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Mythbusting our beliefs about financial stress

Mythbusting our beliefs about financial stress

Mythbusting our beliefs about financial stress.

Financial Mindfulness interviewed a dozen people in Hyde Park Sydney while gathering footage for a marketing video, every person we spoke to believed financial stress was all around them.

The problem is “huge, huge”, said one respondent, while others suggested 70 per cent of the population might be under financial stress. A couple said “everyone” was under financial stress; another commented that they “didn’t know anyone” not under financial stress.

Most understood that financial stress could cause, or at least be associated with, other problems in our lives, from depression to anger, insomnia, affecting our concentration and lower productivity at work, and things like social isolation.

Marc Richardson, a Sydney based clinical psychologist, says you can add “hits to your self-esteem”, relationship difficulties and a tendency to alleviate stress with drugs and alcohol to that list.

But there was little consensus among the people we spoke to – and a sense of helplessness – about how to help someone suffering from financial stress: answers ranged from providing financial advice to lending money through to just listening.

When it comes to how we interact with money, the optimum state is one of financial mindfulness.

Financial mindfulness is described as having awareness and paying attention to your finances and financial behaviours. It means more than being money smart or financially savvy, as it includes the capacity to regulate emotional responses that can lead to unhelpful financial behaviour and financial stress.

There is no doubt financial stress is a serious problem. But a key to finding solutions to financial stress is in understanding what it is – and what it is not.

Here are five common beliefs about financial stress – we assess if they are true or false.

Belief 1 – Financial stress is just another type of stress, and stress is normal (so get over it)

Broadly speaking, stress is a physiological reaction to stimulus and is not always bad. “Stress can be helpful and good when it motivates people to accomplish more,” says the American Institute of Stress, while pointing out stress is “a highly subjective phenomenon that it defies definition”.

Technically, the word “stress” is interchangeable with “pressure”, and more often, we use stress when we really mean “distress” or “strain”. Financial stress is a reaction to pressure around money, which can quickly turn to distress. This is undoubtedly partly because – thanks to consumerism – Western society tells us acquiring new stuff is a sign of success. Who would disagree that, in a nutshell, we want more than we need?

Stress can be acute, recurring or chronic. The stress of any type can feel upsetting, but chronic stress can cause illness: the longer we are under money pressure, the worse we feel. That’s where financial stress can be so damaging: it’s mentally exhausting to continually struggle with payments that have no end in sight.

If you add in the tendency to medicate our stress by spending on excesses or luxuries – especially things you won’t or cannot talk about – it’s likely chronic financial stress will take hold.

One expert on financial stress in the United States, DR J. Galen Buckwalter, has identified a syndrome called “acute financial stress disorder”. Think of all the drivers: credit cards, loan and especially mortgage repayments, stress-relief spending and for people on lower incomes, basics like food, heating and rent.

If that last sentence makes it sound like financial hardship is the cause of financial stress, not always.

MOSTLY FALSE

Belief 2 – Financial stress is the same thing as hardship

The Australian Bureau of Statistics’ indicators for measuring financial stress include being unable to pay various bills on time and being “unable to raise $2000 in a week for something important”. However, further reading shows its indicators are pointers to “households … experiencing economic hardship”.

But that is only part of the story of financial stress: it’s likely many more people are under financial distress. Much of the stress we suffer happens because we’ve convinced we need bigger or newer possessions. Or because of rising prices of, for example, housing.

Disturbing revelations about mortgage stress in recent weeks include the news that 130,000 households in New South Wales and Victoria are spending an unsustainable 30 per cent more on repaying their mortgages. More than half of all Tasmanian households are in this position.

The maximum households should spend on repayments, according to many financial advisors, is no more than 30 per cent of gross income.

With interest rate changes long overdue and the unpredictability of unexpected expenses, spending so much money on a mortgage is a recipe for financial stress. That quickly turns to distress with major expenses or a spending habit that is hard to control.

Rent is “unaffordable” or “severely unaffordable” for the majority of people living within an hour’s drive of Sydney city, according to the SGS Rental Affordability Index (and even worse if you live in the city). This means the cost of renting for most people in or near the city puts them under “housing stress”. The situation is not as severe in Melbourne, although most inner-city rental properties qualify as “unaffordable”.

But few homeowners or renters – at least not those in regular work – would qualify for government assistance based on financial hardship, even if they are struggling to stay afloat.

