Why We're All So Stressed—and What We Can Do About It

This week’s newsletter comes from Frankfurt, Germany. I am glad to be presenting to a large group of advisors regarding implementation of Financial Psychology into their practice. It is interesting to see how firms around the world, regardless of business model, are working at the intersection of technology and financial psychology…but more on that later!

Let’s talk about stress. How are you feeling?

We are stressed. In fact, people are more stressed now than in recent years, and financial stress is leading the charge. ?The American Psychological Association's 2023 Stress in America Report found that 27% of adults are so stressed they can’t function. It’s mainly tied to economic uncertainty, healthcare concerns, and inflation.

Globally, 42% of people reported high levels of worry, and 39% reported significant stress, according to Gallup. That’s a lot of sleepless nights and too much thinking about the future.

Financial Stress: The Prime Suspect

Money woes are at the heart of this. A Bankrate survey found that 52% of U.S. adults say finances are a top source of stress, and 68% specifically blame inflation for their headaches. Basic expenses like food, housing, and healthcare just keep creeping up.

37% of Americans say they’d have trouble covering a $400 emergency expense (Federal Reserve, 2023). It's no wonder people are feeling overwhelmed.

?What’s Behind All This?

·????? Post-pandemic fatigue: We’re all still figuring out how to live again after the pandemic—mentally, financially, socially. It’s like trying to run a marathon after sitting on the couch for three years.

·????? Economic uncertainty: Inflation, job market volatility, and stock market ups and downs have people worried that their financial future might look more like a rollercoaster than a straight path.

·????? Societal stress: Political polarization, climate change, and global conflicts add a whole other layer of stress.

What exactly does stress do to us?

Stress does more than just keep us awake at night—it profoundly impacts our decision-making abilities. Under stress, the brain's prefrontal cortex, responsible for rational thinking and planning, takes a backseat to the amygdala, the part that governs emotional responses. This can lead to more impulsive and short-term decisions, as the brain prioritizes immediate relief over long-term benefits. Research from the American Psychological Association (APA) shows that people under chronic stress are more likely to make decisions based on fear or anxiety, often resulting in less optimal outcomes for their financial well-being.

Stress can also impair cognitive flexibility, making it harder for individuals to weigh options, adjust strategies, or think creatively. A study from the National Institutes of Health (NIH) found that stress narrows focus, limiting our ability to consider alternative solutions. For financial advisors, understanding how stress alters clients' decision-making is key to offering effective guidance. By helping clients manage stress, advisors can support clearer, more rational decision-making, ensuring clients stick to long-term financial plans even during turbulent times.

Five Ways Advisors Can Help Clients Through the Madness

?1. Promote Open Communication?

Stress loves silence. A 2022 Financial Planning Association report found that clients are often too stressed to even bring up their concerns until it's too late. Advisors can reduce this by scheduling regular check-ins and encouraging clients to talk about their financial worries early.

2. Educate on Market Cycles?

When the markets get jumpy, clients often panic. But educating them about the cyclical nature of markets and the value of long-term investing can help. A Vanguard survey showed that 64% of investors felt calmer after learning about market behavior. More importantly, an advisor that acts as a coach, helping their client navigate stressful times is ideal. The way you can do that is by….that’s for another time.

3. Emphasize Goal-Setting?

Clients get stressed when their goals seem impossible. By revisiting financial goals regularly, advisors can help them stay flexible. A study from the Journal of Financial Planning showed that clients who had adaptable goals were 33% less stressed. Small goals and celebration of successes is ideal!

4. Introduce Stress-Reduction Tools?

Why stick to numbers when you can throw in some mindfulness? A Northwestern Mutual study found that clients who tracked their spending or journaled about their finances were 20% less stressed. Advisors can suggest these tools to give clients a sense of control.

5. Offer a Holistic Financial Plan?

A financial wellness plan that covers everything—emergency savings, debt management, and insurance—can significantly reduce stress. PwC’s 2023 Financial Wellness Survey reported that 65% of employees with a financial wellness plan felt less stressed.

Financial stress is here to stay, but as a financial advisor, you can be the steady hand that helps clients weather the storm. Whether it’s by improving communication, setting clear goals, or teaching the benefits of long-term financial planning, your guidance can be the difference between clients feeling overwhelmed or empowered.

Visit me at www.CharlesChaffin.com for more or visit us to learn about our advisor programs, workshops, and consulting at www.PsychologyofFinancialPlanning.com.

Sources:

American Psychological Association. (2023). Stress in America Report.

American Psychological Association. (2023). Stress and Decision Making.

Gallup. (2022). Global Emotions Report.

Bankrate. (2023). Financial Security Survey.

Federal Reserve. (2023). Economic Well-Being Report.

Financial Planning Association. (2022). Communication and Financial Stress Report.

National Institutes of Health. (2022). Cognitive Flexibility and Stress

Vanguard. (2023). Financial Education Survey.

Journal of Financial Planning. (2022). Goal-Setting and Stress Study.

Northwestern Mutual. (2023). Budgeting and Mindfulness Study.

PwC. (2023). Financial Wellness Survey.