The Fear of Losing It All

The Fear of Losing It All

By Charlotte Cowles@charlottecowles

About five years ago, I received a tax bill in the mail for a crazy amount. I can’t even remember what the number was because I practically blacked out. I had to lie down on the floor to stop the room from swimming. I couldn’t pay this money. I didn’t have it. What could I sell? Who could I borrow from? Could I charge it on my credit card? Should I open an additional credit card?

My immediate reaction was a textbook case of what psychologists call “scarcity mind-set” — the panic of not having enough, the doomsday thoughts that immediately followed, and the onslaught of bad ideas for “quick” fixes. As it turned out, I had misread the bill, and after closer examination and a couple of phone calls, I was able to sort things out and resume my normal heart rate.

In theory, the threat of coming up short should have spooked me into making smarter financial decisions in the long run (saying no to an expensive dinner and bulking up my savings instead), and research does show that it can incentivize people to stretch their money further

But that effect is only temporary, and it can backfire. According to several studies, people’s brains function differently when they perceive or anticipate scarcity.

More specifically, people get dumber: One study found that when subjects simply thought about a big bill that would strain their finances, their cognitive abilities plummeted by an average of 14 IQ points — a similar deficit to pulling an all-nighter.

When people simply thought about a big bill that would strain their finances, their cognitive abilities plummeted by an average of 14 IQ points.

“When you experience the feeling of not having enough, your concerns with money consume your cognitive resources,” says Jiaying Zhao, a psychologist who studies scarcity at the University of British Columbia. “As a result, you’re no longer able to perform at the same level that you would otherwise.”

This fight-or-flight response affects people of all socioeconomic levels, she adds. “Scarcity is inherently subjective. Your perception of how much you have versus how much you need is different from your objective level of income. A rich person can still experience scarcity if they feel they can’t juggle their demands.”

Once in scarcity mode, people tend to become hyper-focused on the present and lose perspective on longer-term planning. “Any time we get into fear-based thinking, the part of our brains that can compare options and accurately assess risk and opportunity goes offline,” says Amanda Clayman, a therapist who specializes in money issues.

“People in this mind-set tend to do things like put more money on their credit cards and let debt creep up because they’d rather borrow money than spend down what they actually have.” (My reaction to the tax bill, in a nutshell.) Of course, this decision makes sense in the moment — you want to avoid hitting zero at all costs. But you may be digging yourself into a bigger hole in the process.

Many people don’t just experience this abject terror every once in a while, like I did — they live with it all the time, says Zhao. If it’s not at the forefront of their brains, it’s squatting somewhere in the back, weighing down their cognitive bandwidth and inducing that fluttery dread when a bill arrives, even when they can technically afford what’s on it.

This anxiety is very real. But the reasons behind it can vary, and sometimes they aren’t entirely rational. Psychologists have found that this “starvation” mentality is more prevalent in those who grew up in financially volatile families or have experienced periods of intense budgetary pressure, which can make security seem more tenuous.

Even if these people are financially stable, they may never feel that way, and miss out on opportunities to manage their money more strategically as a result (the classic example is hoarding cash instead of investing in the market).

To continue reading, please go to the original article here:

https://www.thecut.com/2019/03/money-problems-stress-finances-debt-advice.html