Many of us struggle with managing our personal finances. And while it’s no surprise that money problems abound after a pandemic, these trends were already widespread in previous years.
A Gallup study published early in April 2020 reflects this. Americans who expressed concern about worsening financial prospects numbered at 50%, the highest number in the last two decades.
Keep in mind that these polls were conducted before the economy truly began to feel the pandemic’s impact.
Since then? Quite likely, over half the population feels even more worried about finding good employment, paying the bills, and saving for their retirement years.
And as we search for a solution to our individual problems, this challenge is compounded by a further wrinkle: knowing what to do won’t necessarily get you out of trouble.
Literacy is a vital piece
A major reason why many people find themselves in a messy money situation is the lack of appropriate tools.
It seems so simple to keep track of your expenses, balancing what goes out against how much money you’re earning. Make sure you stay in the positive each month, and you can stash the excess as an emergency fund or invest it for long-term growth.
Someone who grew up with financial instruments wouldn’t understand how complex finance can seem to those without literacy. There are people, for instance, who think that a credit card is equivalent to their money. They get upset, demanding refunds on erroneous charges as though the cash had been taken out of their personal account.
You have to explain to them that no one has stolen from them. The card represents a line of credit issued by the bank, and a temporary spending limit has been applied while the transaction is being verified and processed.
This illustrates why financial literacy is so crucial to helping people make sense of money problems. It’s the first step towards getting your finances under control.
Rehab for money problems
However, the example also underlines the missing component that people tend to ignore. Our emotions can easily get in the way of comprehension and ultimately prevent us from going beyond that first step.
When someone becomes addicted to drinking, it’s well-known that they need help because of the problem’s emotional component. Friends and family stage interventions, enlisting their loved ones in a center where they’ll receive the support and treatment needed to recover from alcoholism.
Ideally, it works the same way for people who struggle with money. In the absence of financial education, our practices are often steeped in the influences of our parents and grandparents. In turn, they might bring their own emotional baggage from recessions or failed investments in the distant past.
There’s actually a process for money interventions called financial therapy. And it works because you have trained professionals mapping out those influences and helping you disengage from your current, unhealthy financial narrative.
Maybe that’s already convinced you to seek out help from a therapist. But it might also have you wondering if the principles of financial intervention can be applied, DIY-style, to your solo efforts to get better.
Self-treatment has its limits
The framework for financial intervention is simple. You, as the subject, want to improve. You evaluate your current lifestyle. A new budget is implemented, and further changes are made down the line, tailored to how the scenario unfolds.
Therapy is inserted between the identification of needs and evaluation of finances. Here, the background influences are identified, a narrative is constructed, and you create a ‘financial mirror’ that depicts your situation by organizing your documents.
Knowing how the process works, there’s nothing that stops you from applying it to yourself.
But how effective will it be? You need to be able to distance yourself from your emotions regarding money.
That might be easier for some people. Maybe their money problems aren’t too severe. Maybe resolving those issues can be done entirely with logic and calculation.
However, the more emotionally rooted your troubles are, the more difficult it will be to remain objective in your assessment of the situation and execute your action plan.
If you already suffer from cognitive and emotional biases in this domain, self-diagnosis and self-treatment will likely wind up inherently flawed.
Try to engage with close friends or family members who can provide you with a different perspective. They can also hold you accountable for the commitments you’ve made.
Remember, the battle to gain control of your finances is waged partly in the mind, and partly in the heart. Financial literacy helps with the former, but most of us could really use outside support for the latter.