The way we think can affect personal finances too – and it’s not just about thinking ahead of time and making future plans. Research from the University of Georgia, USA, suggests people who feel anxious about money generally can find it harder to make decisions about their finances.
“High anxiety levels often lead to a form of self-imposed helplessness,” authors John Grable, Wookjae Heo and Abed Rabbani write.
The ostrich effect
In their award-winning experiment, the scientists wired people up to discover how they might really respond to financially stressful situations. They found that people who are highly anxious about their finances tend to ignore potential money problems and may be less likely to ask for help or look for a solution. Those who are less emotional about finances appear more likely to tackle problems and seek assistance.
Other studies suggest the effect can be increased by habits of thought such as present bias – making it even more tempting to avoid decisions about personal finances for weeks, months or even years. The typical anxiety about maths and dealing with numbers also encourages procrastination.
Burying your head in the sand, like the proverbial ostrich, may feel easier – but ignore a financial problem and it might simply grow bigger over time.
Under stress? Many are
The University of Georgia paper also notes that thinking about money can cause physical changes that mimic the classic “fight-or-flight” reaction.
“The human stress response may be the key to understanding why some people willingly engage in financial counselling, planning or therapy and others do not,” Grable, Wookjae and Rabbani explain.
Of course, stress levels can rise even higher if there are a lot of complex choices to make.
And studies such as the American Psychological Association (APA) Stress in America survey confirm that as many as 30% of a population may feel stressed about money on a regular basis. The APA says key symptoms include trying to forget about finances, avoiding talking about money with loved ones, and not opening bank statements or bills.
“If you can relate to any of these feelings and behaviours, it may be time to take a hard look at your relationship with money,” the organisation says.
There are ways to counter anxiety and foster smarter money choices. Learning more about personal finance is one popular method – especially if the lessons learnt can be used to develop a solid plan for action that will improve money issues over time.
Having better information can help us rely less on natural biases, enabling us to think more rationally and side-step common thinking traps like availability bias or a desire to follow the herd.
When investing, taking a cooler, measured approach to daily events and news announcements can encourage a longer-term view.
Think positive, be patient
Psychologists say that focusing on the things that are working well and being patient with delays or mistakes can help control fears about money. It can be easy think that problems are bigger than they are or to feel progress is poor when goals seem hard to reach.
Try breaking a problem like how to increase savings or reduce debt down into smaller, more manageable pieces. Dealing with different aspects one by one can move you much closer to your goal. Financial advisers or other counsellors may also be able to help.
Pinpoint savings potential
A practical example might be the problem of how to save enough to buy a house. A close look at the individual parts of a budget may help pinpoint where to reduce spending or save a little more every pay day.
Another way to feel more comfortable about finances is to slowly build up an emergency fund of at least three to six months savings. When there’s money in reserve, ready for unplanned events, it's natural to be less anxious.