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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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How Financial Therapy Can Help You

Blog 3 of 3 in the Introduction to Financial Therapy blog series.

Introduction to Financial Psychology blog series

This brief blog series will illustrate how the growing field of Financial Psychology can revolutionize people’s turbulent relationships with money. Through understanding the roots and influence of their personal financial psychology, individuals find themselves able to discard the inherited programming that drives their financial decisions, and that no longer serves them.

The complete list of blogs in this series are at the bottom of this article.

How Financial Therapy Can Help You

Modern American culture projects a faulty reality of wellbeing and status largely based on large amounts of consumer debt and fueled by immediate reward. This external view is far from the truth. People in high-earning jobs often feel pressured to maintain the status quo or keep up with friends of a similar income level. They may indulge in overspending based on expected continued high-income, estimated bonuses, and anticipated promotions. Those unable to keep up with associates’ financial successes may be distressed by jealousy, shame, and low self-worth. The truth is that all of these related negative emotions have led to a taboo around personal conversations about money. While experiencing financial anxiety, depression, or stress—or even excitement over a big raise and promotion—any disclosure of such feelings may feel unsafe, exacerbating the discomfort.  So, instead, as a society we tend to bottle up any confessions about personal finances, and carry on with our silent struggle to mitigate our stress.

There is a Financial Solution

As highlighted in the previous blog, Why the world is turning to Financial Therapy, it has become more and more obvious that the solution to personal finances doesn’t merely require education and information regarding the basics of financial management. Although certainly helpful, knowing what to do does not always lead to effective decisions and execution. It is imperative that individuals with financially dysfunctional behaviors work toward a comprehensive alteration of their thoughts, feelings, and habits with money. These habits and feelings typically arise in childhood and early adulthood when initial financial blueprints are established by experiences and role models.

As adults, we find we may have unconsciously adopted problematic financial habits, creating roadblocks to our own personal success. For example, your parents may have managed money perfectly, but may not have shared the details with you—leaving you both ill-equipped to deal with adult life and resentful of their inattention to this crucial skill. On the other hand, they may have had intense arguments about money, leaving you uncertain about how to manage finances and fearful of a topic that appeared to create friction. Every money story is unique, made of individual experiences that require awareness and discernment in order to right-size and balance one’s relationship with money.

This is where the financial therapist comes in. A trained and experienced professional can provide a safe haven, with proven tools to help clients navigate the maze of their own money stories. Through careful work with an empathetic specialist, a financially stressed individual is empowered to identify and overcome economic roadblocks. Relief from constant pressure around money opens up new possibilities for individuals to expand their life experiences, create and maintain better personal relationships with their partners, and rid themselves of the shame and guilt too often associated with finances.

For a free consultation about your best course to financial stability and health, call 818.600.2264

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Introduction to Financial Psychology blog series

This brief blog series will illustrate how the growing field of Financial Psychology can revolutionize people’s turbulent relationships with money. Through understanding the roots and influence of their personal financial psychology, individuals find themselves able to discard the inherited programming that drives their financial decisions, and that no longer serves them.

Blog 1 – What is Financial Psychology
Blog 2 – Why the World is Turning to Financial Therapy for Help
Blog 3 – How Financial Therapy can Help You

By

Why the World is Turning to Financial Therapy for Help

Blog 2 of 3 in the Introduction to Financial Therapy blog series.

Introduction to Financial Psychology blog series

This brief blog series will illustrate how the growing field of Financial Psychology can revolutionize people’s turbulent relationships with money. Through understanding the roots and influence of their personal financial psychology, individuals find themselves able to discard the inherited programming that drives their financial decisions, and that no longer serves them.

The complete list of blogs in this series are at the bottom of this article.

Why the World is Turning to Financial Therapy for Help

How low-income, middle-class, and wealthy individuals alike are all beginning to realize that financial wellness begins in the mind.

There is no mystery to managing personal finance. In spite of money management being woefully absent from school curricula, most people manage to understand the basics: earn more than you spend, save as much as you can, invest in a future day. However, an entire industry is built on educating people on the finer points of financial management. Books, articles, television programs, and radio shows all devote countless words over countless hours to provide insight into the details of handling personal finance. Yet millions of Americans find themselves grossly in debt, having saved little or nothing for retirement, and unable to enact the simplest changes to their financial lives. The impact of the COVID pandemic has greatly exacerbated the already alarming state of personal finance and sent our society into a K shaped recovery.

