Some of us turn inwards and meditate when stressed out, some relieve stress externally—maybe with some retail therapy or a fun night out with friends. But did you know stressed-out spending can actually be bad for your financial future?
Driving the news: A new working paper called "The Economics of Financial Stress" found that of 10,000 Americans polled, two groups emerged when it came to handling financial stress: “naifs” and “sophisticates” (kind of rude terminology if you ask us).
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Sophisticates are better at handling financial stress and understanding the impacts it can have on their future. They are savers—when things get tough, they double down on their tactics and save even more.
- But naifs (75% of respondents) will continue to spend as usual since "they fail to understand that financial stress incurs negative economic consequences in the future." They are combatting stress with comfort and convenience—a cost they probably can't afford.
Why it matters: Canadians are inundated with financial worry—housing costs are ballooning for renters and homeowners alike, food prices continue to climb, gas is set to spike this summer, and—oh yeah—there's the threat of a dark recession cloud looming overhead.
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An Angus Reid poll found that 31% of people said they are "struggling" financially, a 6% increase from last year.
- And there doesn't seem to be much hope that things can turn around anytime soon for those who consider themselves struggling, with 63% saying they predict they will be worse off next year.
Yes, but: It may not be wise, but it is understandable that people spend more when they’re stressed—buying things has turned into a form of self-soothing for many of us.
Bottom line: If you react to stress by shopping, it may be time to look for alternative ways to relax and take your mind off your worries. Retail therapy is only going to make your financial problems worse tomorrow.