Financial matters cause stress to almost everyone. Some have a healthy anxiety around money matters that helps them make smart financial decisions, while for others that stress can lead to bad financial choices.
However, when we have to contend with consistent stress in and outside of work, the break the brain needs to restore itself is eliminated. Stress brain becomes the norm. The benefits of the situational, periodic stress of financial decision-making are lost to the chronic stress condition. In fact, with chronic stress, the brain goes into a type of “airplane mode” to conserve and protect itself.
Stress brain is typically caused by this accumulation of stress from a high-pressured job combined with strain from other parts of life, such as family demands, health concerns and/or ongoing social challenges. With higher levels of cortisol maintained over long periods of time, stress brain takes a toll on cognitive functioning.
On the most basic level, we think and act at a much slower pace. Given the timeliness of some of the best financial investments, this delay in pulling the trigger therefore can result in missed opportunities. Stress brain, however, can cause greater long-term detriment to the mental sharpness for the investor as it thwarts creative thinking, diminishes memory function and detracts from ability to focus.
Ironically, chronic stress doesn’t detract from wise financial decision-making just because it slows you down mentally and inhibits innovative strategic thinking. It also distorts the perception of potential outcomes as the brain tries to “feel better.”