Published in March 2019
Q: I am a single mom with a decent income, and I’m blessed with a certain amount of financial security. All my money is sitting in my checking account, and I’m too scared to do anything with it. Is this normal? Why am I so scared? Is there such a thing as fear of money?
A: It sounds irrational to be scared of money, but when it comes to money, we all do many irrational things. This is partially because fear drives many of our financial decisions, and fear can be irrational.
The biggest fear that we have in relation to money is that we won’t have enough to fulfill our basic needs, such as food, shelter, education and unexpected expenses. This fear is coming from a good place, as it protects us and allows us to pay our bills. But does it stop us from aspiring to do better, because we think we can never move ahead?
Then there’s the opposite fear—of having far more money than the people around you. Sounds like an ideal situation, right? But I find that many of us in this situation subconsciously worry that society will view us differently and raise their expectations of us. If we make it big in business, or inherit a large sum from family, will we have to stop sharing information with our friends? Will people bombard us with requests or think we are stingy if we don’t pay for a friend’s dinner on her birthday? This fear can become paralyzing and can prevent us from actively trying to grow our money.
Many of us are also scared to be seen as superficial if we have more money. Shouldn’t we be spending our time and energy learning Torah, fulfilling mitzvot and helping out others? If our economic status goes up, people might think that we care too much about money and not enough about the important things in life…although there is no reason for this to be the case.
Another fear is of losing our money. It’s more painful to lose money than to not have it in the first place. When we have “spare” money—money not needed for day-to-day living—which could be used for saving or investing, do we tend to go out and spend it, so we can enjoy it immediately, thereby subconsciously avoiding the risk of losing this money in the future? We have a natural tendency to want to get value for what we have, which can be done by spending it in the moment and receiving something tangible. But if you look at a graph of the stock market (or other investments) versus a graph of a bank savings plan, it is clear that over time, investments can do exponentially better than savings plans, so the most logical choice is to invest your spare money. Yet, so many people are scared of investing.
Harvard Business Review research has shown that women are more risk-averse. Men are more likely to take physical and financial risks, whereas women are stronger at taking risk on ethics. This study about risk-taking and risk-aversion concluded that women were 17% more likely to prefer a safe choice than men. You’ve probably heard that men apply for a job when they meet only 60% of the qualifications, but women apply only if they meet 100% of them. Similarly, women are even more hesitant than men to take a financial risk. This means we women are also less likely to invest our money.
It’s not easy to take a financial risk, but we can’t let fear alone rule this decision-making process. Fear is important in life. It keeps us from harm and helps us function, but sometimes we need to question whether the fear is helping us or stifling us. Ask yourself:
- Is this fear really valid?
- Am I simply scared of the unknown or afraid to step out of my comfort zone?
- How can I educate myself about this topic?
- How can I overcome my fear in order to make a rational decision?
As stated above, statistically, stocks do better long-term than bank savings plans, but the fear of potentially losing money is so strong that we forget to think about it rationally. Here are the questions that can help you make a decision about whether or not to invest:
- What would happen if I lost 20% of the money I invested?
- Will the important things in life still be in place?
- Will I still feel safe?
- What is the risk versus the potential return?
If losing 20% of this money means you won’t have enough for something you’ll need or are saving for, you should obviously keep your money in the bank. But if losing the money will be upsetting, but not life-changing, take the opportunity to potentially increase your income and improve your lifestyle. And then, ask yourself what if the more likely scenario happens, and your money makes money for you—how good would that feel? How helpful would that be?
Fear of money is a real thing, but it can be overcome. Be honest with yourself, address your fears, and figure out how you can overcome them. These are the first steps toward making rational financial decisions.
I remember in the height of the financial crisis in 2009, after everything had fallen, and no one wanted to put money in the market. No one even had any money, and people were being fired. It was toward the end of a real crisis, but no one knew if it was the end. Then I saw an article that said it was the “time” to invest—while everyone else was too scared. The author was so right; both that most people were too scared, and that it was the best time to invest.
What can you do today to take a step toward being more comfortable with investing? Take one baby step, and then another, and eventually, you will feel ready to take charge of your finances and banish that fear.