Money and Fear
Apart from the understandable anxiety over lifestyle change (from limiting yourself to window shopping to foreclosing your home), I keep getting asked why we're seeing extreme reactions and herding mentality* regarding the financial crises. Real losses and risks aside, how much does psychology have to do with it?
The Seven Psychological Reasons Why We Are Freaking Out
1. Illusion of control makes everything tolerable. Problem is, we are plum out of illusions: Psychological literature shows that we can tolerate terrible situations if we have some semblance of a timetable. Are we in the eye of the storm? Is there light at the end of the tunnel? In this situation, none of the usually soothing experts are providing us with anything to hold on to; in fact some of the smartest are admitting that the situation is mind-boggling even to them.
2. Big monsters are manageable; hoards of "regenerating" ones are not: A huge ape on the Empire State Building? Okay. An asteroid coming straight for earth? Which side? Undetermined numbers of birds or aliens, rapidly spreading viruses, or wildly gyrating stock market make for psychological terror, a nightmare without a morning, an endless season of "The Fugitive." You get the picture. Note the soaring sales of safes at Home Depot to see how desperate we've become.
3. Herd mentality - should I stay or should I go now?** :It is a natural human reaction to stop to get a gander if we see a group gathering. It could be kids break-dancing, someone getting CPR, or Bruce Willis filming "Die Hard 9." We don't care; we want to see too. All we notice is that someone has slowed down to look, so let the rubbernecking begin. In the same vein, people fleeing will automatically cause others to turn around and follow them, even without knowing why. Only if you are a fireman, a superhero, or a psychotic looter, do you run towards the danger. Whether it's a blowout sale, a giant raptor, or a chance to be an extra next to Elle McPherson, the person jogging next to you might get "it" instead of you if you don't quicken the pace, so giddayup. (Worse, if you are the one in the back, you might get eaten alive or crushed). It's a survival response that served us well at other times. We just hope that whoever started the lemming-like stampede wasn't dyslexic.
4. The news intensifies fear: Words and images that portray devastation encourage a panic reaction regardless of how much or how little we are personally affected. Sure, you'll dial up your friends' friends with Ivy League financial degrees, but you can't help but automatically panic when you are surrounded by a media announcing a veritable Armageddon. The psychological effect of using graphic war/natural disaster-like words promotes terror. A few examples: "crash," "upheaval," "financial carnage," "credit tsunami," and emergency response to stop the "financial bleeding" (and add to this pundits telling you "not to panic," or "stay calm," and you know for sure you are going to hell in a handbasket).
5. Angry at Dad. Unresolved financial oedipal issues: Government, banks, credit cards - a cynic might say these are the adult "love objects" of your average adult American (the original childhood ones being our parents). They have to do with safety and trust. Long story short? "They" let us down. Bring in the rage. Alternate this with guilt because, though they didn't regulate, the other guilty party is you--the overspending, overextended-now-negative-equity home owner.
6. Nowhere to run, no where to hide: You can't go under the bed, put on your earphones, or drink yourself numb indefinitely...It's global, baby. You have to be awake - and hypervigilant in case anything twitches in the financial field. Moving to Italy, India, then Indonesia won't help. That big World Equity Indices page is bathed in red. It's got negative signs all over it.
7. Money makes people crazy. Thoughts about money make people crazy. Therefore the financial crisis is making people crazy: Yes, if you foresee that you can't pay your bills in the near future, that will make you panic. However, the panic can be exacerbated depending on what money means to you - esteem, happiness, security, and comfort. What you can do: try to differentiate between realistic money problems you'll have to face and the emotional connection you have to cash/credit. You probably have to look at what money means to your parents, and what money meant to you growing up to fully understand your reaction.
*This term has often been used along with "group intelligence," "mob behavior," or "mob mentality."
*Rather than the Clash's song, you might consider humming The Kinks' Low Budget.
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Thanks for addressing the source of anxiety for most us from the human side. Now that the recession has arrived (I think a portion of its momentum and speed of arrival is mainstream media's love of the grim) - everyone now seems to be wondering how long it will last - your first point. One of the greatest human fears, fear of the unknown is in full tilt at the moment, magnified by fear over what the president elect may do to the cap gains and dividend tax. Am I now part of the media perpetuating grim news? I certainly hope not. Insight from this article could help us all to be more rational - thanks!
Sheds light on current situation and is well written. Second asterisk at bottom of page needs a second * :)
Write more for us Belisa!
I love articles (and commentary) like this. They make me sit back and realize that in a very real sense I can choose to worry about my finances or just trust that I have the courage to stick through this crisis and everything is actually going to be OK. Thank you Dr. Vranich
Great piece, Dr. Vranich!
I'd just add one small thing: our reaction to Crime. Specifically, "high crime."
We don't like to look at crime. If there is anything that we DON'T want to look at, it is the presence of crime. We stubbornly refuse to "see" that there are people out there who will intentionally and deliberately harm us if given the chance to do so. And when someone says to us, "nothing to see here, move along, move along..." that's what we are all oh-so happy to do.
We don't want to consider "high crime." We don't want to contemplate someone stealing more money in one minute than we labor to produce in a lifetime. When we place someone in a position of high social power and listen to that person swear a solemn oath to "uphold and defend" their covenant to that power, we steadfastly refuse to look upon any amount of however-obvious evidence that he or she has utterly violated that trust. A fling with a hooker we can handle, and cluck over. But that's not high crime. Not really.
When we ARE forced to regard that high crime has, indeed, happened, then we look for just one scapegoat. We especially do not want to consider high crime to be "a regenerating hoard of big monsters."
