since, as I mentioned above, the relative ease of quantifying financial transactions using money makes it possible to look at things at scale, we can now look at the process on macro and micro levels and everything in between.

Yes, but what does money mean to you personally?

Let's forget about the scalability for now and stay with the small picture. Money means different things to different people, depending on their personal values. Ask one person what money means to them and they'll say freedom. Another will tell you they'd like to have more money to buy stuff they want. And if you spend more time talking to both of them, they will probably acknowledge that money also represents security. Besides their primary motivation, they probably both feel they'd have to worry less if they had more money. You might even be thinking that's a no-brainer. Again, this subject is also worth discussing further.

So what? Well, if money means different things to different people, then we have to look beyond standardized systems of measurement. Here's one simple example: People are often willing to pay different prices for the same thing. Have you often felt frustrated by having to shop around when prices vary greatly in different places? Or maybe you've been happy to pay full price for an item you value highly. Some people even feel more satisfaction with a product or service if they pay more for it. And then there's the fact that the same person will be happy to pay one price for an item that they would be angry to be charged for it somewhere else. For example, people happily pay more for soda at fine restaurants than they would dream of paying for the same soda at a corner store.

We can see that our simple notion of money being a clear indicator of value is starting to blur at the edges. The law of averages tells us that when we add up all the value of a large number of transactions we tend to get a more accurate picture, for example when estimating the gross national product we don't have to worry about whether someone is willing to pay more or less for a certain item. So macroeconomics is certainly a valuable pursuit. But this article is focusing on each one of us as individuals, on you and me. Considering all the different ways that you can stretch and shift the relationship between money and value, we discover that, in our minds at least, it's not just dollars and cents.  Which gets us mentally ready to consider another kind of bank account.

The first kind of hidden bank account: relationship bank accounts

Notice I said "bank accounts" and not money. Because we're going to expand our discussion to include non-money accounts. Remember the question I asked above about how many bank accounts you have? If you're like me, you can count them pretty easily. It may take a glance at your ledger to verify the number of accounts, but it's a fixed number. If you have more bank accounts than you can count, congratulations! Probably.It may be hard for some people to imagine, but there are disadvantages to having too much money.  A future article will explain what I mean.

Now I feel certain you can't answer my next question with an exact number: How many people do you know? Were you aware that for every person you know, you have a bank account? Some call it a relationship bank account.To the best of my knowledge this concept was first introduced as "emotional bank accounts" by Steven R. Covey in his book The 7 Habits Of Highly Effective People. I prefer "relationship bank account" because it indicates the emotions are directed toward another individual. Just like a "real" account at a bank, you can make deposits and withdrawals. You make a deposit when you do a favor for that person. Maybe you give them a gift or a kind word, or you help them when they are down. You make withdrawals when you ask them for a favor, or if you say something unkind, or if you put them down to make yourself feel better.

Like the different types of bank accounts I mentioned in the introduction, each relationship bank account has different parameters. Some, like your family and best friends, are like checking accounts. You make deposits and withdrawals frequently. Depending on the degree of commitment to the relationship some can withstand greater overdrafts. Shallow relationships are much less forgiving. Then there is the fact that some relationships pay better than others. Like high-interest-bearing accounts, relationships with higher-status people have higher potential for dividends than those with lower status people. However like higher-interest-bearing accounts, the barriers to entry for higher-status relationships are higher.

In addition, for each relationship bank account the personalities of the two parties (yours and theirs) come into play. One of the two might be more generous, or more appreciative, or more patient or more forgiving. This affects the rate of return on deposits as well as the security of the investment. If you continually do generous things for someone with low appreciation you are investing in junk bonds.This is referred to as a relationship imbalance. Many people lavish attention and resources on people who have the ability to reciprocate but not the inclination. On the other hand, unlike financial accounts where the terms are in small print but nonetheless listed out in full, relationship bank accounts have the ability to surprise us, both for good or bad.

Is this actually useful?

