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Speaker:
Interested in the latest discoveries and innovations in human technology interaction? Join us at APA's Technology Mind and Society Conference in Denver, November 12th through the 14th. This is the premier interdisciplinary venue for emerging research in the role psychology plays in the design, use, and impact of new technology. The call for submissions is now open. To learn more, visit www.tms.apa.org.
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Kim Mills:
Unemployment applications have hit previously unimaginable highs. 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 impact, 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 one 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. Brad Klontz, 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's also an associate professor practiced in financial psychology and behavioral finance at Creighton University in Omaha, Nebraska. Dr. Klontz, thank you for joining us.
Dr. Brad Klontz:
Thanks for having me.
Kim:
Let me start by asking the $64,000 question. Where is the economy headed? Have we hit the bottom?
Brad:
That's a fabulous question. The uncertainty around that and, basically, not knowing that answer, is part of what is making this such a difficult experience for so many Americans. 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. 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. We knew a correction was coming, we knew this was going to happen. Actually, we thought it was going to happen much earlier. 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.
We've been through this 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 economic downturn occurs.
Kim:
What kinds of emotions are people experiencing right now from the impact of the coronavirus? What are you hearing?
Brad:
It's the combination. One of the things that makes this unusual is the health concerns. 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. Then, of course, people are really concerned about your investments, if you have a retirement savings or if you're being directly impacted by the loss of a job. This have a profound impact on people. We're not sure again if we're going to back to work in a matter of months or if it can take longer.
Kim:
What about these emotional effects? How long should we expect them to last? Are we going to have a kind of PTSD across the country and around the world?
Brad:
It's really interesting that you ask it in that way. Back in 2008, we did a study of financial planners during the last big recession. 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. If you think back to post-traumatic stress in previous generations in these types of events, I don't know about you, Kim, but my grandparents were a bit of hoarders. They had gone through The Great Depression and they were significantly impacted by that.
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 in 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. 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.
Kim:
So where was the money, was it in his mattress?
Brad:
Exactly. It was in a lockbox in the attic and his house kept getting broken into. Apparently, the local criminals knew where it was. The lingering effect and my guess is that we're going to have lingering effects associated with this. Now, I will say this too, and the research on post-traumatic growth is very clear, there are all sorts of opportunities built into this, too. Perhaps you're spending more time with your family 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 crisis, but there's an opportunity for many of us to have deeper, closer connections with our family, perhaps your spending more time with your children as an example, perhaps you're looking at your finances. You've been avoiding looking at it and now, all of a sudden, you have some stress related to your finances. It's a great time to actually look at where your spending habits have been and make adjustments along the way. 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.
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. Looking back to yourself right now, how do you wish you had thought about this? What do you wish you had done? What opportunities do you wish you have capitalized on this? 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. It's not to diminish that, but there are opportunities here.
Kim:
You're sounding pretty optimistic. I'm looking at the numbers, 66 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? What are the psychological impacts as this divide widens as it may well do?
Brad:
Absolutely. People who are economically disadvantaged going into this experience are actually going to have to
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much worse 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. The virus doesn't discriminate. Your job might be a little bit more secure if you're, perhaps in several ways, a college job or not, who knows? We're not really sure what's happening. A lot of people are losing jobs and experiencing a financial crisis right now.
Regardless of your opinions about how the government is approaching this and those very wildly 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 and trying to find ways to support the average American through this crisis. I think that does give us some sense of security in a sense that our government is looking out for us at some level.
Kim:
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?
Brad:
That's a great question. Moving to cash right now is, historically, the absolute worst possible thing you could do. We are wired to actually do great to survive a predator chasing us. It's that fight-flight-freeze response. It's all designed to protect us and save ourselves, so we have these baked in instincts for survival. When it comes to financial decisions, however, those instincts are absolutely the wrong thing to do at every possible level. The classic mistakes people make in investing is we get really excited when things are going really well. Picture six months ago, the stock market's at all-time highs.
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 our stock loses 30% in value, we have that fear response going the other way. Imagine a hoard of wild horses 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.
