Obsessing about money—or lack thereof—can lead you to become more financially strapped and stressed than you were in the first place.
No one likes being broke. Financial stress is real. In fact, according to a study by Northwestern Mutual, more than half of Americans reported feeling anxious or insecure about money often, if not all the time. The report also said money was a dominant source of stress in 44% of respondents.
With these stats in mind, it may not be surprising to hear that money troubles can lead to depression. But did you also know there is a psychological phenomenon that can actually cause those in a money hole to dig themselves even deeper?
What Is Financial Tunnel Vision?
A 2018 episode of NPR’s Hidden Brain focused on the phenomenon it called the “scarcity trap” and how it can affect our thinking. The episode explained it like this: “When you feel that something important is missing in your life, your brain starts to focus on that missing thing. When you’re really desperate for something, you can focus on it so obsessively, there’s no room for anything else.”
This can happen with anything: food, friendship, and yes—money. And it can actually affect your decision-making skills. Harvard University economics professor Sendhil Mullainathan, who was interviewed on the program along with Princeton University psychology professor Eldar Shafir, explained it this way: “When you have scarcity and it creates a scarcity mindset, it leads you to take certain behaviors, which, in the short term, help you manage scarcity, but in the long term, only make matters worse.”
These decisions can be wildly out of character and might seem ill-advised or even reckless to outsiders. To demonstrate, the show used the real-life example of a woman who suddenly lost her job but still needed to provide for her family. Instead of prioritizing her expenses for the rest of the month (the long term), she maxed out her credit card on household necessities, like toilet paper (the short term). As a result, she didn’t have enough money for other expenses, like gas for her car. This led to a series of other decisions that dug her further and further into debt. In the past, she had been very good with her money. So what happened?
How the “Scarcity Trap” Can Dig You Further into Debt
“The poor—people who are lacking financial resources,” Shafir said, “find it very hard to think about anything but money, or at least spend a lot of their cognitive resources, a lot of their attention, on financial juggling.”
In a sense, there is no room for anything else in the brain, and it starts to affect cognitive function. Your bandwidth is completely taken up by finances, and you don’t have the ability to think about much else.
Mullainathan and Shafir believe the roots of this scarcity mindset come from an evolutionary instinct that helped earlier members of our species survive. Hunter-gathers needed to collect many resources to live. “When they get hungry, it’s sort of like the evolutionary system wants to have an alarm that says, ‘Hey, really focus on getting food into the system,’” Mullainathan said. “And that, I think, is the basic scarcity instinct. We’re hungry. And then this thing starts going off in the head saying, ‘Do you realize we’re hungry? Have I mentioned we’re hungry? We’re hungry.’ And it just keeps calling out to you.”
It creates “tunnel vision.” Everything in the tunnel—in this case anything to do with money—is clear and everything else goes dark.
According to the program, research has actually shown the poor are better at stretching a buck from day-to-day than wealthier people, but it doesn’t necessarily work out in their favor. They might be couponing and figuring out where to go to get the cheapest produce for dinner tonight, but since they are spending so much mental energy on getting food on the table, for example, they likely don’t have much time left over to think about rent or utilities for the next month. This can lead to missed bills and other expenses, which can end up driving people further and further into debt.
Learn to recognize financial tunnel vision
“I’ve watched bankruptcy clients struggle with financial tunnel vision, or a scarcity mindset, for years,” says bankruptcy attorney Joy Alford-Brand. “I’ve come to realize that you can’t escape financial tunnel vision unless you know you’re in it, and the best way to figure that out is to pay close attention to how you’re feeling.”
Alford-Brand says to look out for signs of anxiety, such as insomnia or feeling physically ill, as these can indicate a high level of financial stress. “In our culture, we worry so much about money. It’s constantly on our minds and stressing us out. We are conditioned that way from the time we are small, and that is how we get comfortable with our scarcity mindset.”
But Alford-Brand also says it doesn’t have to be that way.
Is it possible to change your mindset?
Alford-Brand acknowledges changing one’s mindset is easier said than done. One thing she recommends is taking a beat before making any big financial decision, such as opening up another credit card account or taking out loans.
“Before I have my clients sign on the dotted line to file bankruptcy, I tell them to leave my office and not think about their financial situation until the next morning. I tell them that we make better decisions when we are well rested and able to breathe,” she says. “That space allows the client to realize that money problems are not the end of the world and to think over their options with a cool, rational mind. Too often I’ve had clients sit across from me in a state of panic over their finances. The truth is, no amount of money is worth your health and peace of mind.”
Prioritizing responsibilities can help
Practically speaking, Alford-Brand always advises clients to prioritize certain bills. First is rent or mortgage payments. “The most important thing is securing a roof over you and your family,” she says. Next she advises clients about securing transportation to work. “If you lose your job, you likely will not be able to pay your rent and that obviously makes the situation worse,” she says. “Getting to work needs to be a priority, for sure.”
Obviously it’s not ideal to skip any bill payments, but you can still prioritize or find other solutions. Student loan payments, for example, often offer hardship deferments. Healthcare facilities will frequently work with you in times of financial hardship. You may be able to pause or decrease payments on bills such as these. Paying only your minimum credit card balance means you pay more in the long run, but it’s better than nothing.
However, it’s not like there is a switch you can turn and suddenly stop thinking about the money you don’t have. According to the Hidden Brain episode, researchers “want policymakers to design solutions that recognize how scarcity creates traps from which many people may not be able to extricate themselves.”
The scarcity trap can affect anyone
Many people blame the poor for their economic situation, saying they are “lazy” or “make bad decisions.” But one important takeaway from the scarcity trap theory is that this kind of contitive hindrance can happen to anyone—even people who used to be wealthy.
“What if it’s not that poor people are somehow deficient, but that poverty makes everyone less capable?” Mullainathan said. “That [if tomorrow, we were] to become poor, [we] would all of a sudden have the same effect; that poverty is in some sense changing our minds.”
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