Why is it worth considering relationship bank accounts? First of all, you have more of them.English anthropologist Robin Dunbar (2010) set himself to determining the limit of people one can know personally and have comfortable, trustful relations with.  He came up with 150. Also, as with any sound investment strategy, you want to diversify your portfolio. Having a small number of close friends and family members is a sound investment, but having your eggs in just a few baskets is risky. Relationships change suddenly. We can lose someone in death, or their goals and values may move apart from ours.Compare the concept of political capital, introduced in 1961 by American political scientist Edward C. Banfield in his book Political Influence. "Political capital is a metaphor used in political theory to conceptualize the accumulation of resources and power built through relationships, trust, goodwill, and influence between politicians or parties and other stakeholders." The elements of relationships and trust are also found in the emotional bank account metaphor.

It's also worth comparing the pros and cons of financial vs. relationship investments. The Schwartz wheel of values helps us visualize the role each has in helping us grow and avoid anxiety. Money can provide a degree of security. It gives power and the ability to gain more pleasure and stimulation. Relationships also can provide these things, but in a different way. Wise investors understand that money isn't the solution to all problems. Financial reversals can and do happen, sometimes overnight. The people that can weather these are those who have solid relationships to fall back on.

It's also worth noting that unlike a bank account involving the simple math of deposits and withdrawals, emotional bank accounts also give more control to the account holder. We can choose to overlook a withdrawal, for example. Or we can adjust our view of an incident to see it in a positive, neutral, or negative light.

We've seen how economics can examine value interactions on a large and small scale, and we've come to realize that we should think of these interactions in terms other than those we can measure with numbers. To really round out the picture, we need to think about not just the interpersonal value interactions, but the intrapersonal ones as well.

Our internal bank accounts: self-confidence and self-esteemI include self-esteem here because I intend to write more about it in the future.

We also have bank accounts inside ourselves. Each one of us has these and we make deposits and withdrawals every day, largely without even thinking about it.

I've been thinking about this idea for a while, but my thoughts on the subject are nowhere as mature as those of Will Burnard, "Husband, Dentist, Cartoonist, Writer." Someone who, like me, describes himself as "a firm believer that insights can come from anywhere and anyone." 

I'm going to borrow Burnard's thinking here to set the stage for thinking of one's one self-confidence as a kind of bank account. He acknowledges right up front that this is a thought experiment. It's worth remembering that some of the greatest strides in understanding our world started as thought experiments and became widely accepted after withstanding tests to determine whether they can adequately describe the real world in every case. Both Newton's and Einstein's theories of gravity are an example of this. Both have rigorously passed all tests brought upon them (with the exception of phenomena that Newton's theories can not predict but can be predicted by Einstein's), but both remain purely based on thought experiments. It is still unclear exactly why the apple falls from the tree. So I encourage you to compare the following to your experiences of reality rather than reject it outright just because it doesn't have a famous name attached.

He starts out by describing self-confidence as the result of a feedback loop.A feedback loop is "a cycle of doing, receiving feedback, making adjustments, and repeating."

On the surface, the Confidence Bank Account is a simple concept: Positive feedback is a deposit into the account, negative feedback is a withdrawal, and any positivity left over means we’re confident.


As we know from experience, however, self-confidence isn’t so simple. Like money in an actual bank account, confidence is unevenly distributed in the population, is subject to market forces, and people make poor investment decisions. Also, while positive feedback may create significant deposits at the time—whether good grades in school, complements on our looks, or the honeymoon happiness of a new relationship—there is deflation to worry about. Those big deposits are less valuable as time goes by.

He describes our level of confidence as a Key Performance Indicator (KPI) of how we are doing in life.  This KPI results from the combination of variables including the health of our interpersonal relationships (which I call relationship bank accounts).  He also attaches having strong guiding principles, mental well-being, and overall life stability. "It’s not a perfect metric, but it’s a useful litmus test.”