FALSE

Belief 3 – Everyone is financially stressed

From one extreme to the other.

When we talk about chronic and damaging financial stress – the kind defined by the Australian Bureau of Statistics’ financial stress indicators such as having trouble paying bills on time – then no, not everyone is financially stressed.

But it’s very common, and the chances are it’s affecting someone in your family or someone you interact with regularly at work. The Australian Psychological Society’s Stress and Wellbeing Report in 2019 found 35 per cent of Australians report having “a significant level of distress in their lives”.

That report found “personal finances” (49%) were the single biggest cause of stress for Australians for the preceding five years, ahead of “family issues” (45%) and “personal health” (44%).

Those numbers suggest that someone around you is financially stressed, and probably a few people.

ANZ Bank chief executive Shayne Elliott says the lender is preparing to deal with a much larger number of financially distressed customers next year as government support fades, though ultra-low interest rates will give struggling borrowers more time.

The critical question that may never be answered is why some people suffer financial stress while others faced with similar challenges do not.

The American Institute of Stress uses the analogy of people on a roller coaster to show the difficulty of predicting distress. Some people thrive on the shock and discomfort of the roller coaster experience, while for others, it’s pure torture.

“Many times, we create our stress because of faulty perceptions you can learn to correct,” The institute explains. The use of the word ‘perception’ indicates that the institute of stress believes this is partly a problem of thinking as much as anything else.

It elaborates: “all of our experimental and clinical research confirms that the sense of having little or no control is always distressful – and that’s what stress is all about.”

This suggests our personal relationship with the unexpected is a factor that perhaps a sense of helplessness determines whether we turn a normal level of stress into distress.

So, what do we do about financial stress?

PARTLY TRUE

Belief 4 – financial stress will go away if I have more money

A windfall or pay rise is the holy grail for the chronically financially stressed, but unless you are debt-free – or are one in a million and suddenly get rich – it’s unlikely to work for long.

Chances are, the reasons you are chronically stressed about money are more complex than how much you earn (or the state of the housing or job market), as suggested by the above. It may seem the outside world is causing your financial stress, but it’s also possible at least some of your financial stress comes from inside you.

For example, if you can be prone to impulse spending, wanting to buy the latest expensive gadget, or even have a tendency to shower people in your life with gifts, you will likely spend much of that extra money.

Or if you committed yourself to spend 40 per cent (or more) of your salary on your mortgage or rent and a pay rise gets your head above the waterline, might that extra income justify the risky decision you made to over-commit?

If a windfall were the cure to financial stress, then the ultimate solution would be a lottery win, right? Wrong. A shocking 70 per cent of lottery winners end up bankrupt, according to America’s National Endowment for Financial Education.

The truth is that the cost of living, especially in a capital city, combined with servicing debt caused by a lifestyle beyond what you need creates financial stress. Full stop.

When dealing with or preventing financial distress, it is not just about how much money you can acquire. But, unfortunately, that may be missing the point.

So, time to be honest: how much freedom do you have around your spending?

What may be causing you as much distress as the dollar figures keeping you up at night and distracting you at work is the stress itself. In other words, ruminating on the problem of ‘how do I get better with money is probably a painful process.

Perhaps it’s time to go back a step and examine your whole relationship with money?

FALSE

Belief 5 – You can only help someone under financial stress by giving them money or financial education

There’s no doubt the answers to financial stress – which at least superficially presents as having trouble meeting financial obligations – has a few elements.

Some of those include effectively setting goals that promote change, learning more about how to manage money – Andrew Fleming, Founder & CEO of Financial Mindfulness says “in addition to improving financial literacy and goal setting, being self aware of your current financial behaviours, good or bad, is so important to unearth those unconscious behaviours. For example, why did I buy another phone when the one I had is perfectly fine.  I ended up paying more than I had to and the upgrade features didn’t change anything significant. It was an impulsive decision I made at the time. The clever marketing achieved is purpose at my expense.”

ANZ’s national survey of adult financial literacy showed many Australians have strong levels of understanding around money. However, there were still many people who didn’t save regularly (23%) and did not feel in control of their finances (22%).

“Those most likely to feel out of control were … household incomes of $65,000 or less with children at home and people with a mortgage of $300,000 or more and a household income of less than $100,000,” the report found.

