What makes us tick? That’s an important question to answer, especially when it comes to our finances. If we don’t have a firm understanding of what can cause us to panic and act impulsively, then we’re doing our future selves a disservice.

Together we’ll review some of the most common financial triggers that cause people to feel panicked, anxious, or depressed in regards to their money. We’ll also break down how they occur, and how they influence you. Once you understand how they work, you’ll be able to spot them ahead of time, and deter their threat to your finances. 

#1 Negative News

Turning on the news is like opening a portal into the terrible. If COVID and corrupt politicians weren't enough, how about a maniacal dictator (with nuclear weapons) starting a war on a peaceful country? And if you’ve ever thought there was negativity bias in the news, you were probably on to something (duh). 2020 coverage of the pandemic serves as a recent example. 

Researchers examined coverage of COVID-19, across U.S. media outlets like CNN, The New York Times, Politico, Fox News, and hundreds of others both domestically and internationally. Then, using a social-science language classification technique, the researchers categorized coverage as negative, neutral, or positive.1

It was found that about 87% of Coronavirus coverage was negative in national U.S. media. Instead of “positive” pandemic coverage of things like case reductions, survival stories, or vaccination improvements, most coverage went to where cases were rising and instances with vaccination problems.1

Researchers felt a major driver of this negatively distorted coverage was simply consumer demand. They just gave people what they’d pay attention to.1 Wait, are they saying we’re more entertained by dread than happy endings? (duh, but that’s F’d up) So if you’re feeling anxious about market drops, downturns, recent crashes, or potential disasters in the news, realize you may be being spoon fed an overly negative view of things. 

#2 Recency Bias

Recency bias is our tendency to overemphasize the importance of recent experiences.2 It’s why you might feel the urge to get shredded after a Bowflex commercial, or fear taking a nighttime stroll after a horror movie. 

This is also why the negativity in the news can create such vicious cycles. Take for example the phenomenon of panic selling, which happens when there's a massive selloff of securities because fear starts overriding thoughtful analysis.3 It usually goes something like this:

  • Negative news breaks on the market
  • Recency bias overemphasizes the negativity
  • Fear sets in and people start panic selling

This pattern feeds on itself and creates what’s known as a positive feedback loop. This means the end result of a pattern spurs the initial action that began it.4 These loops will also drive prices artificially upward, and create market bubbles. These price-inflated bubbles eventually pop, and can lead to crashes with loops going back down.5 

Whether it’s driving market prices up or down, recency bias is powerful. It’s an error in human judgment that can cause us to invest impulsively and allow emotions to take over logic. We can get caught up in panic and take actions that only worsen our situations. Be aware that recency biases exist and that they often work in tandem with the herd mentality. 

#3 Herd Mentalities

Wildebeests travel in herds, and that’s because they offer protection and guidance. If they’re separated, they become more susceptible to outside threats. And though we’re missing horns, tails, and hundreds of their pounds, we’re not all that different. 

People seek refuge in the masses too, and it’s why we can feel so much pressure to just  “fit in.” Whenever we stand out from the crowd we risk exposure, shame, or ridicule. And if the masses turn on us, we risk being cut off from vital resources like jobs, love, and relationships. 

Wildebeests also travel in herds to find prosperity, which in their case is a bunch of water and grass. But is the herd always successful? No, and neither are herds of humans when they search for economic prosperity. 

As stated above, the masses often engage in activities that damage their success. They see others panicking about a drop, and start selling when they should hold. They see others panicking about missing out, and buy into the latest trends when they should think twice… 

*cough* NFTs *cough* 

Following in the footsteps of others can be incredibly helpful. By modeling the healthy financial habits of others, we can build ourselves up stronger. But always defaulting to the herd mentality, can cause us to panic and make brash decisions. And even when modeling the best, we have to be careful not to overpressure ourselves.   

#4 New “Normals”

As much as I love modern technology I’m relieved I didn’t grow up with social media. A 2016 study linked more social media use, and emotional investment in it, with worse sleep quality and higher levels of depression and anxiety in teens.6 

And it’s not hard to imagine why. Other studies have found social media to be triggering in teens for the following reasons:7 

  • It can expose you to events you weren’t invited to
  • It can create pressure to be attractive and well-liked online
  • It can create intense fear of missing out
  • It can create pressure to always be involved

When we only follow people we admire for their fame, wealth, fitness, or lifestyle we can create an echo chamber. We start seeing only images of exuberant spending, traveling, and aesthetics. Then we fall into the trap of thinking that this is the new “normal,” and think it’s what everyone else is experiencing. 

Chip and Joanne got anyone else constantly upgrading their home?

But this is a distorted reality like the news. Only instead of being exposed to mostly negative information, we’re exposed to mainly positive information. Our mental health is sacrificed as we constantly compare our own financial situations with that of extreme outliers. And we can start to feel panicked, anxious, and depressed due to the new financial standards we’ve made up.  

#5 Thinking We’re Alone (Bonus)

Trying to stay on top of taxes, investing, budgeting, and earning an income can be overwhelming. Add on top of that negative news, recency bias, herd mentalities, and faux social media standards, and it can feel like we’re drowning. 

We need people in our corner to help us through. Whether it’s co-workers to meet pressing deadlines, family members to get us through hard times, or mentors to take us to the next level, we’re better able to grow when we work with others. And the same holds true when managing our finances. 

At Crafted Finance we help clients understand their goals, develop plans for their attainment, and stick to the process. And we’re experienced in helping them navigate the panic and emotional turbulence of modern, everyday life. Feel free to reach out to us at (650) 336-0598 with any questions, or fill out a contact card here, and we’ll reach out to you.