Speaking of Psychology - Coping with Financial Anxiety During COVID-19 with Bradley T. Klontz, PsyD, CFP

Episode Date: April 8, 2020

Are you worried about your financial future in the face of the COVID-19 pandemic? Even before the coronavirus struck, many of us were prone to do unwise things with our money. What, if anything, is the pandemic doing to that very human tendency? How can we work against our worst financial instincts while our lives are so chaotic? Our guest, Dr. Brad Klontz, is a financial psychologist and a certified financial planner. He is also an associate professor of practice in financial psychology and behavioral finance at Creighton University in Omaha, Nebraska. His advice might make you feel a little better in these uncertain times. Join us online August 6-8 for APA 2020 Virtual. Learn more about your ad choices. Visit megaphone.fm/adchoices

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The stock market is in free fall. National parks are closing and Broadway is dark, and that's just in this country. The coronavirus pandemic is global, and it's likely that we are only just beginning to see its economic impacts. So what can we do to cope? Are there strategies to help us weather this economic uncertainty? What should we be doing with our money if we still have any? Welcome to Speaking of Psychology, the flagship podcast of the American Psychological Association

that explores how the science of psychology affects everyday life. I'm your host, Kim Mills. Even before the coronavirus struck, many of us were prone to do on wise things with our money. What, if anything, will the pandemic do to that very human tendency? How can we work against our worst financial instincts while our lives are feeling so chaotic? Our guest today, Dr. Bragg Clance, is, I hope, going to help us better understand why we do what we do with money and how we can make some better decisions even as we deal with the rocky economy ahead. Dr. Klontz is an award-winning financial psychologist and a certified financial planner.

He is also an associate professor of practice in financial psychology and behavioral finance at Creighton University in Omaha, Nebraska. Dr. Kwanse, thank you for joining us. Thanks for having me. Let me start by asking the $64,000 question. Where is the economy headed? Have we hit the bottom? Yes, that's a fabulous question. And the uncertainty around that and basically not knowing that,

that answer is part of what is making this such a difficult experience for so many Americans. And we don't really know. That's just the bottom line. But what we do know is that we have economic downturns like this periodically. And so we've had probably one of the longest growth periods in our economy, in our history, leading into this crisis situation in terms of the economy. And so we knew a correction was coming. I mean, we knew this was going to happen. And actually, we thought it was going to happen much earlier. And what's interesting about these corrections is you have no idea what's going to spark it off. And obviously, this time, it was the virus.

And so we've been through these before. We will continue to go through these. But there's definitely a lot of uncertainty built into this experience, as there is every time an economic downturn occurs. Well, what kinds of emotions are people experiencing right now from the impact of the coronavirus? What are you hearing? Yeah. So, you know, it's the combination. So one of the things that makes this unusual is the health concerns.

So there's very real health concerns and concern about that. My health, my children's health, my family's health. So that's part of it. And I think that actually increases our level of anxiety. And then, of course, people are really concerned about, you know, your investments if you have a retirement savings or if you're being directly impacted by the loss of a job. I mean, these have a profound impact on people. And so, you know, we're not sure, again, if we're going to be back to work in a matter of months or if it could take it longer. What about these emotional effects? I mean, how long should we expect them to last? Is this,

we're going to have a kind of PTSD across the country and around the world? It's really interesting that you asked it in that way. Back in 2008, we did a study of financial planners during the last big recession. And yes, we actually looked at post-traumatic stress symptoms. And so, yes, there's absolutely going to be post-traumatic stress that lingers. There was a study done in Greece, too, that looked at post-traumatic stress within the entire country, absolute impact that persisted for years. And if you think back to post-traumatic stress in previous generations in these types of events, you know, I don't know about you, Kim, but my grandparents were a bit of hoarders, you know,

and they had gone through the Great Depression and they were significantly impacted by that. Like my grandfather lost all of his money when he went to the bank one day and all of a sudden the money's not there. This led to a shift in beliefs, anxiety around money. And this is part of my story and learning my own psychology around money. But my grandfather had lost his money. He never put a dollar in the bank the rest of his life. So he died in his 90s, never put a dollar in the bank the rest of his life. He was so traumatized by losing his money. So where was the money? Was it in his mattress? Exactly. It was in a lockbox in the attic. And he kept getting, his house kept getting broken into apparently the local criminals knew where it was. But yeah, so the lingering effect. And,

