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Sunny Israni wanted to know what separated the millennials who are good with money from those who aren't.
So he asked them.
For his new business, a personal finance app called Clasp, the tech entrepreneur and former Wall Street trader spent over 100 hours talking to millennials across the US about their money habits, attitudes, and goals to find out what made millennials good with money.
"I wanted to target two different groups: people who tend to make really great decisions around their finances, and people who may not have made the best decisions," he told Business Insider. "I wanted to try to understand, 'what are the big factors that drive the quality of our financial decisions? Is it income? Is it geographic location?'"
He found that what made millennials good with money wasn't either of those factors. Rather, it was how they thought about money. In his research, Israni found that three main psychological hurdles tend to keep millennials from being good with money:
1. They don't know what money means to them
Israni found that nothing had a bigger impact on how millennials manage their money than their mindset.
"I think about it in the terms of identity. As I was speaking to a lot of the participants, I got the sense that when people describe their financial behavior, they're really describing who they are as people," Israni said. "It's like their spending is a declaration of their identity."
Millennials who are good with money tended to have a clear vision of what they want from it, and know their money goals.
"I spoke to someone from the Midwest who was early in his career and really militant with savings. I got the sense that he was deriving his whole identity from financial freedom. He had crystal clarity on what money represented in his life," Israni said. "People who weren't necessarily making as sound financial decisions had this tension around what money really represented in their life."
This tension tended to mean more than internal conflict for the millennials Israni spoke to — it also led to bad habits. "The people who had that tension the most tended to be the people who didn't necessarily make the best financial decisions," he said.
2. They don't set limits on social spending
Israni noticed a bad habit that held millennials back: Spending too much on social situations. He also noticed that millennials who are good with money knew where to draw the line on their social spending.
"When you're in social situations, people tend to spend more, and we know this. But when I looked at the people who are doing really well, I've found that almost all of those people had an understanding with their friends and their social circle around activities that made sense for them, and that were not necessarily so expensive," he said. "I got the sense from everyone that the price tag you pay to pursue a social activity almost never really correlated with the joy and happiness and the memories that come out of that."
Meanwhile, the others kept spending, and weren't honest and realistic with their friends about what they could afford. "The people who weren't making sound decisions didn't talk about it with their friends," Israni said.
Israni made it clear that cutting out social spending isn't the answer. Rather, it's about knowing where your boundaries lie. "Have a list of things to do that don't necessarily break the bank," Israni said. "Your friendship with someone shouldn't be expensive."
3. They adopt a 'screw it' mentality and stop trying
Israni found that millennials who were financially behind didn't feel that anything could change for them. He found that eventually, they stopped trying. In his opinion, it all comes back to mindset.
"After they were past a certain level of circumstances, they got into this whole 'screw it' mentality, where they just felt like they couldn't get a leg up," Israni said. "Oftentimes, it was mental. They felt so behind their peers that they just said 'screw it.'"
"It's exacerbated by the current macro trends, especially around climate change and our political system," Israni said. "People are like, 'well, climate change is going to end the world anyway, so might as well live it up right now.'"
For a generation that's been behind financially from the start, that's a problem. "It is very much negatively impacting financial behavior, especially for people who are already behind," he said.
For these millennials, Israni said making progress comes down to thinking differently. "If their mindset isn't right, then they're not going to use any budgeting, whether that's a spreadsheet or an amazing app or even just you looking at your bank account," he said. Millennials who are good with money, he found, want to improve their circumstances, and don't let the doom and gloom stand in the way of their money goals.