When we think of financial health, we don’t always consider the connection between emotions and money. Here’s what you need to know.
Money causes a tremendous amount of anxiety. It’s frequently cited as a source of stress as well as a bone of contention in marriages. But when talking about financial health, we often focus so much on the money itself that the emotions involved may be ignored.
“We like to say that money is about numbers and not emotion, but, really, there are a lot of feelings involved when it comes to finances,” said Connie Hill, education coach at TD Ameritrade. “Financial education can help you overcome that.”
When we talk about financial health, we often look at bank and investment accounts and analyze budgets. But feelings are involved with money all the time. If you don’t have enough money, you’re stressed about paying the bills. Or maybe you have enough money and know you should invest, but you’re afraid of doing it wrong and that fear holds you back from reaching your financial potential.
No matter what the situation, how you feel about money—and the way you spend it—can make a difference. One major contributor to financial stress is emotional spending.
“We’ve all been in situations where we let our emotions make our spending choices,” said Hill. “The first thing I did when I was old enough was to borrow money to go on a trip to Hawaii.”
Even though her parents had provided her with a good example and talked about the consequences of debt, Hill still let her fear of missing out (FOMO) lead her into emotional spending and debt.
It can be important to acknowledge the emotional nature of money and realize that even when you know the logical course of action, your feelings can sometimes get the better of you. Whether you get caught up in an investment bubble because you want to be part of the next big thing, or you make a poor spending choice out of FOMO, it’s essential to recognize the emotions behind financial health in order to make changes and rein in your impulses.
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Financial psychology is becoming an increasingly visible part of understanding financial wellness. Rather than focusing solely on the numbers, financial psychology is about helping you understand the “why” behind the way you interact with money.
“So many people are afraid they’ll make a mistake, but they don’t really know why they feel that way,” said Hill. “They don’t know what’s at the root of their emotional spending or other money problems.”
A financial therapist is trained to help you explore the feelings you associate with money and examine how those feelings impact your decisions. Once you understand your emotions and how to manage them, you’re more likely to develop a better relationship with money—and potentially make better decisions.
Once you have an idea of what’s driving your financial psychology, you can take steps to improve your interactions with money. Combine what you know about your financial psychology with the education and resources you need to make changes.
“Financial education is powerful if you want to change your habits,” said Hill. “Continue your education about how money works and how to make the most of it, and you can increase your financial health.”
No matter how advanced you are in your financial knowledge, there’s always something new to learn or a habit that can be improved. Taking the time to learn more about money, as well as the biases and attitudes that might be holding you back, can help you take your finances to the next level.
It all starts with financial literacy and education. Learn the right steps to take now, then devote some time to figuring out why you might not be moving forward. For example, perhaps you know you should be setting aside more in your retirement account. What’s holding you back from boosting your contributions?
“True financial health,” Hill pointed out, “is about understanding what you need to do next and then actually taking those steps.” If you’re having trouble, a good financial or investing coach can help you create a plan and provide you with resources to learn more. If you’re really struggling with overcoming deep-seated emotional issues with money, a financial therapist might be able to help you get to the bottom of the problem.
“Financial health isn’t just one thing,” said Hill. “Do your best to become financially literate, recognize when your emotions are getting in the way, and find ways to overcome those emotions to make better choices.”
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Financial Communications Society 2016
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