We're wired to do the absolute wrong things, which are buy high and sell low. Just understand this, don't trust your instincts around money. If you take that to heart, it can really help you out financially.
Kim:
So we should all be buying right now?
Brad:
It depends, right? It depends on what your portfolio looks like, but almost certainly, this is great too, look back to 2008, and if you look back at charts on what happened in 2008, it 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. One of the problems we have as human beings and when it comes to investing is it's called a narrow frame of reference. For example, if you pull up a chart of 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. That's called a narrow frame of reference. Now, if you looked at a chart about 5, 10 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 markets versus a cliff. That wider frame of reference really can help settle that your emotional brain, calm it down so you don't do the wrong thing.
Kim:
Isn't this highly unusual? I can't think of any other time in history where the markets have done quite what they're doing right now. Even if you look back to the Great Depression, nobody's working. We're all sitting at home right now, which is highly unusual and if we're expecting unemployment to hit 30%, let's say, which is one of the projections, do we really have any experience like this? 2008 may not be the right comparison.
Brad:
Actually, you're making a fabulous point, Kim, and the fact is, it's always something new. Back in 2008, and if you can 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 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 as I'm drifting off to sleep at night and my anxiety is 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.
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. 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. I rest with some confidence 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, what's totally different? Kim, in the last couple recessions, it was more of a drop-off.
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. 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 back on, and everyone's back to work, we have no idea and that gets built into our anxiety, and frankly, sets us up to be self-destructive around money.
Kim:
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 too narrow a frame of reference, if they don't look at markets over the long term, which is what we're talking about, an anchoring bias. Can you talk about some of these concepts and how they might play into what's happening right now?
Brad:
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. This is our natural tendency to believe that we're much better at things than we actually are. Certainly, that was the case in the months preceding this drop. Again, stock markets were going crazy, all amateur investors doing lots of trading, having incredible experiences believing that this related to them when statistically, you could have a monkey throwing darts at a dartboard and picking winning stocks in the years leading up to this, so that gets baked into the cake around that.
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 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's it going to go. It turns out that they actually are better at investing as a result, so they actually have better returns by having less confidence in knowing exactly what's going to happen in the future so.
Kim:
We're also starting off with less money and lower wages so we've got that disadvantage.
Brad:
Absolutely, but you're also better investors, so research bears that out. I think a little bit of a lack of confidence is a really healthy thing when it comes to financial markets. 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 see this with a house you bought, you see this with a stock you bought if it's like you bought it at a hundred, then you could be really stuck on that point and if the stock is now worth 75 bucks, it's actually not worth a hundred. This is where that anchoring bias comes in. It's actually now worth $75, and so that's just the reality.
Not being stuck on the past related to that is actually pretty healthy. You'll notice a pattern here, flexibility and thinking is really helpful when it comes to your relationship with money because times do change, circumstances change. 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.
Kim:
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?
Brad:
Yes, so I'll give you one that I have been using with clients, and frankly myself, that I use back in 2008 too and it's really helpful. It's called the worst-case scenario. It's an exposure techniques, so if you went to see a psychologist because you had a fear of dogs, your sadistic psychologists would eventually want you to pet a dog. That would be built into the process, we would want to expose you to that fear. 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'd want you to think about it because we'd want to cure this phobia you have.
The worst-case scenario exercises is built into this too because your brain is looking at what's happening in the economy as a life or death situation. It's an on or off switch here in terms of our anxiety. It's like everything's fine or no, I'm going to die. That's where our brain goes. Chances are if you live in the United States, now chances are that this financial situation is not life-threatening. 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. First of all, the American Psychological Association Stress in America Survey consistently has shown since 2007 that money is one of the biggest sources of stress in the lives of Americans around three out of four, and when times are great. This is a stressful thing. Financial stress can kill you. The worst-case scenario exercise is built into helping you really look at is this really a life-threatening situation? Basically, it goes like this, so let's say you're worried about losing your job. If you lost your job, then what would happen? Then I wouldn't be able to pay my mortgage. If you couldn't pay your mortgage, then what would happen? I might lose my house.
