Managing Money Emotions
Money is emotional, there’s no way around it. And too frequently, some of the most common emotions are negative – shame, fear, guilt, envy – and they can keep you up at night. According to a National Foundation for Credit Counseling survey, nearly 70% of U.S. adults report having financial worries, regardless of their current financial status. It was also found that we can unconsciously allow these negative emotions to overpower us, leading to poor choices that can have long-lasting, detrimental impacts on our financial progress and health. Fortunately, there are three actionable steps that you can take to help combat these natural inclinations and free yourself from financial fears:
- Practice Self-Awareness
- Get Educated
- Talk to Someone
We’ll provide specifics about these action steps later on, but first we’d like to dive into some additional context about money emotions.
When the Emotional Toll Turns Physical
When we’re outside of the heat of the emotion, it’s easy to recognize that it’s not a good idea to make decisions when you’re feeling stressed, overwhelmed, or otherwise emotional. But it’s a lot easier said than done. New neuroscience research shows that “fear, worry, or anxiety around your money triggers the amygdala, which is the fear center of the brain. In this physiological stress, problem-solving abilities and creative thinking are suppressed.”
What’s more, these emotions can take a physical toll on our bodies in several forms, one of which is money anxiety disorder. Money anxiety disorder describes a condition in which worries about real or perceived financial difficulties evoke the body’s fight-or-flight response. The subsequent symptoms include rapid heart rate, erratic breathing, sweating, shaking, and nausea. What starts as a mental activity turns into a physical response. In other words, because the person’s emotional anxiety is so intense, the body kicks into survival mode. And once you are in survival mode, all your reasonability flies out the window, causing you to make snap decisions regarding money.
Let’s Review an Example
The COVID market crash in March 2020 provides a number of pertinent examples and lessons about emotions and money.
In hindsight, we know that the recovery from the COVID market crash was one of the quickest. During the peak of the crash, however, we were living in an atmosphere of fear and paranoia because of the health concerns and changes to our basic way of life. And the cherry on top to our overwhelming anxiety? The market crash. At which time, ThinkAdvisor reports,…
42% of investors sold at least one stock, and
24% of investors sold all their holdings
Investors had their reasons for why they sold their investments: some wanted to have more cash on hand in the event of a recession, and others said it was because of retirement considerations. But after the recovery, 69% of investors who sold stock at the beginning of the pandemic said they greatly regretted their decision to sell, and 19% said they were somewhat regretful. That’s an astronomical 88% who regret selling their investment!
Understanding Emotional Origins
All of this context begs the question, why do we feel so emotional when it comes to money in the first place? The answer is deeply rooted and can involve several factors:
- Childhood Money Memories: Your answers to the following questions can play a significant role on your emotional relationship with money…
- Did your family talk about money?
- Who was in control of it?
- What money responsibilities were assigned to different genders?
- How important was money to the family?
- Cultural Upbringing: Culture also has a big impact on your money emotions. For example, it is common in Asian culture to never speak about money, and there is a clear barrier between parents and children from childhood into adulthood. There is also an expectation, however, for the children to take care of the parents financially towards the end of their lives. These seemingly conflicting cultural norms could create a huge disconnect. If there is an expectation to take care of financial matters, shouldn’t we be having more more discussions about money?
- Financial Trauma: For example, maybe your grandfather was incredibly successful, but then lost everything and fell into debt. Although it was the grandfather who directly lived through the event, the pressures and trauma from this event can trickle down for generations.
- Familial and Societal Pressure: Maybe you feel familial or societal pressure to oppose the family money mentality, whether that be coming from a poor family and feeling the pressure the breakout of your family’s cycle of poverty, or feeling the pressure to prove to your rich family that you can earn just as much money without having “anything handed to you.”
Action Steps for Managing Money Emotions
Earlier in this piece, we teased three actionable steps that you can take to help combat your emotional inclinations and free yourself from financial fears. Let’s dive into those more deeply.
- Practice Self-Awareness
- Self-awareness involves recognizing when you are feeling overwhelmed and taking the time to allow yourself to return to a more reasonable state of mind before making any big decisions. And it takes practice, consistency, and intentionality to get to a place where you can overcome your impulses in the heat of the moment. It is a simple concept, but it is easier said than done. You can start your meditation practice with these guided meditations, which were lead by our good friend, Jane Cunningham, during the height of the pandemic.
- Get Educated
- There is a lot of misinformation out there and it seems as if all of the headlines are meant to provoke fear during times of financial uncertainty. This is where having a grounded, evidence-based approach to managing your finances is really impactful. Knowledge is power. And this is why one of the best things to do before making big financial decisions when feeling overwhelmed is to educate yourself. Whether you accomplish that by having a conversation with a trusted financial professional, or by seeking multiple factual and reliable resources, getting educated on the topic you are focused on before jumping the gun and making any big decisions is invaluable.
- Talk to Someone (like your financial planner!)
- At Yeske Buie, we like to say we’re great people to think with®. In the peak of stress and anxiety, we want to be your first call – your financial planning team is always available to talk through your emotions and any big decisions you’re considering. We are here to help think things through with you and to help get you to a place where you feel like you are in control again. And for those who don’t have a financial planner, consider talking with someone whom you know well and can trust. They might not be qualified to give you financial advice, but they can help you decide if you are coming from a state of anxiety and stress, and help you determine if your judgement is clouded and if it’s time to take a step back and reassess.
- Fischer, Michael. Nearly Half of Investors Sold Stock in March; Most Now Regret It: Survey. ThinkAdvisor. October 5, 2020.
- Gourguechon, Prudy. The Psychology of Money: What You Need To Know To Have A (Relatively) Fearless Financial Life. Forbes. February 25, 2019.
- Marquit, Miranda. Feeling Emotional Distress? Don’t Make Any Financial Decisions. Moneyning.
- The Psychology of Money: Why Money Elicits Emotion. Rockland Trust Bank.
- 2020 Annual Financial Literacy Survey. National Foundation for Credit Counseling.