The biases and feelings that cause money problems often keep people from taking action
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As with many other types of problems, resolving financial difficulties is impossible unless one is open about them. But for people mired in money problems, even taking that first step might be hard.
A new study from Manulife has shown that feelings of embarrassment often prevent Canadians from admitting their personal financial struggles. Those who harbour these feelings can find themselves in a catch-22: being financially unwell makes them feel ashamed, which keeps them from opening up about their troubles, which means they don’t get the help they need to recover.
“The stigma, shame and embarrassment of being financially unwell often prevent people from taking action to address and overcome these issues,” said Sue Reibel, executive vice president and general manager with the Group Benefits & Retirement Solutions division at Manulife.
Such money issues can also affect people’s psychological health. According to professional counsellors Manulife surveyed during the study, financial challenges figure in more than half of cases for which people seek support. However, only a third of the counsellors reported seeing people connect their problems with their finances. Forty-six per cent said feelings of shame make it difficult for Canadians to reveal money issues.
While the study focused on the emotional trap that can lead to chronic financial problems, there’s another possible culprit: cognitive biases. Studies in behavioural finance have shown that people, despite having all the information needed to make a rational decision, can still make self-sabotaging choices because of subconscious prejudices.
One example of such a bias is the ostrich effect, wherein investors simply avoid exposing themselves to information that may be uncomfortable to learn even if it’s potentially helpful. Related to that is confirmation bias, a tendency for people to seek out information that reinforces their pre-existing beliefs and ignore facts that undermine them. Mental accounting, overconfidence, anchoring to irrelevant information, and various other biases can push people to make poor decisions — and can make them blind to the problems that eventually occur.
For more of Wealth Professional's latest industry news, click here.
Related stories:
The power of patient advice
The human factors behind financial decisions
A new study from Manulife has shown that feelings of embarrassment often prevent Canadians from admitting their personal financial struggles. Those who harbour these feelings can find themselves in a catch-22: being financially unwell makes them feel ashamed, which keeps them from opening up about their troubles, which means they don’t get the help they need to recover.
“The stigma, shame and embarrassment of being financially unwell often prevent people from taking action to address and overcome these issues,” said Sue Reibel, executive vice president and general manager with the Group Benefits & Retirement Solutions division at Manulife.
Such money issues can also affect people’s psychological health. According to professional counsellors Manulife surveyed during the study, financial challenges figure in more than half of cases for which people seek support. However, only a third of the counsellors reported seeing people connect their problems with their finances. Forty-six per cent said feelings of shame make it difficult for Canadians to reveal money issues.
While the study focused on the emotional trap that can lead to chronic financial problems, there’s another possible culprit: cognitive biases. Studies in behavioural finance have shown that people, despite having all the information needed to make a rational decision, can still make self-sabotaging choices because of subconscious prejudices.
One example of such a bias is the ostrich effect, wherein investors simply avoid exposing themselves to information that may be uncomfortable to learn even if it’s potentially helpful. Related to that is confirmation bias, a tendency for people to seek out information that reinforces their pre-existing beliefs and ignore facts that undermine them. Mental accounting, overconfidence, anchoring to irrelevant information, and various other biases can push people to make poor decisions — and can make them blind to the problems that eventually occur.
For more of Wealth Professional's latest industry news, click here.
Related stories:
The power of patient advice
The human factors behind financial decisions
