You've probably heard someone refer to shopping as "therapy" --
an exercise some people do to cheer themselves up. The truth is
though, shopping when you are sad may be more like bad medicine
than therapy.
A
study published in the journal Psychological
Science
found that sadness causes people to make poor financial decisions.
Harvard scientist Jennifer Lerner and her colleagues Ye Li and Elke
U. Weber of Columbia found that sadness sometimes leads to overly
short-term thinking. Study subjects who were sad tended to value
future rewards between 13 and 34 percent less than subjects in a
neutral emotional state.
Short-term happiness, long-term regret
That kind of bias towards instant gratification can be seen in
people who use a shopping spree in an attempt to cheer up. It could
also explain other financial mistakes, such as taking on too much
debt or failing to
save for retirement
. These behaviors are not just financially destructive, but they
can lead to a vicious cycle emotionally. If sadness leads to poor
financial decisions, then the results of those decisions may well
lead to more sadness.
Whether it is choosing to go splurge at the mall, planning your
budget or evaluating an investment opportunity, try to avoid making
financial decisions when you are upset. Here are four strategies
you can try to help you make those decisions in a clearer frame of
mind:
-
Discuss.
Bounce the pros and cons of your decision off of somebody before
you make up your mind. You might get some good advice, and
sometimes just having to articulate the case for or against a
course of action can clarify how strong your argument is. Just be
sure you are turning to someone wise and responsible for advice
-- the last thing you need is to be aided in a poor decision by
an enabler who leans toward bad financial habits themselves.
-
Delay.
There are very few decisions that can't be put off for a day or
two. In fact, the worst decisions are often those people have
been rushed into making, which explains why retail marketing is
so oriented toward creating a sense of urgency. In general
though, if someone is trying to hurry you into something, it is
probably a sign they don't have your best interests at heart.
Delaying a decision gives you a chance to get in a calmer frame
of mind, and you may find the extra time allows you to gather
more information or think of other aspects of the question.
-
Create a context.
In a sense, all your financial decisions are interconnected, so
when you make a financial decision, you should start by putting
it into the context of your overall budget or
investment portfolio
. You should have a sense of how this decision will impact the
rest of your financial condition, and how it fits in with your
long-term goals.
-
Compartmentalize.
While it's good to create a financial context for your decision,
you also should isolate that decision from anything that's going
on in your life emotionally. Don't let something you are upset
about become a rationalization for an irresponsible decision
about money.
Getting in the right frame of mind to make sound financial
decisions can help you avoid doing something you'll regret -- and
regret is one of the saddest emotions of all.