One clinical psychologist in Atlanta recently wrote a call to action (PDF) saying money has become an unhealthy taboo in psychotherapy. The main point of the essay was to say that financial troubles, especially in a rough economy, can become great sources of stress, anxiety, and depression for many individuals; and this can often be an overlooked aspect of mental health. In addition to stresses and anxieties, many individuals develop dysfunctional attitudes toward money, some of which could be considered forms of mental disorders, now coined “money disorders.”

Klontz and Klontz suggested a range of possible money-related disorders in their book Money Over Mind. These included money-worshiping, rooted in the belief that more money provides the answers, which can lead to such behaviors as overspending, compulsive buying, unreasonable risk-taking with money, pathological gambling, hoarding, and workaholism; and money-avoidance, which includes “behaviors such as financial denial, where denial is used to defend against or minimize money problems, or financial rejection where feelings of guilt or unworthiness are associated with money.” Avoidance disorders can also include under spending and excessive risk-aversion.

Apparently almost 30% of young adults between 18-25 are experiencing some kind of mental disorder, this is the highest rate ever recorded. Of course, many of these same individuals are just graduating from college and entering into a depressed marketplace. Psychologists are right to wonder how these current economic conditions may be contributing to our poor mental health.

Financial wellness – a component of well-being.

As someone who fits into the statistic mentioned above, I can certainly say that my financial life has been less than satisfying over the past two years. It has also spilled over into others aspects of my life, like relationships and going out to social gatherings. These can definitely pay a toll on our mental well-being. It is important to acknowledge that a balanced life must include proper (and sane) management of our finances (including a sustainable income). I can only imagine the stress of those who are going through similar troubles, but also need to support a family. Such a situation can become really mentally draining and affect all aspects of one’s life.

The right attitude about money.

I’ve thought a lot about money over the years and I’ve come to the conclusion that it shouldn’t be seen as neither “good” nor “bad.” Money is just a tool we use to exchange value with one another. But like all tools, it can be used properly and it can be used really poorly. Some of us have a lot of money, but when we spend it impulsively and with only short term gratification in mind, we can often find ourselves less happy with what we have in the long-term (perhaps due to wastefulness and gluttony). This is similar to what Klontz and Klontz called “money-worshiping.” At that point, material well-being can be like a drug.

At the same time, completely avoiding material needs can be unrealistic and just as unsatisfying. I think some of us witness greed in the world, and then we overcompensate by fostering a completely negative attitude regarding money. We see all action focused on making money to be bad, maybe even evil. A balance needs to be met by coming to terms with our material needs without clinging to them.

Avoid spending biases.

Debt is one of the biggest problems when it comes to financial wellness. People either buy a lot on credit or take risks that they think will have big financial return, but don’t. Thus they find themselves in a hole, paying interest on enormous debt as time continues to tick. It can feel like a prison.

Of course the best way to avoid debt is to not go in debt in the first place. This ultimately boils down to having smart spending habits. The trouble is many of us hold cognitive biases that hurt our wallets. Hopefully by being more aware of some of this irrational decision-making we can avoid making these mistakes:

    Status quo: We stick to buying what we know instead of pursuing alternatives.

    Relativity trap: We notice a product is on sale 20% so we feel more compelled to buy it even though we never really needed the product in the first place.

    Sunk cost effect: Instead of cutting our losses short, we often hold onto poor investments hoping that they will bounce back. This is a form of loss aversion: our tendency to prefer avoiding losses over acquiring gains.

    FREE!: Humans tend to be very allured to anything that is “FREE!” and can often make irrational spending decisions to get something for free (ones which end up costing them more in the end). There is a great chapter on this in Predictably Irrational, an excellent books that explains some of the hidden forces behind consumer behavior.

    Restraint bias: Humans tend to overestimate their self-control regarding spending. One thing we can do is avoid getting ourselves in tempting situations or environments that encourage us to buy something new.

    Post-purchase rationalization: This bias describes our tendency to backwards rationalize our decisions after we’ve committed to them. Sometimes marketers use “Money Back Guarantees” knowing that instead of regretting a purchase we will usually find a way to justify it to ourselves.

Imagine yourself in the future.

A recent study published in The Journal of Consumer Research has suggested that by imaging our future self we can curb present spending and save more for the future. “The willingness to forego money now and wait for future benefits is strongly affected by how connected we feel to our future self, who will ultimately benefit from the resources we save,” writes Daniel M. Bartels (Columbia Business School) and Oleg Urminsky (University of Chicago).

If we can place ourselves in a bird’s eye view of the future (especially when making financial decisions), we can often become better planners for our future retirement by seeing the “bigger picture” of our habits.

Don’t buy stuff you can’t afford.

One of my favorite Saturday Night Live skits with Steve Martin. Just commonsense hilarity about not buying stuff you can’t afford. This seems more relevant now than ever before.



Remember money isn’t everything.

Money, of course, isn’t the only value in life. We also need good health, relationships, a meaningful life, among other things. Money and well-being does show some correlation up until $75,000 a year, but after that point money shows no significant effect on increased well-being. It’s important to remember that someone who is rich can still be miserable, and someone who is poor can still find happiness. Money is just one of many conditions that contribute to our well-being. This doesn’t mean we should ignore it; instead, we should try to maintain a balanced perspective.



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