This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice please consult us here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
In June 2020, at the height of the COVID-19 pandemic, Ipsos Mori published a report into the state of financial wellbeing in the UK. Its findings were significant.
It found that “financial wellbeing” – a deep sense of personal financial security and freedom of choice – is essential to mental health and success. Yet huge barriers get in the way of people wanting to achieve a greater sense of financial wellbeing in their own lives.
These barriers are deeply rooted in “behavioural finance” (i.e. how psychological influences affect human decision-making). Yet the good news is that people can make notable progress in limiting or even removing these barriers, using financial education.
Below, we explore three key barriers to financial wellbeing identified in the Ipsos MORI report and suggest ways to overcome them.
#1 Scarcity / bandwidth
Have you ever felt yourself simply unable to muster the strength to devote “thinking power” to your savings, investments or wider financial plan?
The Ipsos MORI report refers to this barrier to financial wellbeing as “scarcity” or a lack of “bandwidth” to process important decisions. For instance, if you are living paycheque to paycheque and are working three jobs to make ends meet, you likely have little cognitive resource left to “reason, focus, make decisions and resist immediate impulses” in your finances.
People in this mindset often find themselves in a “cognitive tunnel” where they feel unable to look beyond their near-term financial goals (e.g. paying the next utility bill). Getting out of a rut like this can be immensely challenging, but it is not impossible.
One positive first step to consider is to muster some strength to explore where the scarcity might lie in your own life – e.g. time, money or resources. From there, think about some small decisions you could take to alleviate the pressure.
For instance, if you are a new parent and are struggling with sleep deprivation, working a job and looking after an infant, then you may have little cognitive power to think about your long-term financial goals right now.
Yet could you give yourself a bit of “mental breathing space” by asking a caregiver (e.g. a grandparent) to take the kids for an afternoon on one of your days off?
This could give you some much-needed time to relax, let your subconscious run and do a bit of long-term financial planning.
#2 Lack of confidence
Confidence is a state of clear-headedness. It describes that sense you have that a certain decision or prediction is correct, or the best way forwards.
Lacking in confidence can have detrimental effects on a person’s life. For some, it leads to constant self-criticism – producing feelings such as sadness, depression and anxiety.
For others, it can lead to an unobtainable obsession with perfection. Or, lowered resilience in the face of opposition or difficulty.
Naturally, these results can be particularly detrimental in the area of one’s finances. If you lack clarity about which financial decision is best, then it can be deeply unsettling. To cope, many people simply refrain from making a decision altogether (despite the fact that not making a decision is still a decision!).
To overcome a lack of financial confidence, education is one of the best ways forward. With more knowledge about money, savings, investments and long-term financial planning, you empower yourself to have greater certainty about your best financial options in a given situation.
Getting financial education does not mean getting a university master’s in finance or becoming a financial planner. Rather, start with a particular topic (e.g. how to improve your credit score) and work from there. Over time, your knowledge and confidence will both grow.
Just be careful to rely on reputable, trusted sources of information when building financial education. These might include financial planning blogs, white papers, government websites and interviews with industry experts.
#3 Shame
Shame describes a deep feeling of distress, or humiliation, that a person experiences – often after consciously making a poor choice. It is related to our human need to feel connected with others and accepted by them.
Shame can result in someone being overly hard on themselves, withdrawing from others and engaging in avoidance behaviours with their finances.
If someone feels deeply ashamed about past financial decisions (e.g. not starting a pension sooner), they may be inhibited from seeking the professional help they need. The result, therefore, can be a vicious downward spiral or “negative feedback loop”.
Breaking out of shame is difficult. It often means admitting that we made a mistake and need help getting back on track. Extending compassion to yourself can be a vital first step. After all, everyone makes mistakes. What matters is whether you are going to learn from them.
Try to separate, in your mind, who you are from what you have done (or not done, but should have done). Empathise with the reasons behind why you made a financial mistake. Was it truly because you are a terrible person, or because you maybe felt underappreciated or not confident?
Please know that, as financial planners, there are few financial mistakes we have not already seen! We are not here to judge, but to help you progress towards your goals.
Invitation
If you are interested in starting a conversation about your own financial plan or investments, then we’d love to hear from you.
Please contact us to arrange a free, no-commitment consultation with a member of our team here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
Reach us via:
T: 01282 772938
