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The most immediate and adverse impact of the Brexit is financial uncertainty, which is the main cause of money anxiety.   The financial uncertainty caused by the collapse of Lehman Brothers in September of 2008, pushed the Money Anxiety Index 10 points higher within a few months after the event.

In September of 2008, the Money Anxiety Index stood at 73.9 and it jumped to 83.9 by December of that year.  The increase of 10 index points in such a short time period was the result of the financial and economic uncertainty surrounding the Lehman collapse.  It is plausible that a similar increase in money anxiety will occur as a result of the financial uncertainty caused by the Brexit.

Uncertainty is the root cause of money anxiety because of our biological makeup.  When people are faced with any type of uncertainty, their decision-making process defaults to the reptilian part of the brain, which is in charge of survival.  It is the same type of survival instinct that told our ancestors to hoard food and wood when they faced uncertainty from the elements.

Historically, higher money anxiety translates into lower spending and higher savings, which could slow down the U.S. economy or even push it into a recession over time.  Since the U.S. economy is made up mostly of consumption (70 percent of GDP), a collective drop of only 5 percent in consumer consumption is sufficient to reduce GDP to negative territory.  Three consecutive months of negative GDP would constitute a recession.

About The Money Anxiety Index

The Money Anxiety Index is an early-warning system of shifts in the economy.   The index is highly predictive. It predicted the arrival of the Great Recession over a year prior to the official declaration of the recession in December of 2007.  The Money Anxiety Index was developed by Dr. Dan Geller, a behavioral economist and the author of Money Anxiety.

The Money Anxiety Index measures the level of consumers' financial worry and stress based on their spending and savings levels. 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.


 


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