Financial Psychology Center

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When Money Catches Up to Ageing

Retiring. Buying a cozy house somewhere warm. Spending days by the beach, reading a book. Now, that is an ideal plan after retirement. However, I’m sure most of you already know this type of future is not only unrealistic but is becoming more and more difficult to achieve financially. While retirement can be a bittersweet moment for many, it can also bring a new set of stress and anxiety, mostly related money. Without a steady income, the lifestyle one can have starts to look different; however, that does not necessarily mean one is better than the other. In our society where working is valued so highly, what kind of condition are we going to be living under? Let’s find out.

The concept of retirement, although may sound relieving for many, can also be an exhausting thing to map out. Dan Doonan, the executive director of the National institute on Retirement Security, writes in his article, “Today, the U.S. retirement infrastructure largely is based upon individuals saving on their own for retirement during their working lives”.1 In order for the public to benefit from such structure, it becomes a requirement for the people to have a great amount of savings by the time they retire. However, the problem lies in the mere fact that many Americans do not realise how much they should be saving up right now. With inflation hitting hard, it almost sounds like an impossible ask for citizens to build up the savings they need to live a certain lifestyle they aspire to have after retirement or even to maintain the current way of life.

In addition to increases in product costs, there’s also the mere fact that our life expectancy is longer. This insinuates that unlike the previous generations where one only had to save up for 10, 15 years after their retirement, some may even be in a position to need money 30 years after retirement.2 Furthermore, many companies are leaning towards removing “defined benefit pensions”.2 These pensions were very helpful for workers to plan their retirement as it guaranteed a certain amount of money after retirement without reflecting our market’s ups and downs.2 These social changes in addition to simply the increase in costs makes it harder for the current working generation to have a good lifestyle after retirement.

These worries can compound even way before entering the golden age. It can manifest itself through overworking tendencies to compensate for the fact that it has become much more difficult to maintain the same way of life after retirement. On the other hand, the worries and exhibit itself through intense stress and anxiety towards finances and the inability to fully detach from work even during rest. These propensity for experiencing financial stress can be psychologically, emotionally, and physically draining.

What can we do? What should we do? Despite the simplicity of the question, it stands on a compounded narrative our society and culture creates surrounding money and retirement. Clearly, planning ahead is and continue to be a good idea. But beyond the practical, it is crucial to evaluate one’s emotional relationship with money. The logical mind cannot function without the emotional aspect – same goes for money.

When retirement is supposed to be the beginning of a new chapter, who wants to be worried about money and a million other things? We all deserved to have the lifestyle we have been working hard towards, right?

 

  1. Doonan, D. (2021, September 1). Stark and growing economic inequality fuels retirement insecurity. Forbes. Retrieved October 4, 2022, from https://www.forbes.com/sites/dandoonan/2021/09/01/stark-and-growing-economic-inequality-fuels-retirement-insecurity/?sh=36b5b7466632
  2. Borzykowski, B. (2022, September 21). The Ultimate Retirement Planning Guide for 2022. CNBC. Retrieved October 4, 2022, from https://www.cnbc.com/guide/retirement-planning/

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Inflation is Making Our Financial Mental Health Deflate

State of the economy/inflation

What a world we live in – the second the media mentions inflation, we become hyper aware of every one of our spending habits, for right reasons. Disproportional increase in cost and spending is stressful for many, especially those living within a tight budget. What makes it even worse is the uncertainty that is at the bottom of all of this. The lack of direction of the economy, decrease in costs, and confidence in ourselves can lead to a downward spiral mentally, financially, and even physically. When the status quo is broken personally and financially, what do you do? How do you react? Today, we try to answer these questions without letting them overwhelm us.

