How Covid-19 Can Cause You to Make Unconscious Money Decisions
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How is the COVID-19 pandemic changing people’s conscious and unconscious financial choices?
Here's your Money Briefing for Friday, October 23rd. I'm J.R. Whalen for The Wall Street Journal. Shutdowns, travel restrictions, job losses, the coronavirus pandemic has defined 2020. That may have made you more conscious about your money and how you spend it. But the pandemic may also be affecting your financial decisions in ways you aren't aware of. And when it comes to personal finances, that can be dangerous.
One of the key parts of it is you actually don't even really understand that you're feeling that way. And you certainly don't necessarily understand why.
That's John Payne of Duke University's Fuqua School of Business. He'll explain how to counterbalance the effects of these subtle feelings and avoid making dangerous decisions with your money. That's after the break.
Americans have consciously changed their spending habits due to the pandemic. Many people put plans on hold for travel or other expenses. Some lost their jobs or were furloughed for a while, and others may have started putting money away in case of emergency. But COVID-19 is affecting people's financial decisions unconsciously as well, as they deal with the emotional toll of the pandemic. John Payne has been studying this. He's a professor emeritus at Duke University's Fuqua School of Business. Hey, John, thank you for being with us.
All right.
So, you know, a lot of us are going through some kind of COVID fatigue. We hear enough about it every day, and it has a lot of people on edge. But there's more going on below the surface.
The basic idea is you get an emotional reaction along with whatever intellectual reactions you've got. You know, following the Wall Street Journal numbers on how many cases. It can cause people to sort of feel sad or maybe fearful or angry. I mean, just three negative emotions. all of which you can sort of have. And the idea here is that that can impact the decisions you make. The key is it's an ambient emotion that often has an unconscious effect on your decision. It's not like something that you know why you're angry or you know why you're fearful or sad like, Perhaps if you've got a medical diagnosis of something that's really not good and terrible and stuff like that. And that you associate with a specific task related kind of emotion.
This is a more general background kind of thing. And one of the key parts of it is you actually don't even really understand that you're feeling that way. And you certainly don't necessarily understand why. Now, you can have that brought to your attention. Like, have you thought about the fact that it's cloudy today or it's been two months since you've seen the sunshine in New York?
Who is John Payne and why is his research on emotions and money relevant now?
But that's a different kind of thing than a more task-specific kind of thing.
Now, these ambient emotions, how could they play a role in people making financial decisions?
You can have a general sense of fear, much like, you know, a cloudy day can make you sad. And we know that that can cause you to be perhaps more risk averse in your decision making. And obviously, that can have implications for specific kinds of financial decisions like, you know, do you want to claim your social security early or late? if you're going to keep some of your retirement money in equities versus bonds how many how much do you put in the equity part so it could have a variety of decisions like that but that's just on the fear side anger is actually an interesting one because even though it's also a negative emotion it tends to lead to just the opposite more risk-taking more sort of wanting to do something to solve the problem that generated the anger
And how does sadness play a role?
It's a negative emotion, much like fear and anger. It tends to be an avoidant emotion. You really want to try to sort of figure out how to get away from it. It's an interesting kind of thing. The basic idea here is that when you are feeling sad, you often will try to either do something that will make you happy. So you go out and you buy yourself a good hot fudge sundae. Or, you know, you might avoid making decisions that you think might cause that emotion to be even greater.
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