Financial avoidance is a psychological condition that affects individuals who avoid managing their finances, paying bills, or reviewing their bank accounts. This condition can have serious consequences on an individual’s financial health, as well as their mental and emotional well-being. Financial avoidance is a growing concern, especially in light of the economic challenges posed by the COVID-19 pandemic. In this article, we will explore the causes of financial avoidance, current data on how people are engaging in financial avoidance, and actionable ways to combat it.
Causes of Financial Avoidance
There are various reasons why individuals may experience financial avoidance. Some of the most common causes include fear, shame, anxiety, and a lack of financial literacy.
Fear
Fear is one of the most common causes of financial avoidance. Individuals may be afraid of making financial decisions or taking action because they are unsure of the outcome. They may fear making mistakes, being judged, or losing money. Fear can lead to inaction, which can cause financial problems to snowball and become more difficult to manage.
Shame
Shame is another common cause of financial avoidance. Individuals may feel ashamed of their financial situation, particularly if they are in debt or have made poor financial decisions in the past. Shame can lead to a sense of helplessness and make it difficult for individuals to take action to improve their financial situation.
Anxiety
Anxiety can also contribute to financial avoidance. Individuals may experience anxiety when thinking about their finances, particularly if they are uncertain about their financial future. Anxiety can lead to avoidance behaviors, such as ignoring bills or avoiding financial discussions with partners or family members.
Lack of Financial Literacy
A lack of financial literacy can also contribute to financial avoidance. Individuals who do not understand financial concepts, such as budgeting, saving, and investing, may avoid managing their finances altogether. A lack of financial literacy can also lead to poor financial decisions, such as taking out high-interest loans or making risky investments.
Current Data on Financial Avoidance
Financial avoidance is a growing concern, particularly in the wake of the COVID-19 pandemic. According to a survey conducted by the National Endowment for Financial Education, 88% of Americans reported feeling anxious about their finances in 2020. The survey also found that 58% of Americans were worried about paying their bills, and 43% had experienced a loss of income due to the pandemic.
An April 17th 2023 article from The Wall Street Journal noted: “Many young adults overwhelmed by financial stress cope by ignoring the problem. Some tune out bank and credit-card balances, lose track of their spending and rack up debt. Average credit-card debt rose 29% to $5,800 in March from a year earlier for millennials and increased 40% to $2,800 for Gen Z, Credit Karma said”
A separate survey conducted by the American Psychological Association found that 64% of Americans reported that money was a significant source of stress in their lives. The survey also found that 35% of Americans reported engaging in unhealthy behaviors, such as eating unhealthy foods or skipping medical appointments, due to financial stress.
Actionable Ways to Combat Financial Avoidance
Fortunately, there are several actionable ways to combat financial avoidance. These include facing your fears, seeking professional help, and increasing your financial literacy.
Face Your Fears Through Small Steps
One of the most effective ways to combat financial avoidance is to face your fears. This may involve taking small steps, such as reviewing your bank account or creating a budget. It may also involve seeking support from friends or family members who can offer encouragement and guidance.
Seek Professional Help
If you are struggling with financial avoidance, seeking professional help may be beneficial. This may involve working with a financial planner or counselor who can help you develop a plan for managing your finances and overcoming your fears. It may also involve seeking support from a mental health professional who can help you address the underlying emotional issues that may be contributing to your financial avoidance.
Increase Your Financial Literacy
Increasing your financial literacy can also help you combat financial avoidance. This may involve reading books or taking courses on financial topics, such as budgeting, saving, and investing. It may also involve working with a financial advisor who can help you develop a comprehensive financial plan that aligns with your financial situation.
Let’s face it, life is hard and financial stress doesn’t make it any easier. Taking small but meaningful steps can help you avoid falling into the financial avoidance trap.
The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.
This content not reviewed by FINRA
Northbrook Financial is an Investment Adviser registered with the State of Maryland. All views, expressions, and opinions included in this communication are subject to change. This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy or the completeness of any description of securities, markets or developments mentioned. Please contact us at 410-941-9709 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate or modify any restrictions on the management of the account. Our current disclosure brochure, Form ADV Part 2, is available upon request, and on our website https://www.northbrookfinancial.com