Inflation, in simple terms, happens due to our economy’s reflection of increase in production costs which then causes a noticeable increase in costs of products.1 Furthermore, when the demand is much greater than the supply and the buyers are willing to pay for them, a rise in costs also occurs.1 A common example where one can see the waves in prices would be the housing market. Not only does it reflect the demand, but it also flows with what the economy of the time is experiencing. In even simpler words,

Inflation = raising prices

To be completely frank, it damages everyone’s wallets which can be backed up by a couple of reasons. To begin, the value of our money decreases as buyers are unable to purchase what they are used to.2 It is financially demoralizing. Furthermore, it inevitably leads to a decrease in one’s savings. When income remains constant while spending increases, savings is the next place we go to.2 Finally, cuts have to be made. With a tight budget, some may leave out products or activities that are not an absolute necessity in order to cover necessary costs, such as food, housing, education, etc. Although never a good sentiment, it is quite obvious that inflation is not beneficial to the consumers.

Emotionally, it takes a toll on us also. When the money we have is devalued, it can lead to stress and anxiety which can manifested through physical symptoms.3,4 The stress of not knowing when it’s going to end and how much the prices are going to rise creates a world view where you are in survival mode against economy in the midst of uncertainty. There is no clear-cut solution nor a single decision that can be made to alter the circumstance to maintain the ongoing financial situation.

Management of financial stress is one of the key factors to create a healthy and adaptable mindset in times of emergencies and uncontrollable changes in society. The acceptance of economy’s cycle without feeling weakened is one of many ideologies that we can adapt to prevent the cycle of overthinking and self-doubt. When one’s value of money is decreased, many find it difficult to dissociate it with self-worth. In a society full of narratives that wrongfully support the interdependence between self-image and money, it is our goal to detach them as separate entities and be grounded in our values and beliefs.

At the end of the day, the economy may be able to decrease the value of the money we have, but it should never be given the power to depreciate our self-appreciation or self-care.

 

References:

  1. The Investopedia Team. (2022, August 10). What causes inflation and who profits from it? Investopedia. Retrieved September 19, 2022
  2. Williams, G. (2022, July 29). Why is inflation bad? 3 effects of inflation. Forbes. Retrieved September 19, 2022
  3. Fielding, S. (2022, August 1). High inflation rates impact almost every aspect of our lives, including Mental Health. Verywell Mind. Retrieved September 19, 2022
  4. Financial Consumer Agency of Canada. (2019, March 28). Government of Canada. Canada.ca. Retrieved September 19, 2022

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When Money Catches Up to Ageing

It is with no surprise that we are in the society where the population continues to age. With longer life expectancy combined with decreased fertility, many countries are beginning to see a shift, making up more and more of the population. This pushes us to go beyond maintaining any type of social or financial structure we have and forces us to develop new policies in order to support the elder age bracket whilst not neglecting the younger and middle-aged groups. Many expect there to be a drastic social change; however, the financial implication this brings is often forgotten. Money is a crucial factor on personal and global levels, and we need to keep in mind how it can affect us practically and emotionally during these unpredictable times.

In 2020, it was estimated that there were 727 million people older than 65 years of age.1 However, the population is expected to double by 2050 – reaching 1.5 billion people in the same age category, meaning that one out of six people will be aged 65 or above globally.

Millennials (those born between 1981 and 19962) will feel the financial burden from both directions as the population ageing problem becomes apparent to the world. Not only would they be responsible to take care of their family, such as their partner and children, but they now are also responsible for looking after their parents. Advanced health care in addition to undisturbed food-chain supply has made it possible for many families to have three generations, and sometimes more, at the same table. Though it is a notable change, the financial load is not insignificant. Compounded with inflation, millennials might start to experience underearning after taking on the responsibility of not only taking care of children but also their parents for years to come. Financial stress that is created via this funnel of people becoming older can manifest into negative thoughts, stress, insomnia, and for some, depression. Money problems have always been one of the leading causes for stress and anxiety and the ageing population does not help.