Herd mentality is very dangerous in weak financial markets. The temptation to follow the crowd is high, but it may cause one to sell good securities in a panic.
In reality, the problems in the U.S. Economy root back at overconsumption. We have been living beyond our means for a significant amount of time - just look at our retirement savings rate.
This could take a while to unwind.
Exactly. I've been looking at all the shopping complexes being built near my house. Every time I drive by one I think, "they're building temples to money we don't have". Unfortunately, a large part of our economy is based on people spending money they don't have on things they don't need. The transition from a "want" based economy to a "need" based economy is going to be quite painful.
How are alcohol sales these days?
This is terrific! I love it when something that is fairly intuitive (but sometimes defies articulation) is put so succinctly. I think the panic will subside a little bit if people can re-define success and happiness a little bit, constrict to fit their circumstances for a while, and get more realistic about what money is and should mean in their lives. This isn't to say that people are anxious for no reason- and relief is necessary for many of them. But after the wolf is moved a little bit from the door, I think it's wise to put priorities, expectations and desires back into a more realistic perspective. Great job, Dr. V
These are great points. However, I've never been able to pay my bills, so there are some of us for whom it's just another day.
You know, these are some great points here. Let me add a suggestion: try a media diet (except from Dr. Vranich's colum of course!). Then see how you feel about the financial crisis. I have no TV and very little time to read news online. I have been accused of having my head buried in the sand, since I get most of my news from friends. However, there are some definite benefits to this, such as the fact that I am hardly aware of this financial crisis. I have never made much money, I don't have a 401K, own stocks, etc., so I am really not being affected that much. But if I happen to be in a laudromat or somewhere where there is a blaring TV with news on it, I feel immediate financial anxiety! I'm not denying that some people have been gravely affected by the downturn in the market, but I think more people think they are affected than actually are.
Good, different discussion re: the financial crisis. Interesting issue I'm struggling with is figuring how much of the information I'm reading really affects me vs. the usual media hype. Do I transfer all my assets in my 401(k) into some "safe" government bonds? Do I leave things as they are since my retirement fund is for the long term, and the financial markets will eventually stablize? How do I make those decisions without getting all caught up in the terror-inspiring reports in our media? On an aside, it's really true, Dr. Belisa, that one's reaction to this crisis is linked to our personal relationship with money - loved the bit about "angry with dad." I swear this sense of entitlement (to a big $500K house even though your income is at $45K, to those credit cards, to that gas guzzling SUV) comes from over indulgment parents (or those who taught their kids to equate stuff with love). Being frugal needs to be promoted as a virtue again.... For a reality check, travel overseas to other countries and you'll see what is really "essential" and what is excess/gravy.
I agree that it's really nice to read a sort of alternative take on the financial crisis. Most articles are from an economic, speculative perspective rather than looking at how this affects our heads, hearts, and why. I mean -- seriously -- most of us ARE going to be okay. "Okay" meaning we will have food and shelter. We might not be able to maintain the lifestyles to which we are accustom, but we will still be able to eat. I think it's really important in times like these to keep things in perspective. And maybe even have a little faith -- not necessarily in the market, but actual spiritual faith, if you are so inclined.
Great article Dr. Vranich. There are so many opinions floating around about what caused the crisis and how to fix, it's nice to see that someone has taken the time to advise people to look within for a moment.
Like ronpublic, I would add another point (also w/o a catchy term): "I didn't cause it, so why am I on the hook?" True, a lot of people that are neither wallstreet bankers nor upside down on mortgage they couldn't affor in the first place are losing jobs and watching wealth dissapate. Also true that no matter what President Elect's tax scheme will be, every one of us will foot the bill for the bail out just as we did with the savings and loan debacle. In the end, though, no one questioned the run-up in real estate and stock prices - and we all profited from it either directly or indirectly. Now that the fun's over, we are all going to pay.
Great psychological analysis - really makes sense. Itemizing with numbers reminds me of my bank account and how it too, only counts to 7. People have literally tried to kill themselves about this. This analysis needs to go prime time (not that the Huff Post isn't prime time)...
Well, I feel better because now I see why I am biting my nails even though I'm not feeling the pinch--yet. It was quite a revelation to discover that I have to learn to differentiate between realistic money problems and the emotional connection I have to money. What an eye-opener! Thank you, Dr. Belisa
Exactly! I have been in a panic over this, and so far, it isn't directly affecting me at all! It's the "what ifs," the herd mentality, etc. There is a lot to be said for the propensity toward media-driven mass hysteria in this country. I think there have been one or two documentaries made examining this phenomenon . . .
Great article! We may all be stressed, but you explain why so we at least know it's normal. Last I looked, there was no cure for normal! We should all look at these points to see which ones we most are like and then we'll know how to manage our fears. I think the herd mentality is proudly the most natural one. We all tend to follow. Keep up the good work!!
Love all 7 points. I would add another.
8) I don't have a catchy term for this, but try "What goes up NEVER comes down syndrome". For the past 8 years, Americans have really come to believe that things would never come crashing back down. We saw the dotcom crash at the beginning of the millenium, but for some reason, it didn't quite resonate. We hadn't seen real estate come down since the early nineties. We started to believe that we were entitled to free growth and prosperity. Well, find me an economic theory that supports that! Doesn't exist.
I blame Reagan and his neocons on fostering this myth of unlimited growth (and spending). Can anyone tell me which industry that has been deregulated since the 1990s that have proven itself to be better for the consumers in terms of service, cost, and choice?!
Love it. Nice clear assessment.
Interesting that these seem mostly devoid of the typical right/left politics.
Well, Duh.
Greed and profit are immune to politics.
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