you know, my guess is we're going to have lingering effects associated with this. Now, I will say this too. And the research around post-traumatic growth is very clear. There are all sorts of opportunities built into this too. Like there's an opportunity, perhaps you're spending more time with your family, you know, or your spouse or partner. Now, you could use this experience to grow closer. Now, some couples are actually growing further apart. So therein lies the, the crisis, but there's an opportunity for many of us to have deeper, closer connections with our family. Perhaps you're spending more time with your children as an example. Perhaps you're looking at your finances. You've been sort of avoided looking, voiding looking at it. And now all of a

sudden you have some stress related to your finances and you want to, it's a great time to actually look at where your spending habits have been and make adjustments along the way. So lots of stress built into this. This is going to be over. It's going to be over soon. It could be a matter of months or even, let's say, a year from now, the virus situation is over. So we're going to get beyond this. And so one of the things that I've been asking people to do that I work with is to picture themselves a year from now on the other side of this virus. And looking back to yourself right now, like, how do you wish you had thought about this?

What do you wish you had done? What sort of opportunities do you wish you have capitalized on this? And this isn't to diminish the stress. This is an incredibly stressful time for many, many people on a very real level, very real psychological level, financial level. So it's not to diminish that, but there are opportunities here. So you're sounding pretty optimistic. And, you know, I'm looking at the numbers. Sixty-six million Americans just filed for unemployment. Many of these people are hourly or blue-collar workers. Their jobs may never come back. I don't understand what's going to happen to this country and maybe

none of us can say right now. But what happens to the divide between the haves and the have-nots? And what are the psychological impacts as this divide widens as it may well do? Well, absolutely. And, you know, people who are economically disadvantaged going into this experience are actually going to have. I would imagine much worse sort of an experience psychologically, financially, absolutely. It is something that we're all going through together. So this is impacting people on the entire socioeconomic spectrum. So we're not alone in that sense.

And the virus doesn't discriminate. You know, I mean, so so you're. So your job might be a little bit more secure if you're perhaps have a white college job or not. You know, who knows? We're not really sure what's happening. A lot of people are losing jobs and experiencing a financial crisis right now. And, you know, it is, regardless of your opinions about how the government is approaching this and those very widely, and you're welcome to them, it does give us some comfort to see that our government is taking this serious and looking for ways to try to help people out with these unprecedented stimulus packages. trying to find ways to support the average American through this crisis.

And I think that does give us a sense of some sense of security in a sense that our government is looking out for us at some level. Given what the markets are doing right now, if people haven't done anything to shelter their money, is it too late or too precarious to move to cash right now, for example? Yeah, that's a great question. And moving to cash right now is historically the absolute worst possible thing you could do. So we are wired to actually do great to survive, you know, a predator chasing us. You know, it's that fight, flight, freeze response.

It's all designed to protect us and save ourselves. So we have these, you know, baked in instincts for survival. And when it comes to financial decisions, however, those instincts are absolutely the wrong thing to do at every possible level. And so the classic mistakes people make in investing is we get really excited. when things are going really well. So picture six months ago, the stock market's at all-time highs. People are, if you're sitting back watching that, you're thinking, oh, no, I'm missing out on this.

You feel a sense of anxiety. Like, people are making all this money. I'm not making anything. So we have a natural tendency to want to jump on board and buy when things are super expensive. And then when things drop and we lose, our stock loses 30% in value, we have that fear response going the other way. It's sort of like, imagine a herd of wild horses on, you know, on the plane and something scary and they all run. in one direction and then they run back in another direction. This is what happens to human beings in terms of their finances. And so we're wired to do the absolute wrong things, which are buy high

and sell low. And so that instinct to just understand this, don't trust your instincts around money. And if you if you sort of take that to heart, it can really help you out financially. So we should all be buying right now? Well, it depends, right? It sort of depends on what your portfolio looks like. But almost certainly if you look, this is great too. Look back to 2000. And if you look back at charts on what happened in 2008, took a huge hit, bounced around a little bit, and then it was just a steady path right on up. So it really depends on your frame of reference. And one of the problems we have as human beings, and when it comes to investing, it's called a narrow frame of reference. And so, for example, if you pulled up a chart of like the Dow Industrial Average or the S&P 500, these are indexes that track the stock market, if you pulled up a chart that looked at the last month or two,

