Financial concerns are weighing heavily on the minds of many Americans, and unfortunately, not positively. The latest Financial Angst Report from NerdWallet reveals that 28% of participants report feeling anxious about their finances, with a staggering 84% indicating they endure financial stress. This anxiety has broader implications: research from the Global Financial Literacy Excellence Center suggests that individuals grappling with financial anxiety are often less likely to plan for retirement adequately. However, there are strategies available to address and alleviate such financial worries, thereby reducing stress related to monetary matters.
Dealing with money anxiety isn’t solely about crafting budgets or selecting the right investment opportunities. Our emotions—ranging from joy to worry—are deeply intertwined with financial matters, and these feelings significantly influence our financial decisions.
What is a financial therapist?
Financial therapists assist individuals in navigating their emotions associated with money. As defined by the Financial Therapy Association, financial therapy encompasses “a process informed by both therapeutic and financial competencies that enables people to think, feel, communicate, and behave differently concerning money, aimed at enhancing overall well-being through evidence-based practices and interventions.”
Certification paths can vary among financial therapists. Some may hold certifications as financial planners or possess other financial qualifications, while others come from backgrounds in licensed counseling. The certification as a financial therapist enhances their practice, equipping them with tools to assist clients in understanding the intricate relationship between their emotions and financial choices. Simi Mandelbaum, the founder of Prospr Financial Wellness, encapsulates this synergy by stating, “I combine financial spreadsheets with the therapy couch.”
What role does a financial therapist play?
According to Mandelbaum, her role as a financial therapist involves stepping away from conventional budgeting tools to discuss clients’ emotional connections with money. She explores how different financial behaviors, such as saving or spending, influence subconscious decision-making processes. “Research indicates that [decision-making] is 90% emotional and only 10% logical,” Mandelbaum explains. “We are inherently emotional beings.” She illustrates this with an example of someone passing by a bakery, being enticed by a wonderful aroma, and impulsively buying a treat—despite prior intentions to avoid eating out. “When clients lack awareness of their financial mindset, they often reduce their situation to mere numbers. Very few individuals… consistently adhere to purely logical strategies… it’s rarely sustainable, because our motivations extend beyond numerical data,” she elaborates.
This doesn’t imply that spreadsheets lack relevance in financial therapy. “Numerical values are crucial… as they reflect your current priorities,” she notes. Analyzing spending patterns helps identify whether expenses genuinely align with clients’ core values. With these insights, she guides them in establishing a realistic budget. “This will aid us in developing a tailored cash flow system that works for you, as opposed to a generic framework that sounds rational but is impractical in your daily life,” she continues.
She leads clients in uncovering their financial personalities and values through various thought exercises that help them step back from their stressful circumstances. For instance, she might inquire whether they feel compelled to cover others’ meals, prefer others to pay, or favor splitting the bill—this helps unveil their inclinations toward generosity, receiving care, or financial independence.
She emphasizes that breaking away from ingrained beliefs about money, shaped by childhood or adult encounters, is challenging. “Paving our own path is often not instinctual. It’s a strenuous endeavor,” she observes. “Without a mentor guiding you, it’s akin to reaching out into the unknown.” Financial therapy empowers individuals to “recognize their current position and aspirations, helping them build a more promising future,” she adds.
Main contributors to financial anxiety
Mandelbaum has firsthand experience with financial strain; her journey as a single parent and primary provider for five children brought her significant anxiety and insight into her own financial perspectives. Her wish to convey her practical lessons led to her transition to the financial wellness sector. She frequently identifies three main triggers of financial anxiety in her clients:
- A fluctuation in income, either increase or decrease
- Significant debt levels
- Life transitions, like marriage, welcoming a child, or retirement
Address your fluctuating income
Does money equate to happiness? Not necessarily. An increase in income can also bring its own stresses. A 2010 study from Princeton University indicated that emotional well-being tends to rise with income—up to a certain point. This plateau seemed to be around $75,000 annually. However, a 2021 study from the University of Pennsylvania suggested that for some, happiness continues to increase beyond this threshold. Nevertheless, newer research has revealed complexities that reinforce the idea that money does not universally guarantee happiness. “It’s not merely about the amount of money one possesses, but rather one’s feelings about that money that impact overall happiness,” Mandelbaum states.
Income reductions can also contribute to increased anxiety. She assists her clients in exploring potential debt relief options that minimize their stress. Some may prefer strategies that focus on increasing income, while others find comfort in cutting expenses. Ultimately, one’s financial mindset influences the best approach to adopt.
Reevaluate your perspective on debt
Managing debt entails understanding its origins: Is it long-term debt, or has it arisen from impulsive purchases? Is it the result of a medical crisis, education expenses, or overspending? Identifying these factors shapes the strategy for debt repayment and long-term management. “Initially, we should assess the individual’s personality and circumstances to determine the most suitable method for handling their debt,” Mandelbaum explains.
Navigate the stress of joint finances
Mandelbaum often encounters clients facing a common issue: merging finances with a partner, which can lead to friction and stress. “I always express that my partner can’t simply be the financial leader in our relationship. That’s an unrealistic expectation. If I believe this, we will never achieve harmony,” she asserts. The secret to easing financial discussions with a partner is recognizing that each individual has their own financial reality and personality while working toward shared aspirations.
All of these financial anxiety sources stem from a central theme: uncertainty. Mandelbaum explains that dealing with uncertainty in any aspect of life is particularly challenging for people. She aids clients in navigating this uncertainty by encouraging them to pinpoint which areas they can influence and those they cannot. “At times, one realizes that they may believe they have more control than they truly do,” she points out.
Furthermore, she encourages clients not to dismiss or ignore their concerns, but to acknowledge these feelings while minimizing their influence. She even recommends conversing with the anxious part of themselves. “Once you recognize that anxiety is a part of you, not the entirety of you, you can have a dialogue with that worry… and address the critical thoughts in your mind,” she advises. She supports clients in distinguishing whether their anxiety has a legitimate basis or if it is simply a perception. “We aren’t always obligated to take our feelings at face value,” she notes.
Image courtesy of Beautrium/Shutterstock.com
