August 9, 2022—During times of financial uncertainty, some people may allow emotions, rather than logic and reason, to drive their business decisions. But emotional decision-making, mired in personal bias, can derail even the best-laid plans. It is usually best to keep emotions in check when faced with high stakes financial choices. In this podcast, Family Wealth Advisor Jerry Inglet of Wilmington Trust’s Emerald Family Office & Advisory offers thoughts and exercises that may temper emotion when engaging in important business decisions.
Managing Emotions During Financial Uncertainty
Hi, thank you for tuning into today’s Emerald GEM, which stands for Get Educated in Minutes. I’m Jerry Inglet, a family legacy advisor for Wilmington Trust’s Emerald Family Office and Advisory and your host for today’s podcast. In today’s GEM, I will answer a series of questions that include: What are the psychological underpinnings connected to emotions and financial decisions? How are these emotions manifested in financial behavior? And last, what kind of exercises can you practice to help mitigate and balance emotions with constructive action?
Researcher Daniel Kahneman postulated that 90 percent of financial decisions are made emotionally—and these emotions are often impacted by financial flashpoints or highly charged, financially significant moments that we encounter as children, as young adults, and well into our adult life.1 These flashpoints manifest in the form of a subconscious, decision-making driver where pending financial decisions are often layered against bias that shapes and plays a role in how we feel, think, and ultimately act around money, resources, and finances in general.
Some examples of individually unique flashpoints could include:
Many times, flashpoints can be connected to memorable macroeconomic experiences—what comes to your mind when you think of your financial and business decisions related to:
These individualized and macroeconomic conditions imprint us all differently and can subconsciously impact our financial decisions for years to come by building bias that we may not realize exists. And bias and unconfronted emotion can impact financial decisions when individuals are open to the possibility of behaviors that are:
Imbalanced behaviors, as described just now, do not have to be the norm when faced with high stakes financial choices. Our ability to negotiate these moments depends, in part, on our ability to recognize our bias through risk and panic. Stephen Wendel has summarized this conundrum by describing two sides of an equation as we reflect on our financial and business choices within a continuum that requires our personal negotiation. On one side of the scale, we are concerned with the risk necessary to achieve our financial and business goals, and on the polarized position we contemplate decreasing risk to minimize our panic.2
None of this is easy, especially in volatile financial times. And if these worries are top of mind for you in this moment, you are not alone. The American Psychological Association maintains that 72 percent of Americans are stressed out about money issues in general.3
So, what are some thoughts and exercises to ponder as you work to recognize bias and temper emotion when engaging finances, markets, and business decisions?
Some of these measures are a practice of reflection:
In addition to exercises that promote financial reflection, there are activities that help define or improve moments of action or status quo:
All of these financial decisions connected to uncertainty can impact our general well-being, and in these moments we can:
Volatility and markets have always been in play, business decisions will always present challenges. Your awareness of the personal bias and associated emotion derived from some of the tools presented here hopefully can help you build a method to manage these matters in a constructive fashion.
Thanks again for joining us today. Please contact your Wilmington Trust advisor if you have any questions related to navigating challenges presented by emotionally charged financial decisions. We would be glad to help you. See you next time!
1 Kahneman, Daniel, and Amos Tversky. 1979. Prospect theory: An analysis of decision-making under risk. Econometrica 47, no. 2:171–85.
2 Wendel, S. (2018). Using a behavioral approach to mitigate panic and improve investor outcomes. Financial Planning Association. Retrieved from https://www.financialplanningassociation.org/sites/default/files/2020-05/16%20Using%20a%20Behavioral%20Approach%20to%20Mitigate%20Panic%20and%20Improve%20Investor%20Outcomes.pdf
3 American Psychology Association (2015). Speaking of Psychology: The stress of money. Retrieved from: https://www.apa.org/news/podcasts/speaking-of-psychology/financial-stress
4 Sussman, L. & Dubofsky, D. (2021). Your total wealth: The heart and soul of financial literacy.
5 Lamas, S. (2020). Checklist: Behavioral techniques to help clients tackle financial stress. Morningstar. Retrieved from: https://www.morningstar.com/insights/2020/05/19/behavioral-techniques-to-help-clients-tackle-financial-stress
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