or three, it's going to look like total catastrophe. You're going to see a bunch of red lines. It looks like our entire life fell off a cliff. So that's called a narrow frame of reference. Now, if you looked at a chart about five, ten years out, or even for fun, look at a hundred-year chart, you're going to see this is actually much more of a pothole when it comes to what's happening in the markets versus a cliff. And so that wider frame of reference really can help settle that your emotional brain, calm it down so you don't do the wrong thing. Isn't this? highly unusual. I mean, I can't think of any other time in history where the markets have done quite what they're doing right now. I mean, even if you look back to the, to the Great Depression,

nobody's working. I mean, we're all sitting at home right now, which is highly unusual. And if we're expecting unemployment to hit 30 percent, let's say, which is one of the projections, do we really have any experience like this? I mean, 2008 may not be the right comparison. Well, actually, you're making a fabulous point, Kim. And the fact is, it's always something new. So back in 2008, and if you can sort of imagine back to 2008, and this is a really helpful exercise, chances are if you were around and paying attention back then, you had some catastrophic thinking going on. It was like there was deep, deep fear that we were experiencing culturally. I'm going to lose all my money. The markets may never recover.

This time it's different. This is the same type of thoughts that frankly I have, you know, as I'm drifting off to sleep at night, and my anxiety's kicking in. But it's the exact same catastrophic thinking we had then. It's the exact same catastrophic thinking we had back in 2000. And I really can't go beyond that. But I hear it was the same one we had back in 87 and on and on. So this is built in. It is absolutely totally different. We're not sure. And that's the one thing that's consistent about these economic collapses is that uncertainty and that catastrophic thinking. and those intense emotions of fear. And so I sort of rest with some confidence that, you know, that we are going to manage to get

through this, just like we have in all the other ones, that this one, it is totally different. For example, like what's totally different? Well, Kim, in the last couple recessions, it was more of a drop-off. I mean, it took months and months or even years to find a bottom where this one might have happened in a matter of a month or two. And again, we're not sure if there's more to go. we're not sure if two or three months from now it's great news and the switch gets turned backed on and everyone's back to work we have no idea and that sort of gets built into our anxiety

and frankly sets us up to be self-destructive around money. So you've done a lot of research into how people manage their money, the emotions that go into it and the psychological constructs that you've been describing. You've looked at concepts like overconfidence, bias where people have have too narrow a frame of reference, that they don't look at markets over the long term, which is what we're talking about, and anchoring bias. Can you talk about some of these concepts and how they might play into what's happening right now? Sure. Well, I think if you had an overconfidence bias, chances are it's shaken up a little bit, which is probably good for you.

And this is sort of our natural tendency to believe that we're much better at things than we actually are. And certainly that was the case in the months preceding this drop. Again, stock markets were going crazy, all sorts of amateur investors, doing lots of trading, having incredible experiences, believing that this related to them, when, you know, statistically you could have a monkey throwing darts at a dartboard and picking winning stocks in the years leading up to this. So that sort of gets baked into the cake around that. And so hopefully, frankly, I want you to be much less confident in what you think you know

to be true about investments and about markets. That's actually really, really healthy for you. They've actually done studies on gender differences here. And it turns out that women are less confident in what is a good stock and where is it going to go. And it turns out that they actually are better at investing as a result. So they actually have better returns by having less confidence and knowing exactly what's going to happen in the future. But we're also starting off with less money and lower wages. So we've got that disadvantage.

Absolutely. But you're also better investors. So, and research bears that out. So I think a little bit of a lack of confidence is a really healthy thing when it comes to financial markets. And then, of course, anchoring bias builds in, too. And it creates your anxiety also because the anchor is basically the price at which you think this thing should cost, you know.

So you see this with a house you bought. You see this with a stock you bought, you know. If it's like, oh, you bought it at 100, then you could be really stuck on that point. And if it's, if the stock is now working. $75. It's actually not worth $100. This is where that anchoring bias comes in. It's actually now we're $75. And so that's just the reality. And so not being stuck on the past related to that is actually pretty healthy. And you'll notice a pattern here. Flexibility and thinking is really, really helpful when it comes to your relationship with money because times do change, circumstances

