Dealing With Financial Fear

Published Wednesday, July 28, 2021 at: 7:13 PM EDT

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If you suffer from financial fear and anxiety, talking about it is likely to help.

In talking about it, according to Dr. Frank Murtha, a financial psychology expert, you go through a process of recognizing, understanding, and constructively reacting to your fear, rather than keeping it inside you and causing anxiety.

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Whether your fear is running out of money in retirement, paying back a large debt, or caring for a family member with special needs, Dr. Murtha says personal financial issues evoke the full spectrum of human emotions -- from panic to irrational exuberance and everything in between -- but fear is the emotion that stands out as most  impactful.

Professors Daniel Kahneman and Amos Tversky, founding fathers of the burgeoning social science of behavioral economics, famously discovered that people do not fear risk in investing; people fear a loss, specifically, a loss of control of the future. 

 In fact, investors who have suffered an investment loss or financial setback often will actively seek out risk to break even and avert  the loss. Of course, “doubling down” may actually compound a financial  problem.

How we experience fear is partly dependent on physiology -- your brain chemistry. The fear center of the brain is called the amygdala and it triggers several instinctual reactions to fear. The “fight” instinct can be evoked. Although this reaction may come in handy when you’re getting physically attacked, it is not helpful in financial dealings.

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A more common reaction to fear is flight -- the desire to remove the reason for experiencing fear, to retreat to safety and get back in control of your situation. In financial terms, the flight instinct may make you want to sell a losing investment at the height of a pandemic or amid a global financial crisis.

The other lesser-known neurobehavioral fear reaction is another F word. Can you guess what it is? The answer is “freeze.” Freezing is a typical reaction in times of rising fear. You become too afraid to do anything! “People get stuck, unable to make a decision to change a situation and they let anxiety get the best of them,” says Dr. Murtha.  “A big part of dealing with financial anxiety is simply getting unstuck.”

Talking about financial anxiety can help you unburden yourself and that is often the first step toward re-instilling a sense of control, which is the key to fighting fear.


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This article was written by a professional financial journalist for Forrest Financial Services and is not intended as legal or investment advice.

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