“Don't let your panic lead to making your financial life worse.”
3 coping strategies to keep calm about money during COVID-19
Experts explain how to overcome your financial fears during the coronavirus pandemic.
The novel coronavirus is sending shockwaves across the global economy: People are facing layoffs, lost projects, unforeseen costs, and a plunging stock market. Meanwhile, in the United States, the Trump administration has proposed a $500 billion stimulus package that could be divided out as two direct payments to qualifying Americans to cushion the present financial blow.
Financial fears are escalating, stacked on top of health concerns. Inverse asked two leading financial behavior experts how to keep calm about money through all the madness and channel financial anxiety productively.
Their advice? Avoid snap decisions, take a hard look at your financial health, and focus on the little things.
While the COVID-19 pandemic is severe, it won't last forever, reminds Dr. Brad Klontz, a professor of financial psychology at the Creighton University Heider College of Business and a fellow at the American Psychological Association.
“We've been through these scenarios before and we don't know how long it'll last,” Klontz tells Inverse. “But we know there will be an end on the other side. If you look at market history for the past 100 years, this is what you see.”
Keep your financial fears in perspective and remember it will all, eventually, be okay, Klontz says.
"Don't let your panic lead to making your financial life worse."
3. Avoid "catastrophic thinking" and panic buying
The new coronavirus may seem like a totally unique economic threat, Klontz says, but it isn't. Flashback to the 2008 financial crisis and many of the same terrifying concerns appearing now were present then.
“We had those beliefs: ‘Oh no the world is ending. I'm going to lose all my money. The markets will never recover; things will never be the same again,’” Klontz explains.
Still, it's undeniable that COVID-19 adds an additional stressor because it sparks health panic on top of economic panic, Klontz acknowledges. Fears linked to health are intertwined with worries over dwindling income and investments.
This scenario can lead to panicked forecasting, or what economists call “catastrophic thinking.” It’s a dangerous path to go down, Klontz says. Catastrophic thinking can lead to paralyzing stress, and that stress can contribute to mental and physical illness.
Catastrophic thinking can also drive dramatic financial decisions, and even self-destructive behavior, Klontz says. For example, someone might sell all their stocks in a rush, take out a handful of new credit cards, or stock up on a year’s worth of toilet paper out of fear.
Dr. Alex Edmans is a professor at London Business School and behavioral finance researcher who's studied how people make financial decisions for decades. He agrees that economies are vulnerable to emotional fluctuation.
“We overweigh the negatives compared to the positives,” Edmans explains.
Edmans points to a 2007 study he co-authored in the Journal of Finance. It showed that when a country's soccer team lost a match in the World Cup, their stock markets tumbled the very next day. But when a team won, the reverse, positive effect didn't happen — the market didn't improve because of the victory.
To avoid letting your emotions get the best of you financially, Edmans suggests pacing news consumption and take a measured approach to decision-making. Follow the guidelines of public health authorities, stock up if it makes you feel secure, look for new ways to make some extra cash, and cut non-essential expenditures.
“What's happened is bad," Edmans says. "But if it's compounded then by a lot of panic buying — panic buying your toilet rolls and panic selling of shares — that just makes a bad situation worse.”
2. Think of the worst-case scenario and make a plan
Before COVID-19 shook up the economy, money was still a top cause of stress for the majority of Americans. That's because financial threats — from losing your job to making rent — kick in humans’ fight-or-flight response, Klontz explains.
"When we're emotionally charged, we become rationally challenged."
This hardwired reaction makes financial problems seem like life-or-death situations and can cause us to make snap decisions. It can be a fair reaction: Some financial problems, particularly those related to COVID-19, can be life-threatening, especially if people don’t have a support network or savings.
“That animal instinct you have is fabulous if there's a mountain lion chasing you," Klontz says. "But very often, it hurts us when we're making more complex financial decisions."
“When we're emotionally charged, we become rationally challenged.”
To cut through your feelings, Klontz advises playing out different possible financial scenarios instead of avoiding thoughts on the future. If you do lose your job, what will you do? If you can’t pay your mortgage, what’s your plan?
Coming up with solutions and backup plans if things do go south can help you stay calm in the present. A financial advisor can walk you through your options.
1. Help others — and get a new perspective
The financial landscape may seem dire, but eventually, it will bounce back, both experts say.
In the meantime, keeping financial stress in check along the way can lead to mental — and physical — benefits. To find relief, take small steps to help your community. These acts of generosity can help keep your personal financial worries in perspective.
“In finance, you often think about trading things of equal value,” Edmans says. “And when you think about serving or helping other people, I think about trading things of unequal value — small things that you can do to make a big difference.”
Maybe that’s buying a bundle of groceries for your elderly neighbors or donating to a local food bank.
“This crisis is something that affects everybody. It doesn't just affect the poor. It affects the wife of the Canadian president; it affects Tom Hanks,” Edmans says. And because everyone is affected, everyone is in it together. It's time, Edman notes, that everyone "start thinking about what they can do to help out other people."
And even though things may seem scary now, take comfort — humans are incredibly resilient.
"It's an amazing thing about human beings," Klontz says. "We get hit and it's emotionally devastating, and then we just sort of adjust and it's this new thing we live with. That's going to happen over time, it really will. It'll become the new normal in that sense."