change. And when we're stuck on a rigid belief about how the world works, like for example, my grandfather believing that you can't trust banks with your money. And I get why he got that belief. But when it's rigidly held, that's when it gets us into trouble. Are there exercises that people might be able to go through to help themselves get past some of these constructs, these mental constructs that are not helpful? Yeah, so I'll give you one that I have been using with clients and frankly myself that I used back in 2008 too, and it's really helpful. And it's called the worst case scenario. And so it's sort of an exposure technique. So if you went to see a psychologist because you had a fear of dogs,

you know, your sadistic psychologist would eventually want you to pet a dog. I mean, that would be built into the, into the process. We would want to expose you to that fear. And yes, maybe you got bit by a really nasty dog. So we wouldn't get a nasty dog that we wanted you to pet, but we would want you to imagine petting the dog. We would want you to think about it because we'd want to cure this phobia you have. And so the worst case scenario exercise is sort of built into this too, because your brain is looking at what's happening in the economy as a life or death situation. Okay. It's sort of an on or off switch here in terms of our anxiety.

It's like, everything's fine or, oh, no, I'm going to die. Those are the two, that's where our brain goes. And so chances are if you live in the United States, now chances are that this financial situation is not life-throaming. Now, I say chances are because it could be for you. And so I don't want to diminish that. But for the majority of Americans, when you see unemployment coming in and some of these other supports, chances are it's not life-threatening for you. It's really important to know, though,

that your financial stress could kill you. And there's been a lot of studies done on this that, that first of all, the American Psychological Association, Stress in America's Survey, consistently has shown since 2007 that money is one of the biggest sources of stress in the lives of Americans, round three out of four. And when times are great, right? This is a stressful thing. Financial stress can kill you. So the worst case scenario exercise is, sort of built into helping you really look at, is this really a life-threatening situation? And so, so basically, you know, it goes like this. So, you know, let's say you're worried about losing your job. So if you lost your job, then what would happen? Well, then I wouldn't

be able to pay my mortgage. Well, if you couldn't pay your mortgage, then what would happen? Well, I might lose my house. Okay, so let's say you lost your house. What would you do then? Well, then I'd have to go live with my parents or my sibling. Okay, so that would be pretty rough, what would that be like? So you see what I'm saying. You just kind of go, keep going down the path. And for many people, what you realize is incredibly uncomfortable, perhaps quite painful, a lot of stress involved, but it's probably not going to kill you. And as a matter of fact, you could probably picture yourself getting back up on your feet, back on your feet, moving forward. And frankly, a lot of people back in 2008 had to do something like that. So they were

hit really hard. They lost a house. They had to do that. And it took them a few years to recover. But anyway, useful exercise to sort of expose you to some of that thinking and those fears and really sort of evaluate your catastrophic thinking whether or not it's true. A lot of us are defined by our jobs and also by the amount of money that we have or that we're earning. And this gives us a sense of identity, a feeling of security and purpose in life. So as people lose their jobs or lose their livelihood, what is going to happen to them psychologically? Yes. And so great question. You know, retirement sounds like a great idea, right?

For many people who actually end up doing it, it can become a mental health crisis. And it's getting to some of what you're asking there. It's like depending on the degree to which your self-esteem and your self-worth is built into your job or your role, for example. You know, when that is gone, it creates a crisis for many people. Like, how do I get this need to feel productive, this need to feel like I'm doing something good in the world? my social needs met, my connections met. And, you know, this is a challenging time because many of us are losing our ability to engage, well, you know, socially.

Like, we're actually being told not to socialize. And that's something that makes this crisis very different too, because typically psychologists would be telling you in moments like this, you need to get together with people you love. You need to spend time with people. Don't socially easily. Literally, we tell people don't socially icily. And yet we're being told we need to do this. Like, this is something we need to do.

And so, again, a crisis, I also do think there's an opportunity built in here, too. So you're going to be stuck at home, perhaps stuck at home with people that you love, you know. And so for me, on a very personal level, I've been putting more time into, you know, how am I evaluating myself as a husband with my wife and as a father? And I've just been paying more attention to those roles. And frankly, I'm a better father now than I was two months ago because I'm starting to see my kids in a different way. And, you know, just for example, my son the other day was like, hey, can I help with the dishes? He's seven.

And I realized in the past, I'd been like, no, buddy, don't worry about it. You do that. I'll just finish this up. Now I'm like, whoa, this is an opportunity for me to connect with him and mentor him and teach him something. And so frankly, I've been really focused more on, you know, how can I be a better husband, a better father and build up those roles, which are really, really important to me. And frankly, when, you know, when I'm at the office working really hard, those roles aren't getting as much attention. So there are opportunities built in here. So you sound, for the most part, pretty optimistic through it all.

