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A person’s financial decisions are not positively affected by stress.
Under the influence of strong emotions, we become hostages of tunnel vision. This is a physiological process that has developed thanks to evolution: when under stress, we focus on solving the problem and direct all of our cognitive efforts toward it. But at that moment, it is difficult to predict the future and analyze the consequences of the decision.
During times of uncertainty, fraudsters become more active and are ready to offer a confused person who needs to act quickly, very attractive ways out of the situation. Their offers may seem appealing.
But it’s not just about scammers: even those who don’t fall into their trap can make blatantly irrational decisions under the influence of stress. A group of scientists conducted an experiment similar to the famous marshmallow test. At the same time, the participants were subjected to various tortures: they were asked difficult questions from IQ tests, made to dip their legs in icy water. As a result, they experienced a physiological stress response: their heart rate increased, blood pressure and cortisol levels rose. In this state, it was particularly difficult for participants to delve into nuances. They also preferred a small reward that was paid immediately – although they could have received a more substantial amount by waiting just a few days.
Here are several ways to avoid panic and stress when dealing with financial issues.
TIP #1 – Keep in mind that everyone can make mistakes
During times of crisis, incompetent and uninformed individuals often influence the decisions made by people. This occurs due to the cognitive distortion known as the “herd effect”. Consequently, people consider actions to be correct and rational simply because many others are doing them. When many individuals purchase buckwheat, it creates a sense of necessity for others in their vicinity.
A person’s ability to acknowledge the negative aspects of the crowd’s actions while still adopting their stance is quite fascinating. In the 1950s, Harvard psychologist Solomon Asch conducted an experiment to demonstrate this phenomenon. He instructed students to answer basic questions, but enabled them to “accidentally” overhear the responses provided by others, who intentionally gave incorrect answers. This resulted in 75% of the participants repeating those answers. Conversely, when the test was conducted without planted participants, nearly all respondents passed without error.
Relying on the opinions of experts, such as economists, may seem like a solution. However, it is important to avoid relying on them too heavily. In the past, scientists analyzed tens of thousands of forecasts made over 20 years by nearly 300 renowned consultants in politics and economics. They discovered that less than 33% of them were accurate. Making a forecast at random, without any knowledge or analysis, results in about the same percentage of correct predictions. Although experts should not be completely distrusted, it is important to realize that they can also make mistakes. Furthermore, they are just as susceptible to the influence of the crowd.
Here are some rules that are worth following:
- Trust only those financial news that have links to official sources: the Central Bank, banks, and department representatives. If there are no links, then the data is unconfirmed. It can be dangerous to make financial decisions based on this information.
- Spending less time on social media. Panic moods are most easily spread there. Unsubscribe from those whose posts push you to irrational actions.
- Keep in mind that experts don’t know what will happen. The more confident they give their predictions, the more skeptical you should be. They won’t compensate for your losses if their recommendations lead to them.
- Remember that during a crisis, the same rules of financial security apply as always. The most important thing is to build up a safety net and use banking products correctly.
TIP #2 – Don’t forget about diversifying your savings
Emerging from a crisis with no losses is difficult for most, but it is crucial to avoid losing everything. In a crisis situation, people often neglect the rule of financial security, which emphasizes resource diversification.
Keeping money in different currencies, different formats- both cash and accounts – and in different organizations is the best way to secure oneself and ensure that access to money is not lost in any event.
TIP #3 – Stop and think before you act
Quick actions and decisions are always involved in a crisis, which poses a problem due to the correlation shown in studies that indicate people make worse decisions when lacking time. The brain attempts to simplify information and automatically limits options when hurried, potentially causing important information to be easily missed.
American scientists conducted an experiment where they had a group of students play cards according to the newly explained rules. They warned half of the participants about the little time they would have to make decisions at each turn. As a result, the students who were warned about the time shortage experienced strong anxiety during the experiment, and their performance on the task was much worse than the other group. Thus, the experiment proved that the notion of time running out and needing to act quickly has a negative impact on a person’s decision-making.
Take a break and avoid panicking. Ten calm minutes can make a big difference. Use this time to ask yourself questions such as what could you miss if you behave this way, and do you comprehend all the conditions.
TIP #4 – Talk to your loved ones
When making financial decisions, individuals should not depend on the crowd, but they can benefit greatly from discussing these decisions with loved ones.
Studies indicate that discussing financial matters enables couples to make more informed decisions.
The researchers offered the participants a gambling game where they had to make bets that would determine their winnings and those of their partner. The experiment consisted of two parts: the first part involved individual decision-making, while the second part required joint decision-making. The findings revealed that collaborative decision-making was more thoughtful as individuals were less willing to take excessive risks. On the other hand, when playing alone, participants were more likely to make higher bets. Thus, joint decision-making increases the likelihood of preserving one’s savings.
Your family members, even if they are not finance specialists, can provide a fresh perspective on the situation and identify things that you may have overlooked.
Furthermore, when facing traumatic events, communicating with loved ones proves to be the most effective way of coping with stress.
TIP #5 – Compensate for the lack of control
Many people feel like the ground is slipping from under their feet in a situation of economic uncertainty. They want to do something, anything to regain control of their lives.
Our brain can opt for constructive or destructive paths to eliminate obsessive states. Engaging in destructive actions, such as making impulsive purchases of currency at an unfavorable exchange rate or high commission, without conducting proper research or reflection, can lead to adverse outcomes. While it may temporarily alleviate anxiety, it ultimately undermines the individual in the long term.
When you feel weighed down by inactivity and uncertainty, it is essential to take actions that do not cause harm and, ideally, bring benefits.
The first and most important step is to combat stress, which greatly increases the chances of making adequate financial decisions by removing its symptoms. Take care of yourself by engaging in sports, having positive communication, giving and receiving hugs and kisses, and laughing to relieve stress.
Thinking about the more distant future can also prove effective. What actions can you take today to ensure that you remain a sought-after specialist in the future? How can you prioritize your health now to mitigate risks of problems later on? What ways can you offer support to your loved ones during worrisome moments?
Try to frequently alternate your focus between varying needs. While money holds significance, certain things hold even greater importance. Do not neglect them.
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