The financial industry suggests that if you are more educated about money management, retirement plans, and investment programs you should be able to grow your wealth. Likewise, the education industry aligns with the narrative that a more advanced degree would enable you to obtain a higher-paying job—your financial stress evaporating because of the increased income. When both strategies show minimal results, many people blame themselves and internalize the narrative as being defective or irresponsible. But for a large number of individuals who are trapped in living beyond their means, underearning, neglecting savings, or compulsively spending high incomes, there is good news.

The financial industry does provide significant benefit in certain areas of personal finance. However, most financial advisors’ ideas about personal decision making are based in rational choice theory, which states that human beings are rational and will make optimal decisions, resulting in outcomes aligned with their own best interests. But humans are not always rational in all areas of their lives—including their behavior with money. Thus, financial therapists in corporate elements from the field of clinical psychology to examine how emotions, beliefs, and personal narratives impact both short-term and long-term financial behavior.

A new awareness of how behaviors with money are influenced by childhood history has created a driving force to uncover, understand, and discard the money stories that don’t serve us in our current, day-to-day lives. Such stories underlie financial disorders that manifest in a variety of patterns such as underearning, over-working, or see-sawing as a high-stress, feast-or-famine intermittentincome earner. All of these behaviors result in shame, leaving the sufferer feeling incompetent or paralyzed and unworthy.

A Solution to Financial Stress and Emotions

Awareness is the first element of the solution. This is where Financial Therapy comes in, as more and more people are coming to recognize as the solution to their self-sabotaging financial habits and accompanying financial stress. Working with a financial therapist, individuals find a safe place to examine the money beliefs that drive their flawed financial habits. This allows them to identify and interpret the money stories rooted in their personal history, and to acknowledge economic mistakes with grace and self-compassion. This awareness leads to financial transformation and feelings of empowerment.

For a free consultation about your best course to financial stability and health, call 818.600.2264

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Introduction to Financial Psychology blog series
This brief blog series will illustrate how the growing field of Financial Psychology can revolutionize people’s turbulent relationships with money. Through understanding the roots and influence of their personal financial psychology, individuals find themselves able to discard the inherited programming that drives their financial decisions, and that no longer serves them.
Blog 1 – What is Financial Psychology
Blog 2 – Why the World is Turning to Financial Therapy for Help
Blog 3 – How Financial Therapy can Help You

By

Introduction to Financial Psychology blog series

Blog 1 of 3 in the Introduction to Financial Therapy blog series.

Introduction to Financial Psychology blog series

This brief blog series will illustrate how the growing field of Financial Psychology can revolutionize people’s turbulent relationships with money. Through understanding the roots and influence of their personal financial psychology, individuals find themselves able to discard the inherited programming that drives their financial decisions, and that no longer serves them.

The complete list of blogs in this series are at the bottom of this article.

What is Financial Psychology?

The field of Financial Psychology is a burgeoning discipline that associates people’s thoughts and feelings about money with how they manage it. While  personal finance tools are widely available and have grown and improved over time, clean and clear financial management still seems challenging for the average American. Even today, when financial education is easily obtainable for free through the Internet, many people continue to struggle with debt, stagnate in underearning, and substantially overspend their resources, leaving nothing for a rainy day. The numbers are staggering:

The result? Massive Financial Stress. In fact, Financial Stress is cited as the number one cause of stress in the United States. According to the 2019 Stress in America survey, work (64%) and money (60%) are the top two stressors and are obviously interrelated (American Psychological Association, 2019). Financial advisors found that, in addition to helping clients navigate negotiations around money, they had to incorporate therapeutic approaches to assist them in making clear and rational decisions around their financial issues.

In the face of historical data and challenges such as these, it became obvious that the problem wasn’t simply a lack of understanding about how money works. Neither was it a problem with social class—indeed, many raised in poverty rose to riches, and many raised by upper middle-class parents found it difficult to earn a living on their own as adults. Psychologists began to investigate the connection between finances and emotions to better understand the influence of beliefs and feelings on specific behaviors around money.