Like theories of gravity, this tends to go along with what I've seen in the world. When Newton analyzed gravity enough to quantify it, he laid the groundwork for rockets to go to the moon and beyond. If Burnard's ideas hold up, when we feel a lack of confidence he gives us something to look at rather than just feeling bad about ourselves. For example, if I'm lacking confidence I can look at the strength of my relationships. I should take a closer look at my guiding principles, my values. I should take a look at variables outside my control that affect the stability of my life and my mental health and exercise compassion toward myself. Or, if I discover that some of the variables undermining my confidence are under my control, I should take steps to do something about them.

Beware of going into ConfiDebt

Burnard uses another good analogy, that is, using debt instead of earnings to inflate the balance of our confidence bank account. This puts the lie to a lot of common folk wisdom, or even popular psychology advice to tell ourselves how good we are and how well we are doing. Deep inside we can't fool ourselves. Artificially inflating our own self-opinion is like taking out a loan that will need to be paid back. And paying back, he says, "means performing to the level we’ve stated we would. When we are unable to deliver on our claims, a confidence default occurs, and the negative consequences far outweigh the confidence boost of the initial loan." He even coins a word for this kind of self-debt, calling it ConfiDebt.

Too much internal validation and we lose touch with reality. Too much external feedback and we fall victim to the opinions, values, and desires of others

Do you think there is any evidence to the contrary? This makes sense to me. In fact the second sentence reminds me of a thought experiment of my own, where I considered what's involved in making free choices rather than letting others choose for us.

He continues his analogy of a bank account by pointing out that the two main ways to increase confidence are the same as the main ways to increase financial wealth: 1. Earn more or 2. Spend less.

We earn self-confidence in the same way we earn the confidence of others. It reminds me of the idiom, "put your money where your mouth is." This phrase, in use for over 100 years, uses money as a useful symbol of taking action, especially an action where there is a cost involved. When I promise to do something for someone else I may have initial good feelings toward myself, just as the other person will have good feelings when hearing the promise. But if I don't keep the promise, I'll lose points both in my relationship with that person as well as to my own self-confidence. I'll have a ConfiDebt to pay.

Burnard suggests that optimism is an advantage for self-confidence, reminding me of my recent blog post when he quotes Daniel Kahneman:

Optimists are normally cheerful and happy, and therefore popular; they are resilient in adapting to failures and hardships, their chances of clinical depression are reduced, their immune system is stronger, they take better care of their health, they feel healthier than others and are in fact likely to live longer. […] Of course, the blessings of optimism are offered only to individuals who are only mildly biased and who are able to “accentuate the positive” without losing track of reality.

If this has piqued your interest I recommend reading his whole series of articles, which also includes a tip on how to boost the confidence of others (that is, make a deposit into their relationship bank account) without reducing our own level of self-confidence.

One of my favorite quotes from his article series:

While overall confidence is an important KPI of a person’s life, it is a person’s integrity that is a more accurate indicator. In the Confidence Bank Account, Confidence is the gross total of our account, but Integrity is the net. In business-speak, Confidence lest ConfiDebt is Integrity.

While not everyone highly values integrity these days, I think we all want to have a high level of self-confidence. What do you think? Does his recipe for self-confidence make sense?

Why should this matter to me?

While this post may use a bank account as a metaphor, the underlying message is not just that relationships or self-confidence share similarities with bank accounts. The message is this: Too often we see the world in terms of money rather than in terms of trust.

In the United States, currency is stamped with the motto "In God we Trust." While this fact could make for some interesting conversation in itself, it reminds me of a sign I've seen on the wall of business establishments:

In God we trust. All others must pay cash.

That's what money is basically. It's a proxy for trust. When we deposit money in a bank account we are maintaining a fiduciary relationship. It's not by accident that "fiduciary" comes from a Latin word meaning to trust. Likewise, every interaction we have with others, positive or negative, affects the level of trust we have with them, and their actions likewise affect us. Finally, we can build up or tear down our own levels of self-confidence and self-esteem by either living by our principles or by taking shortcuts, putting ourselves in ConfiDebt.

There are many related topics and subtopics to explore, but this way of seeing the world should be far more widespread than it is. Unfortunately our current money-mad world has lost sight of what's truly important: living by our values, maintaining mutually beneficial relationships, and maintaining the high level of confidence that comes with a bright outlook.