Financial Fear Factors

By Jabulani Leffall on 27 May 2010 (Updated 6 July 2012) 3 comments
Photo: TWINTHOMAS

Have you seen the latest headlines: “market down on fears,” “fears stoke market decline,” or “fear pushes broader market down”?

Of course you have and in different forms, incessantly, constantly, for about the past three years. (See also: How to Deal With Recession Anxiety)

Last year in a special report titled Greed and Fear: The Future of Finance, The Economist attempted to examine what caused the global recession and presented greed and fear in a chicken and egg scenario. What it always comes back to though is fear — this is where greed comes from — mostly fear that there will never be enough of something, whether tangible or emotional.

On a personal finance level, this fear has largely driven the collective consciousness into a manic-depressive cycle of frugality and then frugal fatigue, then exuberance and then recycle, repeat, rinse our fluctuating sensibilities.

Most of this was and is driven by fear of uncertainty, of not having, of being on the bottom of the economic wrung as it were. And it is fear that, if we’re not careful, will drive us out of our pragmatic middle ground when it comes to making financial decisions.

Case in point, this past fiscal quarter there were lines long lines for iPads and there were also long lines just for the chance to apply for job &mdash.

There are not many stories about financial maintenance or careful planning, because this is not sexy enough and this is part and parcel to our overall attitudes as collective consumers. The latest housing numbers, the latest crash, the latest interest rate hike or decrease, the latest this, the latest that.

Such now, now, now attitudes tend to foster more irrational fear and short-term euphoria than moves that will change thinking and subsequently, habits. Such is the juxtaposition of supply and demand and the gap between want and need in our still fragile economy.

There are rising corporate earnings but individual wages are flat. In fact, most economic data suggests that despite adjustments for inflation real income has been declining since the 1970s. Not enough to create jobs and sustain growth yet we are in a so-called recovery, which many forecasters say will be stunted by& many factors including, well, more fear.

Their combined debt tops $40 billion and the U.S. Labor Department expects 40 states to be in debt to the federal government by year's end, underscoring the labor market's problems in the deepest recession since World War II.

Yet Apple Inc. had a 90% gain in second-quarter profit and retailers have had a record 12-week rally in their share prices in anticipation of a recovering economy spurred by an increase in shoppers fearful about being caught without the latest trinket.

Fear it seems, is now a recession-proof business.

What juncture has all this fear of the unknown, fear of being destitute, fear of being ridiculed for not having brought us to when it comes to making our own financial decisions?

Like what has gradually been happening to the middle class, the middle ground of financial planning and preparation is also slowly disappearing.

What happened to the balance of hopes, expectations, and appreciation of possibilities with a realistic assessment of limitations? Were we ever at that point as a society? If we were, can we ever get there again?

The truth is that we can’t always defer gratification but we can’t always seize the moment. Yet our spending habits have us falling into these extremes, especially in these trying times.

So how do we overcome this fear? Here are five quick ways.

Know what you’re afraid of

Financial failure is often times an unavoidable if not an unpredictable thing but this does not make you a failure. What are you actually afraid of? Perceptions of others? Or loss of lifestyle? There’s an old saying that if money can solve all your problems, you’re doing fine. Thus, identify the source of your fear.

Know yourself

It’s never too late to change your spending habits or attitudes toward money as money is not like time in the respect that it can always be borrowed, earned back, come in a windfall or be procured by rebuilding your life or through hard work. What are you willing to take with you from a burning house and how does that inform your money attitude?

Do something

It doesn’t have to be money or work related, it doesn’t have to generate income initially. But take action, do something you enjoy for free first, get the blood pumping and the mind going about solutions. Go for a walk or run, go hear some music, pick up a book around your house and read, do some house work, take in a blog about overcoming your fears (smile). If you find yourself stuck in thought, move forward by doing something, anything to carry yourself forward from the stasis of fear. After all, if you’re behind on this bill or that bill and you don’t have the money, what can you do about it right now except move forward somehow? That constructive movement may just bring you to a resolution.

Produce what you consume and vice versa

If you’re generating $3,000 a month and spending $5,000 it probably isn’t that you’re not bringing enough in but there is a deficit of both money and even-minded thinking. You, like a good percentage of people in the rest of the industrialized world, are living beyond your means and beyond. When budgeting, separate the must haves, the could haves, the needs and the wants. Try an experiment that matches up every dollar you make with every dollar you spend, one for one. It will be fun and you might learn something about yourself.

Start planning

Living in the now is always the hardest part of overcoming fear about anything, especially fear of the lack of money or fear of being destitute, or even those unwarranted fears about social setbacks that stem from not having. Plan for the worst and expect the best. What is your most pressing financial fear? If it’s debt, shift your so-called “disposal income” to debt reduction or build a rainy day fund and don’t touch it.

Hope for the best and expect the worst. But being afraid isn't going to solve anything.

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Fear is emotion and money is math. There are so many purely emotional headlines with sensational warnings and predictions that many people are getting M.A.D.-Money Anxiety Disorder (this is a real illness). Try to take a look at your budget and concentrate on the math. How can income minus expenses equal savings. Warren Buffett makes good use of fear he says: "we attempt to be fearful when other are greedy and to be greedy when others are fearful".

Hollis Colquhoun, co-author of "Women Empowering Themselves: A Financial Survival Guide"

Julie Rains's picture

I had never thought of fear of not having the right gadgets, lifestyle, etc. as a financial fear per se. Nice take on the extremes of financial fear. I am not quite as insecure as I might have guessed.

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How have you responded to market volatility?

I'm conducting research of how the stock market's volatility has impacted the asset mix of household investment portfolios over the past two years. The link below will take you to a brief survey. Once you have completed the survey, you will see a graphic of the average investor allocation at 3/31/2010.
https://www.surveymonkey.com/s/investments1

Thanks to the 400+ respondents that have completed the survey so far. Some interesting tidbits...

1. A plurality of respondents report having an above average willingness to take investment risk.

2. Less than half of respondents were net purchasers of equity over the past year.

Please note: none of the questions ask for identifying information (e.g., name, social security #s, bank/brokerage accounts #s)