The Challenges of Money

Dealing with money is unavoidable. Whether paying rent and living paycheck to paycheck, paying a mortgage and saving in a 401-K, or living off a managed trust fund, one consistently has to make decisions around money that may play a large part in overall well-being. Such decisions are frequently stressful, which can take a huge toll on emotional health. The burden of financial stress inevitably affects all aspects of life including relationships, family, work, and personal security. Time and time again, merely learning how to manage money has proven powerless in solving financial stress. Rather than addressing solely the practical money behaviors that have caused poor outcomes, financial therapy works to uncover the triggers that cause a person’s emotional responses to finances which often lead to poor decisions around money—both now and down the road. Once people are able to recognize their individual financial triggers, they are in a much better position to put their personal finances in order and, in the future, refrain from the same emotional behaviors that caused and maintained their problems.

Financial Therapy

This is where Financial Psychology, delivered as financial therapy, helps people to change their relationship with money. Financial therapy provides an informed process to support people in changing how they think, feel, and behave around money. This results in an overall improved relationship with money, typically an improved income, lower stress, and easier interaction around financial decision-making.

For a free consultation about your best course to financial stability and health, call 818.600.2264

References:

American Psychological Association. (2019). Stress in America 2019.

Fay, B. (2018, February 21). America’s Debt Help Organization. Retrieved September 21, 2020, from https://www.debt.org/

Northwestern Mutual. (2019). Planning and progress study, 2019. Retrieved from https://news.northwesternmutual.com/planning‐and‐progress‐2019

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Blog 1 – What is Financial Psychology

Blog 2 – Why the World is Turning to Financial Therapy for Help.

Blog 3 –  How Financial Therapy can Help you.

By

Conquering COVID: Financial Trauma and Recovery

Since the outbreak of COVID 19, the lives of people all around the world have shifted drastically. From social distancing to endless quarantine, numerous sudden changes in our lifestyle have greatly impacted both our macroeconomy and our management of our personal finances. The unprecedented societal disruptions have left many people financially traumatized, and irrevocably affected our ideas around money. It is important to fully realize that such changes may be permanent, and recovery may require a learning curve for many of us.

Although daily life appeared to come to a screeching halt during the past five months, the shift in people’s attitudes toward money and finance accelerated. Fear, confusion, and uncertainty thrust whole populations into survival mode, with citizens frantically purchasing and hoarding common household items, leaving supermarket shelves empty. BBC news journalist Bryan Lufkin explained the reasoning behind such blind panic reactions as “fear of the unknown, and [the belief] that a dramatic event warrants a dramatic response—even though, in this case, the best response is something as mundane as washing your hands.”

Looking back, we may categorize such extreme emotional activity as irrational and unreasonable. However, David Savage, an associate professor of behavior and microeconomics, wrote, “But emotions are not irrational: they help us decide how to focus our attention” (The Conversation, 2020). As humans, our emotions play a large and important part in decision making, both in response to possibly life-threatening external factors—such as the pandemic—and considerations as mundane as personal finance. In “normal” times, certain reactions might seem unhinged and fanatical; however acknowledging, examining, and valuing our emotions can help us decipher what our feelings may be trying to convey.

Five months into the global crisis, mask-wearing is the norm and the term “social distancing” is part of our daily vocabulary. At the same time, we have weathered losses not seen since the Great Depression, both in employment and in overall personal wealth, radically altering our usual patterns of spending. Baker and colleagues (2020) recently studied household expenditures in the United States, finding a sudden, steep increase in spending between February 26th and March 10th, followed by a 50% downward spike, then another sharp drop. Behavior being a clear reflection of emotions, the upward surge was easily attributable to the “fight-or-flight” survival response, as large segments of the public hurried to stockpile certain grocery items. The subsequent precipitous decrease clearly illuminated the struggle of many families to pay their bills. Different populations have adapted to this new state of adversity by fundamentally modifying former habits and priorities. It is evident that, for many, “getting and spending” currently take a back seat to saving up for an uncertain future and maintaining as much control as possible over family finances.