The younger generation, on the other hand, may experience a difference set of difficulties such as profession shortages seen in the labor force. Just like a gust of wind, a drastic shift can change the norm of the environment very easily. In this case, it can lead to an increase in labor costs, which is another type of money problem the younger generation has to keep in mind.

It is not to say that an advanced health care system is bad – it is one of humanity’s biggest accomplishments. However, we must keep in mind the severe and potentially catastrophic socio-economic consequences that will ultimately alter our lives and way of life.

  1. United Nations. (n.d.). Population division |. United Nations. Retrieved August 8, 2022, from https://www.un.org/development/desa/pd/
  2. Age range by generation. Beresford Research. (2022, April 20). Retrieved August 8, 2022, from https://www.beresfordresearch.com/age-range-by-generation/

 

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Money and Self-care

Laying on the beach, not thinking about the 9 to 5, or having an endless pot of money. All things we would love to have and do during our hard earned summer vacation. However, for many if not all, satisfying all of these visions is close to impossible. Money – or the lack thereof – acts as a constant reminder for our need to work, regardless of the harm working too hard could do to our health . The changes the workforce has seen due to the pandemic  has led to a new wave of stress for workers which can further amplify anxiety caused by  money issues.. As we enter the latter half of summer, we will dive into the current state of the economy and how it affects the working population.

We can begin with the discussion on the workers are that underearning. This, as simple as it sounds, encompasses more than the monetary gain that one obtains from working. In this case not only is the worker’s earning not enough, but their joy, happiness and self-esteem take a hit as well.. Time is also a crucial element jeopardised by this type of earning.1 Some of the common traits of those that are underearning are, but are not limited to, this list: chaotic financial timeline, iffiness surrounding money, self-sabotage, etc. Interestingly, a person who is earning more can be an underearner while another person who is making less money is not necessarily one. This further demonstrates that it is not quite the lack of money that is causing a chaotic relationship with money, but rather the mindset towards it.

Similarly, inflation can lead workers to house a negative and pessimistic mindset. Some can have a scarcity mindset where no amount of money, wealth, or time will be enough; therefore, it leads to an unhappy and uncertain future. Some even describe it as an obsession with the lack of something.2 Not only is continual belief of this mindset destabilising,  , it also prevents people from achieving their financial goals. It halts growth and learning that is possible within the realm of the earning-spending stratosphere, something that is required to grow one’s financial portfolio. On the other side of the spectrum, there are overspenders that do not care about the inflationary increase in prices, maintaining the exact same spending habits. Some may even classify this type of action as “retail therapy” or “good for one’s mental health”. It is a difficult line to draw especially in this day and age where mental health has finally begun to get the awareness it deserves. However, a clever adaptation to the new market can lead to sustaining a healthy work-life balance and mindset. Although there is no one correct way to approach inflation, it is always important to recognize the two extremes and aim to stay away from them, or better yet: in between them.

When those extremes are reached, any semblance of a healthy work-life balance is lost. In some cases, the work takes over one’s life, focusing on financial gain at the expense of  a healthy mindset or much needed relaxation. On the other hand, some may make excuses in the name of mental health to spend as much as possible, which only leads to instant gratification and long term stress and anxiety due to the lack of financial stability. The destruction of this balance was often seen due to a shift in workspace where the comfort of one’s home suddenly became an office cubicle. The degree of separation between work and life vanished overnight.

What makes us unique as humans  is our ability to adapt. Adaptation to financial stress, or even significant financial loss is also part of what makes us human. The pandemic continues to push our limit but we have stood strong, despite the countless worrisome nights and stressful days. One thing to keep in mind is that as much as money is a priority, we need to be our biggest advocate. Once again, money alone cannot look out for us as much as we can for ourselves.

