Emotions, Hormones and Finance
Recently a medical doctor came to our offices to give a seminar on hormones and health. One of her more humorous comments was that women should check their progesterone levels before making financial decisions. It was said tongue in cheek but the overall message was that we can be hijacked by our emotional state and decision making can be coloured by feelings we may not even be aware of...
And indeed, researchers have confirmed what many of us have personally experienced.
They found that when you make a financial investment decision while in a happy mood, you will have a much higher level of tolerance for financial risk. And if you are angry, you tend to make more optimistic judgements about the future and are willing to take on more risk. (This could be an upside for parents of annoying teenagers). However, they also discovered that if you are in a state of fear or anxiety your financial decisions are made to reduce your exposure to risk.
We see this every day with our clients. When the news is bad, or they have experienced a loss they become risk averse. Their decisions can be tainted by a need to withdraw from harm and hide from perceived danger. This can lead to terrible decisions like liquidating at market lows and holding on to cash for years sacrificing long-term financial security.
As well, we know that long-term stress creates chronic elevation of cortisol and this has been proven to reduce our ability to take on risk. The research demonstrates that people with sustained elevated cortisol levels opt for investments with lower risk and lower returns. This is particularly important for us to recognize. Every woman who comes into my office expresses levels of stress and anxiety about work, relationships, balancing career with child raising, her conflicting roles and her views of the world at large. We are carrying many burdens on our narrow shoulders. And it shows no signs of abating. No wonder we continue to demonstrate a discomfort with risk in our economic lives.
So how can we change our approach to financial risk when it looks like our lives are not going to change any time soon? We go into the research again and we discover that mindfulness practices have proven to be an excellent tool that allows us to rewrite how our minds respond to stress. It also helps us redirect brain activity from ancient reactionary parts of the brain (fight or flight) to a more rational part of our brains. We can learn to reduce our knee-jerk responses and buy time to think instead of immediately reacting to situations. This in turn lowers our stress, which helps us make better decisions, which lowers our stress even further.
This summer we will be talking about this and learning a variety of powerful mindfulness and self-management tools to create a better relationship with our money and more control over our financial lives. Join us…