A Neuroscience-Based Way to Relieve Financial Stress

The consequences of financial health include:

• Anger and irritability;
• Anxiety;
• Reduced motivation;
• Increased fatigue; and
• Depression

Financial stress is a barrier that “prevents people from living well and reaching their health and lifestyle goals.”

The neuroscience of financial stress

You may not appreciate how difficult it is for clients to make rational investment decisions.

While you are probably familiar with common biases like herd mentality, overconfidence, and loss aversion, those are just a few of many that afflict clients.

According to one study, our brains “have evolved little” since the Stone Age. We are programmed to survive and not make nuanced financial decisions under stress.

Our brains have centers designed to cope with situations involving imminent danger. When markets tank, these centers are triggered, causing the brain to react reflexively, dampening our ability to think analytically.

Other forces combine to push us toward making emotional decisions. We are predisposed to look for patterns that don’t exist in random market price movements. This predisposition may cause us to act to a pattern we perceive but doesn’t exist.

We are inundated with data about our investments and may feel compelled to interpret this information in a way that results in impulsive decisions.

How you can help

Here are some ways you can help your clients overcome their predisposition to make bad financial decisions.

Understand that they aren’t entirely in control. A combination of their biases and the way their brains are wired are aligned against rational, objective decision-making.

You may feel the best way to deal with your clients’ increased anxiety is to reason with them logically by showing data like the history of recessions and recovery times to alleviate their concerns.

The problem with this approach is that it depends on our client’s ability to process information logically. Unfortunately, “when emotions are high, reasoning is low.”

Your clients need emotional comfort, not cold logic.

Here’s how to provide it.

Show empathy, which is the opposite of trivializing feelings by telling a client they have no logical basis.

You can be empathetic by simply listening and responding in a non-judgmental way. Say something like: I can understand why this upsets you.

Emphasize that their expressed concerns are common and conveyed to you by many other clients.

Engaging the emotional part of the brain in this manner will have a calming effect and permit a segue to a rational discussion, but don’t rush this part of the process. Instead, ask questions structured to determine when the client is ready to process information objectively.

Here’s a suggestion: Would it be helpful to review our plan and the assumptions on which it was based?

Take cues for your next step by how your client responds. Don’t make any assumptions.

Maybe nothing more is needed, or the rational part of the client’s brain is now open to objectively processing data.

Above all, don’t underestimate the forces conspiring to contribute to the anxiety being expressed.

Dan trains executives and employees in the lessons based on the research in his latest book, Ask: How to Relate to Anyone. His online course, Ask: Increase Your Sales. Deepen Your Relationships is currently available.

Read more articles by Dan Solin