  1. Stanny, B. (2011, October 3). 7 signs you’re an Underearner. Forbes. Retrieved July 26, 2022, from https://www.forbes.com/sites/barbarastanny/2011/10/03/7-signs-youre-an-underearner/?sh=5130d315265a
  2. Yale, A. J. (2022, March 7). What to know about the scarcity mindset and how it affects women and their finances – and 6 ways to avoid it. Business Insider. Retrieved July 26, 2022, from https://www.businessinsider.com/personal-finance/scarcity-mindset

 

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When You Crash With Money

Money is something not often thought about until you have to deal with it. As a child we have no sense of responsibility or independence in any aspect of life including finances. Most children are unaware of how to manage money and are taught they must ask for money from their parents if they wish to have any. While teenagers are yearning for independence, they start to find ways to make money, but they still are not given an understanding of their relationship with money. Instead they are simply retaught how to get it. At this time it is not simply asking their parents, now they can work for it. People then grow into adulthood with a concept of how to make money, but little understanding as to how money affects their emotions and how they might have a healthy balance of their emotions around the topic of money. In fact, money and emotions are are treated separately. But what is so dangerous about those two aspects being dissociated from each other? Is it better to be emotionless or is that the start of all financial evil? We will find out.

The polarizing opinions in regards to how the human emotions should be introduced to deal with financial struggles have been heavily debated over the years. On one end, emotions are seen as a sign of weakness and subjectivity that negatively influences any financial decision we make in the course of our life. But we take a different approach that is more inclusive of our human nature, which is acknowledging our emotions to the fullest while not letting it takeover our decision making process. That way, it allows us to embrace the way we react to reality without seeing it through a distorted lens. From this status quo of emotions being involved in financial decisions, that leads us to pursue an unconventional solution to a conventional problem.

The effort to plan, budget, and spend less have been the pillars to financial stability, well at least it used to be. However, in the recent years we have come to the realization that having a lot of money does not fix the solution. Many people who learned how to make more money remain financially stressed, which demonstrates that financial stress requires a psychological solution. Although the practical strategies, such at budgeting and planning, are important, being aware of yourself and your relationship with money is the first step in the right direction.

Integrated financial therapy introduced a multi-modal approach to financial struggles – a new innovative outlook to money. As with making any changes in your habits, you first must acknowledge what is needed to change. That can be achieved via introspection, self-awareness, and emotional intelligence. These do not necessarily involve practical skills but rather a critical assessment of self which can be challenging for many of us that constantly distract ourselves from self-analysis. There are different types of therapies that emphasize a multi-modal approach: narrative therapy, cognitive behavioral therapy, and object relational therapy.

We don’t realize the importance of self-reflection until it’s too late or too much financial stress has been on one’s shoulders. It is okay to face a financial obstacle but it is in hour hands to overcome it.

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Unemployment and Underemployment

How do you measure your self-worth?

After enduring two brutal, pandemic-filled years, it now seems foolish for the world to have proudly concluded that things are finally going back to ‘normal’. The workforce seems to be a little more complex than that.1 Changes in the workforce have left a lasting impact not only on the work environment, but on the psyche of the individuals who are now dealing with concerns over both unemployment and underemployment. The pandemic saw unemployment and underemployment rise as skilled workers were both forced out of the professional world, and some left voluntarily to pursue income from the gig economy. The ones coming back are demanding new conditions to match their post-COVID perspective.

Unemployment describes a situation where one is not employed while underemployment describes the situation when an employee works fewer hours than usual in their specialty.2 In addition, invisible underemployment touches on people that put in the hours but do not use their skills. In both cases, it is important to look not only at the financial but emotional and behavioural adversities that follow these events in order to fully understand the adverse consequences. This also allows for more personalised solutions to be suggested by professionals for workers to overcome these major life challenges.

