Financial Psychology Center

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Tax Season Tangle: Unraveling Financial Stress and Psychological Hurdles

Tax season is about more than just dollars and cents; it can also have a profound psychological impact on your well-being. To tackle the financial stress that comes with this time of year, it’s crucial to recognize and address psychological barriers like procrastination, tax aversion, and risk-taking behavior.

Procrastination is a notorious tax season nemesis, with countless taxpayers putting off filing until the eleventh hour. This delay only leads to more stress and anxiety as deadlines loom. Similarly, tax aversion – the psychological discomfort or avoidance of taxes – can harm tax compliance and add to financial stress. To conquer procrastination, pinpoint the reasons behind it, like fear of making errors or facing financial repercussions. Crafting a timeline, setting reminders, and breaking tasks into bite-sized pieces can help you stay organized and hit those tax filing deadlines without breaking a sweat. Tackling tax aversion involves understanding its roots – such as audit fears or distrust in the tax system – and taking steps to comply with tax laws. Seeking professional advice, educating yourself on taxes, and reshaping your mindset can help you beat tax aversion and ease financial stress.

Risk-taking behavior can also throw a wrench in tax compliance and add to tax season stress. Some taxpayers might be tempted to minimize their tax liability by underreporting income or overstating deductions, but this can lead to severe consequences like penalties and fines, causing even more financial stress down the line. Knowing the risks of tax evasion and adopting a careful, compliant approach can keep unnecessary stress at bay and ensure tax compliance.

Tax season can also take a toll on financial anxiety and mental health. The pressures of dealing with taxes, especially when you owe money or face uncertainties, can trigger financial anxiety and affect your mental well-being. Recognize the warning signs of financial strain – increased stress, sleep disturbances, mood changes – and seek support if needed. Coping mechanisms like mindfulness techniques, exercise, and professional help can make a world of difference in managing financial anxiety and reducing stress during tax season.

The psychological impact of debt is another significant factor contributing to tax season stress. If you’re weighed down by debts like credit card balances or student loans, the added burden of taxes can amplify your financial stress. Understand the implications of debt on your financial situation and devise a plan to manage and repay debts effectively. Crafting a budget, prioritizing debt payments, and seeking expert guidance can help you handle debt-related stress during tax season.

Finally, our beliefs about money and their influence on financial behavior can shape how we approach tax season and handle financial stress. Ideas like scarcity mindset, fear of money, or guilt associated with wealth can mold your financial behaviors, including your approach to taxes. Reflect on your money beliefs, understand their impact on your financial decisions, and develop a healthy money mindset to make informed choices during tax season.

In a nutshell, tax season can be a rollercoaster, but with the right financial literacy tools, strategies, and addressing psychological barriers, you can effectively manage financial stress. Understanding tax laws, maintaining proper records, and budgeting and saving are your keys to a smoother tax filing experience.

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Financial Stress: Manage Your Finances & Improve Your Mental Health

Let’s face it, we all experience financial stress at some point in our lives. Whether it’s unemployment, debt, unexpected expenses, or a lack of financial resources, financial stress can take a significant toll on our mental and physical health, relationships, and overall quality of life. But don’t worry, there are ways to manage financial stress and develop financial resilience.

Financial psychology is a powerful tool that can help individuals understand the psychological factors that contribute to financial stress and develop strategies to manage their financial well-being. By identifying your money mindset, which is the set of beliefs and attitudes you hold about money, you can develop strategies to change your beliefs and attitudes about money and reduce financial stress.

In addition, developing healthy financial habits, such as budgeting, saving, and investing, can increase your financial resilience and reduce financial stress. Financial psychology can also help you build resilience, which is the ability to adapt to and overcome financial setbacks.

It’s important to recognize that financial stress can have negative effects on mental and physical health, leading to anxiety, depression, sleep problems, headaches, and other physical symptoms. Financial stress can also lead to self-destructive behaviors such as substance abuse, overspending, or gambling. These behaviors can further exacerbate financial stress and lead to even more significant problems in the long run.

That’s why it’s crucial to manage financial stress and develop financial resilience. Financial psychology is an effective tool that can help you develop strategies to manage financial stress and improve your overall well-being. So if you’re experiencing financial stress, don’t hesitate to seek help and start developing strategies to manage your finances and improve your mental health.

Financial stress can take a significant toll on your mental health. It’s essential to take proactive steps to manage these emotions and reduce the negative effects of financial stress. Here are some strategies that can help you:

  1. Acknowledge Your Feelings: It’s normal to experience a range of emotions when dealing with financial stress. Don’t try to suppress or ignore these feelings. Instead, acknowledge them, and give yourself permission to feel them.
  2. Identify Your Triggers: Understanding what triggers your financial stress can help you develop strategies to manage these emotions. Is it a particular bill, a particular situation, or a specific person? Once you identify these triggers, you can work on ways to manage your reactions to them.
  3. Practice Mindfulness: Mindfulness techniques such as deep breathing, meditation, or yoga can help reduce stress and anxiety associated with financial stress. These practices can also help you stay present and avoid ruminating on past or future financial decisions.
  4. Seek Professional Help: Seeking the help of a mental health professional can provide you with the necessary tools to manage your emotions and reduce the negative effects of financial stress. Therapy can help you gain perspective, identify patterns, and develop healthy coping strategies.
  5. Prioritize Self-Care: Engaging in self-care activities such as exercise, getting enough sleep, eating a healthy diet, and engaging in hobbies can help you manage stress and promote overall well-being. Self-care is essential to maintaining a positive mindset and keeping your stress levels in check.
  6. Develop a Plan: Creating a budget, developing a savings plan, and setting realistic financial goals can help you gain control over your finances and reduce stress. Breaking down larger goals into smaller, more manageable ones, and celebrating your progress along the way can provide a sense of accomplishment and boost your self-confidence.

Incorporating these strategies into your daily routine can help you manage financial stress and improve your mental health. Remember, managing financial stress takes time and effort, but with patience and persistence, you can develop a healthy mindset and build financial resilience.

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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