There has been reports of emerging science with regards to the brain matter, specifically showcasing the cause of stress to cause investors to make impulsive, high-risk decisions about their finances. According to Bloomberg (2019), South Africa was rated the second-most stressed country in the world. Therefore, it can be said that there is uncertainty around the effects of the pandemic and the impact that it has had on our mental health and strain.
Old Mutual Wealth Financial Planning Coach, Sharon Moller says the connection between stress and money may seem self-evident: reduced income, job insecurity and high debt is a recipe for anxiety. However, the studies on emerging brain science has proven stress to be a factor causing us to make in impulsive, high-risk decisions about our finances.
Moller continues by saying that in extreme uncertainty, these unchecked impulses can result in post-decision dissonance – buyers’ remorse, which leaves us feeling deeply disappointed and more anxious in the long run.
So, why do stressed brains make bad money decisions?
A study (2017) conducted by neurosciences for the Massachusetts Institute of Technology found that ongoing stress, causes a specific brain circuit, which is used in cost-benefit decision making to malfunction, making us prone to impulsive decisions. Further findings form a larger body of research that shows chronic stress inhibits strategic thinking.
According to Moller, there is uncertainty about our financial well being invariably, that triggers the part of the brain that is primarily concerned with survival – known as the limbic system.
In addition, our stress hormones, such as adrenaline and cortisol floods our systems, and when it does so over a prolonged period, it kills of the brain cells and stops our body from producing new ones.
what is more concerning, is when stress causes the limbic system to go into overdrive, which feeds off the prefrontal cortex (energy) that weighs information to make logical, systematic choices. Therefore, when we are stressed, we experience tunnel vision, whereby we cannot see critical details due to our drive operating from the brain’s fear center.
“Given the current economic context, we can’t eliminate financial uncertainty. But when we know how stress alters our brain chemistry, we can practice ways to manage anxiety, calm the emotional brain – and so avoid risky money behaviors,” explains Moller.
Moller suggests the following to manage stress:
- Cultivate awareness of your body’s clues
To avoid rash decisions, is to avoid triggering the emotional brain. At most, we cannot control which parts we use in our brain to think with, however it is easy to determine if you’re thinking out of fear, as your body will likely send you vital clues – your heart might start to pound and your breathing may speed up. when you feel this way, there is an opportunity to soothe the limbic system before it gets carried away.
- Be still and breathe
It is advised to practice meditation, or any kind of mindfulness daily.
- Find words for feelings
“By spending more time in rational cognitive space, we counteract the effects of stress, sidestep the risky behaviors it can cause, and build the brain’s capacity to identify new perspectives and opportunities. When it comes to long-term financial health, that can make all the difference,” Moller concludes.
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(Source: FA News, 2020)