Peggy was a principal of a school when COVID started, but through changes in leadership due to the pandemic, her contract was not renewed and she found herself unemployed. Peggy was at a crossroads in her life having been a school principal for the previous seven years but knowing she wasn’t really enjoying. Her finances were in such a state that she couldn’t afford a lower paying job, even though her ideal situation was working less hours and having more time in her garden. Peggy spent the summer talking to a financial therapist and re-evaluating her life, her sense of self, and redefining what she truly needed to feel happy and fulfilled. After a lot of deep psychology work, Peggy was able to restructure her entire financial life, sell some assets to pay off debt. She moved to a reading tutor’s job at a new school and found the more she engaged directly with the children she wanted to teach, the better she felt. This new perspective tied her self-worth to direct childhood education and helping youth from a hands-on angle, rather than the more complex but less rewarding position of school administrator. At first Peggy had to detach from her self-image of being a principal and the esteem she had attached to that role in life. Once she could free her mind, Peggy was able to seek out what truly fed her heart. This led to what some people would consider “underemployment” or a lesser skilled and lesser income position. However, once Peggy had systematically addressed her finances, she right-sized her financial needs to match a lesser paying but more fulfilling role. In this case, Peggy used financial psychology to deal with the fear of unemployment, the stress of debt, and choice of employment to live a fuller, happier life.

It is quite obvious that both unemployment and underemployment lead to financial trouble. If you are not working, earning money becomes a struggle. Behaviors stemming from denial and indifference can surface throughout this process as financial losses can affect one’s view on money in negative ways most of the time. In the realm of financial psychology, the focus is not necessarily on the financial losses, but rather the emotions you attach to financial loss. Not only can it demolish one’s confidence, it can compound negatively, fundamentally altering their life course. When Peggy first found out her contract was not going to be renewed, this through her into abject financial fear and certainty that the only solution was to find another principal’s position. It was only through careful analysis of her situation and staying calm in the face of fear that she was able to discern the choice that best matched her heart’s desire.

Dooley et al., demonstrated that cases of underemployment and unemployment are highly correlated with depression compared to those that are fully employed.3 Furthermore, self-esteem and self-worth are in question during unemployment, which leads to negative emotions, anxious thoughts and self-doubt.4 Although we as a society put up a front of separating money and worth, it is typical to see those two aspects still entangled together. This perpetuates the defeatist view where money defines self-worth. When Peggy analysed what she truly wanted in life, to support youth through education, she realized a reading teacher’s position was the best choice for her personal fulfilment and would still support her self-worth.

One thing many would do in this same situation is lose their positive outlook. This can lead to depression, negativity, victim-outlook and other points of view that would aggravate the situation even more. Peggy dealt with this head-on. She gave herself time to grieve the loss of her job and recognized the trauma she had endured from that experience. By using emotional neutrality, she was able to find the equanimous place within herself to stabilize and centralize her energy around her own self-worth separate from her income.

Financial psychology provided the clarity Peggy needed to see that when one financial avenue closes, another one opens. It is important to remind yourself money is not in the background of self-worth. However, a reflection of yourself can be seen through how you react and deal with financial hardships.

 

  1. Tracking the COVID-19 economy’s effects on food, housing, and employment hardships. Center on Budget and Policy Priorities. (n.d.). Retrieved May 10, 2022, from https://www.cbpp.org/research/poverty-and-inequality/tracking-the-covid-19-economys-effects-on-food-housing-and#:~:text=The%20unemployment%20rate%20jumped%20in,2021%20than%20in%20February%202020.
  2. Hayes, A. (2022, May 3). Unemployment definition and types. Investopedia. Retrieved May 10, 2022, from https://www.investopedia.com/terms/u/unemployment.asp
  3. Dooley D, Prause J, Ham-Rowbottom KA. Underemployment and depression: longitudinal relationships. Journal of Health and Social Behaviour. 2000 Dec; 41(4):421-36.
  4. Goldsmith, A., & Diette, T. (n.d.). Exploring the link between unemployment and mental health outcomes. American Psychological Association. Retrieved May 10, 2022, from https://www.apa.org/pi/ses/resources/indicator/2012/04/unemployment