So how does the doctrine of justification by faith relate to self-esteem? The key linking concept is that of righteousness. For the Christian, it may be helpful to think of positive self-esteem as a psychological sign of having comprehended that one is counted as right with God, and thus with oneself.

Earlier, we noted a distinction between internal and external styles of attribution in relation to self-esteem. The Greek verb translated ‘to justify’ really has the sense ‘to count someone as righteous’, or ‘to esteem someone as righteous’. There are two quite different ways of thinking about the idea of being justified in the sight of God. The first way involves an internal style of attribution, in which the following style question is asked: ‘what is it about me that would allow anyone to count me as righteous?’ This way of thinking can lead to despair if the person’s self-view is negative, and to an unmerited conceit if the person holds a good opinion of himself or herself.

The internal-attribution style naturally leads to the triumphalist view that we can do something to establish our righteousness. If we can justify ourselves by works (the Pelagian idea), our emotional investment tends to fall on our achievements and spurs us on to attempt to achieve more. Our sense of personal security and esteem thus comes to rest upon what we do and the way we feel about it.

The second approach concerns an external style of attribution, in which the question being asked is: ‘What is it about God that makes him see me as righteous?’ This style of attribution creates a sense of expectancy for action on the part of God, rather than a feeling that we ought to be achieving something. This vital shift in the frame of reference moves us away from a human-centered, works-orientated approach to our personal worth, and instead points us firmly towards a God-centered, faith-orientated approach. (As we noted earlier, ‘faith’ does not mean a human work, but a work of gift of God within us.)

Justification is thus about our status in the sight of God. It is about the way we are viewed by that most significant of all others – God. The Greek work translated “righteousness” is not simply a moral idea. It is far more than that, embracing central Christian ideas such as ‘being in a right relationship with god’ and ‘being regarded as of worth by God’. Believers thus regard themselves (rightly!) as sinners; but in the sight of God, they are also righteous on account of their justification. God reckons believers as righteous on account of their faith. Through faith, the believer is clothed with the righteousness of Christ, in much the same way, Luther suggests, as Ezekiel 16:8 speaks of God covering our nakedness with his garment. For Luther, faith is the right (or righteous) relationship to God. Sin and righteousness thus coexist; we remain sinners inwardly, but we are righteous extrinsically in the sight of God. By confessing our sins in faith, we stand in a right and righteous relationship with God. From our own perspective we are sinners; but in the perspective of God we are righteous.

Taken from Alister and Joanna McGrath’s Self-Esteem: The Cross and Christian Confidence, pgs 97-99.