Financial problems in your head


If you think you are making the best decisions possible with your money, think again.

We all like to think of ourselves as rational spenders and investors, making the most of our hard-earned money. But in fact, psychologists and financial advisers say, most people are usually plagued by emotional traps and cognitive biases that get in the way of getting the most out of their money, and sometimes guaranteeing that they will make the worst possible out of it. .

The classic example: panic selling of stocks after the market has plunged, just when you should buy.

Psychological financial missteps can be costly, and the first step to avoiding them is to recognize that they exist in the first place.

Below are four financial mistakes you could make:


The problem: Financial planner Jon Ulin has several baby boomer clients who have helped pay for living expenses and loans for their college graduate children while still getting them home.

The planner from Boca Raton, Florida also remembers a retired client whose baby boomer daughter, along with her son-in-law, two grandchildren and a dog, returned home with him (this now lasts two years). Although well-intentioned, the client is putting his own retirement in jeopardy by bailing out his family.

The fix: Parents can mitigate the risks of helping adult children financially by setting limits before providing support, he says.

If you are already helping adult children, break the pattern by having a family reunion and putting specific requirements in writing. Specify exactly how much support you will be providing and for how long. And consider requiring the child to reimburse you over a period of time.

“It will reduce stress and anxiety between parents and their children, and instill a sense of financial responsibility and motivation to move forward,” Ulin said.

Self-sabotage beliefs

The problem: These are half-truths that were learned in childhood but subconsciously operate in your adult life, says Maggie Baker, a psychologist in Wynnewood, Pennsylvania. Some examples: “I grew up poor, I will die poor” or “My net worth determines my self-esteem.

One problem with half-truths is that they can induce a type of passivity known as “learned helplessness” that prevents people from acting in their own best interests, even if they promote self-sabotaging behavior. , says Ms. Baker.

She quotes a couple of clients who did not have a stable job and were saving very little. The woman, however, wanted to continue spending more than the couple could afford, even though they now had a newborn baby. She didn’t want to work either.

Through the counseling, the woman realized that she had unconsciously adopted her mother’s assumption that “the universe will provide.”

The fix: Counseling can help you understand your subconscious beliefs and can be a crucial first step towards a healthier relationship with money.

“Blind hope is not a financial plan,” says Baker. “Realize that repeating the same behavior and expecting different results is foolishness. ”

Excessive spending

The problem: One of Karol Ward’s clients was always stressed about not earning enough, explains the New York psychotherapist. The client said it was because she was working as a freelance writer and her income was unpredictable.

However, when Ms Ward helped her analyze her spending, she realized that she was spending way too much on her two children’s clothes.

The client’s reasoning: She was obsessed with good deals and couldn’t pass up a sale. In fact, she was looking for temporary stress relief while shopping.

Another of Ms. Ward’s clients lived paycheck to paycheck, spending out of need to save face and avoid being judged. “He was horrified to say no to a drink after work,” she says.

The fix: The first step to stopping overspending is realizing that you are doing it, says Ward. When you’re rested and calm, track your expenses and compare them to your income.

If you’re overspending, set financial goals and create a spending plan that will require you to live within your means. (Experts say this tracking exercise will also help you conquer “avoidance” – the fear of opening your bills or confronting your 401 (k) statement.)

Goal setting can help you stay focused on a long-term goal, like saving an additional $ 10,000 for retirement.

A financial advisor or therapist can help you find ways other than shopping for stress relief, says Ward.

A therapist can also help you identify your emotional triggers, says Brad Klontz, a financial psychologist in Lihue, Hawaii. For example, if you know you like to spend too much after a bad day at work, avoid the mall at night.

“We are more at risk of making bad financial decisions when we are hungry, angry, lonely or tired,” Klontz says.


The problem: A client of Ms. Baker lost a lot of money in the 2008 stock market crash. “He was worried that he had listened to his financial advisor,” she says.

He then decided that he would manage his own investments, even though he had a full-time job and had limited knowledge of the stock market.

But he made investment decisions based on “good news” about the stocks he liked, ignoring information that might call his assumptions into question, a phenomenon known as “confirmation bias.”

For a while the strategy worked, but he ended up losing more than before. “He felt so compelled to make money that he overestimated his own opinions,” says Baker.

The fix: Don’t get “sidetracked” by the excitement of investing, says Baker. If you think this is happening, stop and make sure you do enough research on the investment and understand its risks. Seek the advice of an investment professional or a trusted friend who can give you another perspective. Put time between your investment idea and your decision, she says.

Write to Veronica Dagher at [email protected]

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