Okay, so let's say you lost your house, what would you do then? 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? You see what I'm saying, you just keep going down the path. 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. As a matter of fact, you could probably picture yourself getting back up on your feet moving forward. Frankly, a lot of people back in 2008 had to do something like that.
They were hit really hard, they lost a house, they had to do that, and it took them a few years to recover. Anyway, useful exercise to expose you to some of that thinking and those fears and really evaluate your catastrophic thinking whether or not it's true.
Kim:
A lot of us are defined by our jobs and also by the amount of money that we have or that we're earning. 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?
Brad:
A great question. Retirement sounds like a great idea. 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, 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, that my social needs met, my connection needs met? This is a challenging time because many of us are losing our ability to engage well socially, we're actually being told not to socialize.
That's something that makes this crisis very different too because that 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 isolate. Literally, we tell people, "Don't socially isolate," and yet we're being told we need to do this. This is something we need to do. Again, a crisis, I also do think there's an opportunity built in here too. You're going to be stuck at home, perhaps, stuck at home with people that you love.
For me, on a very personal level, I've been putting more time into 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. 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've 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 to mentor him and teach him something."
Frankly, I've been really focused more on how can I be a better husband, a better father and build up those roles, which are really important to me. Frankly, when I'm at the office working really hard, those roles aren't getting as much attention. There are opportunities built in here.
Kim:
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?
Brad:
I would say so, but I'm also not trying to diminish the fear and the anxiety. I've actually spoken about my 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. I don't feel like there's a ton of value in lingering there. Stay there as long as you need to process, for example, loss. Like you've lost some income, maybe that income has led to you having to not enjoy some of the things you're able to enjoy or many people literally have lost vacations or they've lost their ability to produce.
These are very real things, so I think that grieving those is really important and thinking about a plan after this, is super important. Do that worst-case scenario exercise, dive into the pain of everything bad that can happen. I also feel like there are other things happening right now and what you pay attention to gets bigger. If you're staying in that too long, frankly, it becomes dysfunctional and not very helpful. I believe that there are two sides of reality here and one is very painful and the other is there's tons of opportunity. I don't think it's it's rose-colored glasses, but I do think it's important to look for those opportunities. You probably have some time at home, I think it's a useful exercise.
Kim:
For people who feel like they need professional help, particularly around money, anxiety, are there special places where they should go, are there particular types of psychologists who are better at helping than others?
Brad:
I think that psychologists back in 2008, and this is anecdotal, 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. That was being brought into the therapy room. Psychologists are actually extremely well equipped to help people with anxiety. Most of the decisions we make around money or most of the things we need to do around money, we already know what we need to do.
Like, for example, most Americans have problems with money because we're spending too much, we're not saving enough, and I've yet to find somebody who doesn't know they shouldn't do that. I think a lot of our struggles within finances aren't technical. It's not like you actually need a psychologist to tell you which stock to buy, that's not what a psychologist would do, and that's really not your issue. I think psychologists are really well equipped to help people deal with anxiety. The other opportunity that's happening here too, is more and more telehealth opportunities are being presented.
That's something that I hope lingers at the end of this is people are doing more online therapy, phone therapy, and that kind of thing. There's an opportunity perhaps for people who weren't really engaged in therapy before to be engaged in it now as a result.
Kim:
That's definitely becoming much more available, and we at APA have been working hard to make that more available to people. Dr. Klontz, 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 impart, please do.
Brad:
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 into 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. 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 that, how would you feel really good about how you went through this.
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. Then the second thing I would say is yes, we need to socially isolate but don't actually do that. There are other ways to connect with people, 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.
Kim:
Great. Thank you again, Dr. Brad Klontz.
Brad:
My pleasure.
Kim:
For our listeners, if you have any comments or ideas you'd like to share about our podcast, send an email to
speakingofpsychology@apa.org
. That's speaking of psychology, all one-word @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.speakingofpsychology.org
. Thank you again for listening. For the American Psychological Association, I'm Kim Mills.
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Brad Klontz, PsyD, CFP
®
is a partner of Occidental Asset Management, LLC, co-founder of Your Mental Wealth™ and the Financial Psychology Institute.