Marc Richardson,  says; “mindfulness is very effective at shifting old, hard-to-shift negative beliefs we have about money, such as “I’m no good with money”, “spending makes me feel better” and “money is stressful”.

“Through mindfulness, we can raise awareness of our thought patterns,” he says.

“It’s only through raising awareness of when our negative emotions arise that we can develop capacities to deal with thoughts and feelings. Mindfulness is a beneficial strategy for breaking the cycle of negative thought patterns that lead to negative emotions and enhance feelings of helplessness, hopelessness, and then negative behaviours.

“In fact, without mindfulness, it would be tough for us to catch the underlying attitude which then governs our thoughts, reactions and behaviour.”

MOSTLY FALSE

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Sunk cost fallacy and mindless behaviour

Mindfulness and the Sunk Cost Bias

Sunk cost fallacy and mindless behaviour.

If you’ve ever persisted with a dead-end job, a loveless relationship or a university degree you quickly regretted starting, all in the hope things will somehow improve, you might want to pay attention.

Maybe you’ve endured reading a novel you hated from the first chapter or stayed through a movie just because you bought tickets – despite the fact you would rather be anywhere else.

You’ve likely done something similar with money.

Perhaps you’ve plunged money into a failing small business or felt obliged to stick with a stock after it crashed, then watched it go lower and lower. Certain cryptocurrencies come to mind.

Maybe you’ve stuck with a supplier at work because they promise to do better when they never live up to them.

Who hasn’t ever ‘chased their losses’ by doubling down on a bad bet?

All these actions, and anything else where we ‘throw good money after bad, are examples of a famous economic principle called the sunk cost fallacy, which can be applied to life in general.

It’s the tendency to continue with an irrational and risky course of action based on blind hope more than the likely outcome.

We do it, but we don’t want to ‘waste’ unrecoverable costs and time – aka sunk costs.

The principle explains why we persist with bad decisions even when they make our personal and work lives more difficult.

It’s a very human response to the loss to try even harder to win, sometimes to avoid feelings of guilt or inadequacy, or even just fear of looking bad.

But ego, politics and emotional decision-making can cause people to double or triple their financial losses, causing ongoing financial stress and emotional stress for individuals, their families and their organisations.

In the cold light of day, it’s not rational, but who hasn’t done something like this.

More importantly, how do we stop this apparently mindless behaviour.

Researchers Andrew Hafenbrack, Zoe Kinias, and Sigal Barsade published their work, ‘Debiasing the Mind Through Meditation’, Mindfulness and the Sunk-Cost Bias in the Journal of Psychological Science 2013.

In the research, the results suggest that increased mindfulness reduces the tendency to allow unrecoverable prior costs to influence current decisions.

“Meditation reduced how much people focused on the past and future, and this psychological shift led to less negative emotion,” Kinias wrote in the journal.

“The reduced negative emotion [then] facilitated their ability to let go of sunk costs.”

Evidently, mindfulness has some power over bad financial decision-making.

When it comes to how we interact with money, the optimum state is one of financial mindfulness.

Financial mindfulness is described as having awareness and paying attention to your finances and financial behaviours. It means more than being money smart or financially savvy, as it includes the capacity to regulate emotional responses that can lead to unhelpful financial behaviour and financial stress.

It is not necessarily about having a good financial position or good financial health, but an active process of being aware of and paying attention to your thoughts, feelings, and financial behaviours in a helpful way.

Another study from Elsevier’s journal Personality and Individual Differences in 2007 found “mindfulness is associated with less severe gambling outcomes”.

Chad Lakey, Keith Campbell, Adam Goodie (University of Georgia) and Kirk Warren Brown (Virginia Commonwealth University) were “hopeful that the greater attention to and awareness of ongoing internal and external stimuli that characterizes mindfulness may represent an effective means of mitigating the impulsive and addictive responses and intemperate risk-attitudes of individuals with problem gambling.”

That’s a long-winded way of saying that paying closer attention to what’s going on around you can reduce compulsive behaviour.

The researchers concluded: “In this light, mindfulness may help to lessen the grip of automatic thoughts, affective reactions, and behaviour patterns.”

Mindfulness also loosens our grip on any particular course of action, and it can help us become a little more flexible in our thinking.

It allows us to stand back from a problem and look at it holistically.

Research into the specific benefits of mindfulness is ongoing, but it seems clear that regular mindfulness practise can positively affect dysfunctional decision-making around money.