Conversely, others found themselves turning to compulsive online shopping— “retail therapy”—in an attempt to “medicate” their distress. Instead of relief, this behavior only served to exacerbate their anxiety as their reckless spending increased their financial problems. Along with mounting dread over deepening debt came feelings of deep shame and self-recrimination over the increased danger of unrestrained shopping spreading infection to delivery personnel and others.

As consequences of the pandemic continue to mount, new behaviors—rooted in adverse experiences and emotions during this time—will certainly materialize. CNBC reporter Chloe Taylor (2020) wrote that “a generation of risk-averse supersavers could emerge from the fallout of the coronavirus crisis and potentially reshape the economy.” The widespread economic misfortune this pandemic has inflicted may affect the ways we manage our money far into the future. Many individuals may become much more cautious about extending themselves for financial gain. An increase in precautionary savings in the U.S. is similarly likely.

On the other hand, other sources argue that this is a temporary and a relatively small financial setback in a much bigger world. Daniel Crosby, a well-known psychologist and a behavioural finance expert writes, “It’s human nature to assume that all we see is all that will ever be, but markets operate on a more forward-looking basis and realize that ‘this too shall pass.’ ”. He emphasizes the importance of believing in a better and brighter future in order to be the best investors we can be. As mentioned above, it is a small bump in a larger scheme of things – the market does not radically change overnight and it might be in our best interest to recognize the importance of consistency by not changing our behaviour as much.

While a lot of us would choose to be proactive in terms of managing our finances, many who have been deeply wounded and traumatized worry that a successful economic adjustment may take months or years to achieve. It is helpful to acknowledge that, throughout this pandemic, workable adaptations were made quickly and reasonably. This is proof of the power of our emotions and thoughts over unconscious behavior.

Many of us previously approached our lives without a moment of doubt over the apparent permanence of our social structures. That notion crumbled before our eyes, serving as a much-needed wakeup call. The resulting rapid shift of a whole generation’s former capricious financial behavior to a “tighten-your-belt” mentality clearly proved that harnessing our emotions can change our money habits in positive, if unpredictable, ways.

Our human capacity for adaptation over a very short period of time does not mean, however, that we can expect to coast back to “normal” at the same velocity. The unexpected crisis exposed an already precarious economic situation for many people, revealing the missing elements of thought and planning in their approach to money management. It has been a series of chaotic months for a lot of us financially. Moving forward, while we might assume that from all we have endured, our actions will reflect our experience and will be nothing like what we expected before; however, the intricate financial world does not change easily. In order to achieve a similar state as pre-covid, it may be in our best interest to keep the bigger and brighter picture in mind and seek for continuity and stability. Although it is tempting to believe that our lives will eventually return to their 2019 standard, the indelible lesson is that we must learn how to respect and understand our own emotional reactions if we are to effectively guide our financial affairs with intention and forethought. The alternative is to continue to find ourselves at the mercy of circumstance.

For a free consultation about your best course to financial stability and health, call 818.600.2264

References:

Savage, D. A., & Torgler, B. (2020, April 24). Stocking up to prepare for a crisis isn’t “panic buying.” It’s actually a pretty rational choice. Retrieved August 13, 2020, from https://theconversation.com/stocking-up-to-prepare-for-a-crisis-isnt-panic-buying-its-actu ally-a-pretty-rational-choice-132437.

Lufkin, B. (2020, March 4). Coronavirus: The psychology of panic buying. Retrieved August 13, 2020, from  https://www.bbc.com/worklife/artic le/20200304-coronavirus-covid-19-update-why-people-are-stockpiling.

Taylor, C. (2020, April 03). Coronavirus could create “a generation of supersavers” and reshape the economy. Retrieved August 13, 2020, from https://www.cnbc.com/2020/04/03/coronavirus-m ay-create-a-generation-of-supersavers-who-reshape-economy.html.

Baker, S., Farrokhnia, R., Meyer, S., Pagel, M., & Yannelis, C. (2020). How Does Household Spending Respond to an Epidemic? Consumption During the 2020 COVID-19 Pandemic. doi:10.3386/w26949.

Daniel Crosby, D. (2020, August 11). The Strange Psychology of COVID-19 and Investor Behavior. Retrieved August 24, 2020, from https://www.kiplinger.com/investing/601211/the-strange-psychology-of-covid-19-and-investor-behavior.