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New Neuroscience Study Reveals What Worry About Money Does To Your Brain

This article is more than 6 years old.

It’s no surprise that financial stress is draining. Anyone who’s worried over a budget or fretted about making the wrong investment choice or major purchase can recognize the telltale signs of such anxiety. But what’s actually happening to your brain when you feel under such pressure?

New research conducted by neuroscientist Sam Barnett, co-founder of ThinkAlike Laboratories and sponsored by Northwestern Mutual, offers a rare glimpse at the brain while it is making financial decisions—and finds that anxiety actually impairs our ability to make sound decisions.

“Our brain was designed to make binary decisions—fight or flight—and avoid dangers,” Barnett says. But modern life with its ample choices and options doesn’t match how our brains naturally process information—explaining some ultimately self-defeating reactions such as impulsivity or inaction. “One of the reasons that there are so many feelings about anxiety around financial decisions is there are so many choices you can make and there’s not necessarily a clear, right answer,” he says.

Prior work looking at the paradox of choice has illustrated the challenge of selecting from overly abundant options (this affects everything from picking a jam to choosing a date or mutual fund — often more variations just confuse us). Barnett’s research provides an inside look at what happens to the brain when it gets a little help: for this study group, individuals not only reported feeling calmer, but more confident about their decisions. That assistance could be as simple as presenting a framework for thinking about a decision or more directly, from help provided by an advisor.

For example, consider drafting that budget. There are probably as many different ways of budgeting as there are individuals. But, as Barnett suggests, if you are given a basic way to organize your thoughts, such as ‘Divide your income in three categories with a percentage devoted to regular living expenses, savings and discretionary spending,’ the choices become more straightforward for how to prioritize your spending.

“It’s a lot easier than facing a list of infinite choices,” Barnett says. Even small tips and hints that lead you in the right direction can help. “That makes a gigantic difference for your brain’s own ability to perform in the moment,” he says.

To explore the effect, researchers analyzed 45 study participants’ brains by employing an electroencephalogram, or EEG test, that reveals the brain’s electrical activity. Research subjects, all of whom were college graduates, with most (69%) reporting household incomes over $100,000, were asked to make financial decisions about topics ranging from budgeting, to investing for college or planning for retirement. Some participants were “assisted” and some were “unassisted.” Among the key findings released this month include: neural signals associated with relaxation and recognition increased by more than 20% (20.8% and 28.6% respectively) when participants received “assistance” compared to those who were “unassisted,” according to the report results. And among those who did not receive assistance showed neural signals associated with attentional demand (or more difficult or stressful information processing) — tending to be 20% higher than among those who had some type of aid.

These findings suggest more evidence for why heuristics, or rules of thumb, are both so effective and ubiquitous. Consider a few from the financial world: Pay yourself first. Sell in May and go away. Buy and hold. Only use the principal. Buy low, sell high. The list could go on and on.

It also offers scientific insight into the enduring popularity of self-help books promising prescriptive solutions for everything from dieting to money promising health and wealth if you only: eliminate carbs/embrace the point system/eat like a Paleo or pay off your “debt snowball”/cultivate income property.

“It’s absolutely surprising to see regardless of experience, everyone still finds these situations challenging,” Barnett says of when we confront a financial choice. “The benefits that we saw in the brain were not just emotional benefits — people’s actual brain performance actually seemed to improve.”