I guess you've got some good endorphins going up there in the brain that you're able to carry on and not focus on the negative. But I'm hearing that that's pretty much the bottom line of what it is that you are advising people right now to look on the bright side, to hang on and not to lose hope through all this. Is that an accurate summary? I would say so. But I'm also not trying to diminish the fear and the anxiety. And I've actually spoken about my own. own fear and anxiety. And it's going to emerge and it's going to happen. It's absolutely going to happen. And if you don't have some of that, you're sort of in denial about what's happening, you know,

but I don't, but I don't feel like there's a ton of value in lingering there. I mean, stay there as long as you need to, um, to process, for example, loss. Like you've lost some income. Maybe that income has led to you having to, um, not enjoy some of the things you're able to enjoy or, you know, many people literally have lost vacations, you know, or they've lost their ability to produce. These are very, very real things. And so I, I think that grieving those is really important and thinking about a plan for after this, super important. Do that worst case scenario exercise, dive into the pain of everything bad that can happen.

But I also feel like there are other things happening right now. And what you pay attention to gets bigger. And so if you're staying in that too long, frankly, it becomes dysfunctional and not very helpful. And so I believe that there are two sides of reality here. And one is very painful. and the other is there's tons of opportunities. So I don't think it's rose-colored glasses, but I do think it's important to look for those opportunities.

I mean, you probably have some time at home. I mean, I think it's a useful exercise. For people who feel like they need professional help, particularly around money, anxiety, are there special places where they should go or there are particular types of psychologists who are better at helping than others? Well, I think that psychologists back in 2008, and this is anecdotal, But they, I think maybe even for the first time as a profession, we really started to take seriously this whole idea of financial anxiety and people struggling with money, frankly because most of our clients were struggling with that. So that was being brought into the therapy room.

And so I think psychologists are actually extremely well equipped to help people with anxiety. And most of the decisions we make around money or most of the things we need to do around money, we kind of already know what we need to do. So like, for example, most of most Americans have problems with money because we're spending too much and we're not saving enough. And I've yet to find it somebody who doesn't know they shouldn't do that. So I think a lot of our struggles in finances aren't technical. So it's not like you actually need a psychologist to tell you which stock to buy. That's, that's not what a psychologist would do. And that's really not your issue.

And I think psychologists are really well equipped to help people deal with the anxiety. And the other opportunity that's happening here too is more and more telehealth opportunities are being. presented. And so that's something that I hope lingers at the end of this is, you know, people are doing more online therapy, phone therapy, and that kind of thing. So there's an opportunity, perhaps, for people who weren't really engaged in therapy before, to be engaged in it now as a result. Yeah, that's definitely becoming much more available. And we at APA had been working hard to make that more available to people. Well, Dr. Clance, you've been extremely helpful. I really appreciate your joining with us today. If you have any final advice or words you'd like to

part, please do. Well, I mean, I think it's really important to know that you're not alone. You're certainly not alone. And we're all going through this together and we're all going to get through this together. Humanity has been faced with this type of thing. Every time you take your kid in to get shots when they're a baby, each one of those shots represents a pandemic that has happened like this that has had a profound effect on humanity. So we've dealt with this over time. We're going to get on the other side of this. And so think about on the other side of this, looking back to who you are right now and what you're doing right now. And just try to build into there.

How would you feel really good about how you went through this? And of course, you're going to have bumps in the road. You're going to be stressed. You're going to have down days, absolutely. And then the second thing I would say is, yes, we need to socially isolate, but don't actually do that. I mean, there are other ways to connect with people. And so, you know, whether it's FaceTime or Skype or phone calls, find ways to connect

with people that you love. People, we need to do this. This is something very important to us. So make an effort to do that. Great. Well, thank you again. Dr. Brad Clontz. My pleasure.

So for our listeners, if you have any comments or ideas you'd like to share about our podcast, send an email to Speaking of Psychology at APA.org. That's Speaking of Psychology, all one word, at APA.org. You can find previous episodes of Speaking of Psychology on Apple, Stitcher, Spotify, or wherever you get your podcasts. You can also go to our website and download all episodes at www. www. speakingof psychology.org. Thank you again for listening. For the American Psychological Association, I'm Kim Mills.