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Why do women under-earn

Why do women under-earn

Why do women under-earn.

Research constantly proves the point that women earn less than men.

In Australia, legislation exists to promote and improve gender equality (including equal remuneration between women and men) in employment and in the workplace. The Workplace Gender Equality Agency was set up in 1986 to promote and improve workplace gender equality and administers this legislation.

Women earn 86.7 per cent of what men do, on average, according to the agency.

The latest figures, November 2020, show women’s average weekly full-time earnings across all jobs was $1,562.00 compared to men’s average weekly ordinary full-time earnings of $1,804.20. That is a 13.4 per cent difference.

This is known as the gender pay gap, and it means, on average women earn $242 less each week than men.

The situation has been improving since 2014 when the gap was 18.5 per cent, but not significantly in the last 10 years. In 2004 it was 14.9 per cent.

The health care and social services sector has the largest gap – 24.4 per cent.

In the United Kingdom in 2020, the gender pay gap was 15.5 per cent. In the United States, the gap is 16 per cent, and New Zealand is around 9 per cent.

This is a real, long-established, chronic, and truly international which leads to financial stress.

The impact on women is also well documented. Aside from the difference in regular income, which places women under chronic financial stress, there is a gulf between men and women in retirement savings. Women retire with 42 per cent less superannuation than men.

In real terms, if a man retires with $270,710, a woman has just $157,050, according to Australian Super.

It should be self-evident, but productivity between men and women isn’t the reason for the gender pay gap.

Look around at most families and in most offices – it would be difficult to argue with any conviction that women deserve to be paid less for the work they do.

In fact, there is evidence women may be more productive.

According to the American productivity platform Hive, women work 10 per cent harder than men in today’s offices, the World Economic Forum reported.

Hive says both men and women actually complete about 66 per cent of their assigned work. However, women are assigned 10 per cent more work than men these days — that they achieve the same completion rate tells us that they’re being more industrious.

Think about the way life challenges women to multitask in families and society. There are of course individual situations that differ from the norm, but generally, women take the lead on child-rearing and are still doing the lion’s share of domestic duties, despite also working.

Women comprise 47.2% of all employed persons in Australia.

So, more men are employed, by a small percentage, but women perform many more tasks across the day, the week, and the year on average.

This means women are, very generally speaking, are busier and achieving more than men, and women earn between 10 and 20 per cent less than men across the western world.

The reasons for the gender pay gap are many, varied. They include educational differences, occupation, age or family and motherhood. Some of the gender pay gap is down to conscious and unconscious bias – in both men and women.

The biases in men towards paying women at better rates are partly sex discrimination.

In 2016, Australia’s workplace gender equality agency said: The results show that gender discrimination and industrial and occupational segregation persist, and continue to be significant drivers to the gender pay gap.

But some of the unconscious bias in contributing to the gender pay gap also belongs to women.

“Whilst gender barriers do exist, and the pay gap is real, the fact remains that many women undervalue themselves and their contributions,” says behavioural money coach and speaker, Lea Clothier.

“Many women are in fact themselves the barrier to their own success.”

In my experience as a behavioural money coach, I have discovered that many women have a belief in the narrative that they will underearn men. Ms Clothier says.

Under-earning is the reality of earning less than one might expect, given that person’s skills, abilities, experience, qualifications and actual contributions. In other words, being underpaid.

Ms Clothier says persistent societal beliefs such as accepting the idea that men will earn more than men, along with self-worth and confidence are the major barriers that women face.

Many women lack the confidence to take the risk and ask for a pay rise or go for a job with a higher salary.

I also find that many women lack the knowledge on how to successfully negotiate a pay rise or confidence to have challenging conversations.

She says anyone negotiating a pay rise must fully and objectively consider the value that they have contributed.

This means looking at the facts for evidence, getting clear on the contributions made in terms of increased productivity, completion of projects, streamlined efficiencies, increased profitability.

If you can adequately show the value you have directly provided to the company’s people, performance or profits then it can provide evidence to show the value you are bringing in your role and the contribution you have made and can make the pay rise discussion easier to have.

It is both an empowering truth and a difficult one that our own thoughts, words and actions create our reality in life and that also applies to our financial reality.

Disclaimer: Lea Clothier is a product designer and senior leadership team member of Financial Mindfulness.