May 29, 2023Wellness Education Financial literacy Lifestyle
Does Mental Health Affect Wealth?
The mental math needed to positively impact your investments
An Angus Reid poll in March 2022 stated that most Canadians felt the pandemic brought out the worst in people and greatly divided the population[i]. That same report said that 54% of Canadians felt the pandemic left them with worse mental health than before the pandemic.
Positive mental health is essential when making financial decisions since psychological elements significantly impact our ability to think, feel emotionally comfortable, and make proper decisions. Several prevailing themes underline the significance of mental health in financial decision-making:
Clarity of Thought: Positive mental health fosters mental clarity and improves cognitive performance. People are better equipped to analyze and handle financial information efficiently when their moods are upbeat. They can exercise critical thought, assess advantages and disadvantages, and consider long-term effects, resulting in more sane and well-informed financial judgments.
Emotional regulation: Effective emotional control is necessary for wise financial decisions. Managing emotions like fear, greed, impulsivity and anxiety, which can impair judgment and result in irrational financial decisions, is crucial to mental health. Self-control and emotional stability enable people to avoid impulsive purchases, limit excessive risk-taking and base decisions on long-term financial objectives rather than momentary pleasure.
Risk Perception and Tolerance: Mental health affects how people perceive and react to dangers. People may experience increased worry, fear, or pessimism when their mental health is damaged, resulting in an inflated perception of risk. This may lead to overly cautious choices or a failure to seize possibilities for financial gain. However, a good mental state encourages a balanced view of risk, allowing people to objectively weigh prospective benefits and losses and make wise financial decisions.
Delayed satisfaction: Making long-term investments or savings and being able to defer satisfaction are frequently necessary for achieving financial success. Individuals' ability to withstand immediate temptations and focus on long-term objectives depends on their mental health. A healthy mental state promotes tolerance, self-control and goal-directed behaviour, enabling increased decision-making capacity.
Financial Stress and Well-Being: Both financial stress and poor mental health can have a detrimental impact on each other. Financial concerns and instability often increase anxiety, despair and impaired judgment. On the other hand, those with good mental health have the resolve and coping skills necessary to handle financial hardship or setbacks better. People can make rational and more unbiased financial decisions when their stress levels are lower.
Finally, as it boosts emotional control, encourages a balanced perception of risk, supports delaying gratification and lessens financial stress, good mental health is essential when making wise financial decisions. At CIBC Wood Gundy Allan Bush Investment Team, we work to create financial peace of mind that can help improve decision-making abilities, could lead to more successful lives and has greater potential financial security over the short and long term.