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Our financial decisions are influenced more by our level of money anxiety than by the lure of financial gain according to new research.

New research in behavioral finance from Money Anxiety gives us greater insight into our financial mind.  The research shows that our fear of losing money is much greater than our desire to gain during times of high money anxiety.  Therefore, in times of high financial anxiety, we desire greater return on our money as compensation for the possibility of a loss.  The amount we expect to gain is four times the amount we risk during times of high money anxiety compared to only twice the amount during “normal” level of financial stress. 

The research also shows that we alternate between instinctive and analytical financial decisions based on our level of money anxiety.  We tend to make instinctive decisions during times of high money anxiety and analytical financial decisions when we are not financially anxious.  The research also shows that our instinctive financial decisions are often wrong.  During and in the aftermath of the Great Recession, consumers lost nearly $60 billion in interest income because they made an instinctive decision to shift their money from certificates of deposits to checking accounts, which yielded much lower return.  

The link between our financial decisions and our level of financial anxiety has been demonstrated by the Money Anxiety Index, which shows how we tend to hoard money in savings accounts just as soon as our level of financial anxiety increases.  Conversely, we tend to reduce savings and increase spending when our level of money anxiety decreases.  Consumer savings and spending are the two engines of the U.S. economy as they each make up over $11 trillion each. 
 
The Money Anxiety Index measures consumers’ level of financial worry and stress.  Historically, the Money Anxiety Index fluctuated from a high of 135.3 during the recession of the early 1980s, to a low of 38.7 in the mid 1960s.  The money anxiety Index was developed by Dr. Dan Geller, who is an expert in behavioral finance, and the author of the book Money Anxiety.  The index is highly predictive.  It signaled the arrival of the Great Recession over a year prior to the official declaration of the recession in December of 2007. 

 
 
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Three major consumer confidence indices show highest financial confidence among consumers at levels not seen in the last few years.

The November Money Anxiety Index improved to 67.1, which is only 8.5 index points higher than its level seven years ago on the eve of the Great recession.  Similarly, the November Preliminary University of Michigan Consumer Sentiment Index came in at 89.4, up from the October Final of 86.9. This is the highest level the index exhibited since July 2007.  Additionally, the Gallup's Economic Confidence Index averaged -8 for the week ending Nov. 9. This is the highest weekly average for this index since June 30 of 2013.

The improvement in the level of consumer financial confidence comes amid continued positive news on employment.  The October employment figures show that the economy added 214,000 non-farm jobs, which brings the three-month employment average to a gain of 224,000 per month.  Moreover, the October employment report also contains encouraging news on the labor force participation rate rising to 62.8 percent meaning that more people are actively searching for jobs.

The approaching holiday-shopping season is likely to get a boost from the continued improvement in consumers’ level of financial confidence.  Research shows that when the level of money anxiety decreases, thus increasing the level of financial confidence, consumers tend to spend more money.  The fact that three major financial confidence indices point to highest levels of confidence in years suggests that consumers are likely to increase the pace of spending during the upcoming holiday-shopping season.
 
The Money Anxiety Index measures consumers’ level of financial worry and stress.  Historically, the Money Anxiety Index fluctuated from a high of 135.3 during the recession of the early 1980s, to a low of 38.7 in the mid 1960s.  The money anxiety Index was developed by Dr. Dan Geller, who is an expert in behavioral finance, and the author of the book Money Anxiety.  The index is highly predictive.  It signaled the arrival of the Great Recession over a year prior to the official declaration of the recession in December of 2007.   

 
 
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Listen to Dr. Dan Geller interviewed on the Financial Forum radio show with Russ Jalbert about the latest research on risk-based financial decisions.  Dr. Geller explains why we make instinctive financial decisions during times of high money anxiety; why we are more risk averse in stressful economic times; how our financial decisions stem from our biological makeup and what is the greatest financial concern among all people today.

The topics discussed in this radio interview are just a small part of the latest research in behavioral finance featured in Dr. Geller’s new book – Money Anxiety.  The Money Anxiety book is available at Amazon, Barnes and Noble, Google Play, iTunes store and all major online booksellers worldwide.  The book is available in paperback and eBook formats.   


 
 
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Consumers regaining financial confidence due to better employment picture and lower gas prices, which are likely to boost holiday shopping season.

The November preliminary Money Anxiety Index improved to 67.1, which is only 8.5 index points higher than its level seven years ago on the eve of the Great recession.  In November of 2007, the Money Anxiety Index stood at 58.6 climbing up to a high of 97.6 in the aftermath of the Great Recession, and gradually declining to its current level of 67.1.    

The improvement in the level of consumer financial anxiety comes amid continued positive news on employment.  The October employment figures show that the economy added 214,000 non-farm jobs, which brings the three-month employment average to a gain of 224,000 per month.  Moreover, the October employment report also contains encouraging news on the labor force participation rate rising to 62.8 percent meaning that more people are actively searching for jobs.

The approaching holiday-shopping season is likely to benefit from the continued improvement in consumers’ level of financial anxiety.  Research shows that when the level of money anxiety decreases, consumers tend to spend more.  Despite a soft consumption month in September, consumers are likely to increase the pace of spending in the last three months of the year due to significant improvement in the level of financial confidence as well as an increase in disposable income due to meaningful decrease in the price of gasoline.
 
The Money Anxiety Index measures consumers’ level of financial worry and stress.  Historically, the Money Anxiety Index fluctuated from a high of 135.3 during the recession of the early 1980s, to a low of 38.7 in the mid 1960s.  The money anxiety Index was developed by Dr. Dan Geller, who is an expert in behavioral finance, and the author of the book Money Anxiety.  The index is highly predictive.  It signaled the arrival of the Great Recession over a year prior to the official declaration of the recession in December of 2007.