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Dr. Geller's assertion that money anxiety should be viewed as behavioral economics phenomenon more so than a psychological condition was featured on Dr. Laura.

Stressed about money? You are perfectly normal. Seven of ten people reported being stressed about money in a study by the American Psychological Association, which shows that stress and anxiety over money a normative condition.

Money anxiety is a survival instinct that warns us a financial danger. It is the same instinct that told our ancestors to run when they faced a tiger in the woods. In modern society, our survival instincts are centered on money, which enables us to obtain life's necessities such as food, shelter and clothing

The complete article is available at this link.





 
 
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The March preliminary Money Anxiety Index at 62.8 is the same the final reading in February indicating uncertainty and confusion among consumers about the economy.  On one hand the U.S. jobs market is improving with an added 245,000 private sector jobs in February contrasted by deteriorating global economies and volatility in the equity markets on the other hand.

When confused and in doubt, consumers tend to default to their instinctive reaction to reduce spending and put more money aside for a rainy day.  This is a normal reaction to economic and financial uncertainty rooted in our mechanism for self preservation. 

If confusion and uncertainty about the domestic and global economy persist, consumers are likely to lower spending, which will result in an economic slowdown in the U.S. because consumer consumption makes up about 70 percent of Gross National Product of the U.S. 

About The Money Anxiety Index

The Money Anxiety Index is an early-warning system to 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 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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Consumers are conflicted between improving U.S. jobs market and declining equity markets, and are responding by slowing down spending.

The February preliminary Money Anxiety Index at 62.4 is the same as in the previous month indicating uncertainty and confusion among consumers about the economy.  On one hand the U.S. jobs market is improving with an added 151,000 new nonfarm jobs in January contrasted by deteriorating global economy and equity markets, on the other hand.

Consumers are responding to conflicting economic signals by slowing down the pace of spending.  In January, consumer spending was flat despite an increase of 0.3 percent in personal income and a 0.5 percent increase in average hourly earnings. 

When confused and in doubt, consumers always default to their instinctive reaction to reduce spending and put more money aside for a rainy day.  This is a normal reaction to economic and financial uncertainty rooted in our mechanism for self preservation. 

If consumers will continue to lower spending due to economic uncertainty and confusion, the U.S. economy may join other economies with a slowdown in growth as consumer consumption makes up about 70 percent of Gross National Product of the U.S. 

About The Money Anxiety Index

The Money Anxiety Index is an early-warning system to 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 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.

About Dr. Dan Geller

Dr. Dan Geller is a behavioral economist and the author of Money Anxiety. He pioneered the research on the link between money anxiety and financial behavior. Based on his research, Dr. Geller developed the Money Anxiety Index, which predicts economic trends. 

Dr. Geller's research is featured in his book Money Anxiety - an insightful behavioral economics book that reveals how people make financial decisions. The book explains why we hate to lose more than we love to win and why we spend when safe and save when scared


 
 
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The contrast between the stock market volatility and the relatively low money anxiety among consumers shows that the stock market is not a predictor of financial confidence.

In early January, when the stock market exhibited its highest volatility, the Money Anxiety Index reported no signs of high financial anxiety among consumers.  In fact, the preliminary January Money Anxiety Index improved 1.3 points to 62.2 despite market volatility in the U.S. and abroad in the first week of the new year. 

The preliminary report by the Money Anxiety Index were confirmed yesterday when the Conference Board released its Consumer Confidence Index showing an increase of 1.8 points to 98.1 in January.  The reported increase in the level of consumer confidence during January support the early release of the Money Anxiety Index showing that the stock market volatility had no impact on the level of financial anxiety.

The improvement in the January Money Anxiety Index is in part due to a robust December jobs report that added 292,000 non-farm jobs.  Job gains are a major factor in the level of money anxiety among consumers because they reassure consumers that the economy is improving.  The contrast between the stock market volatility and the relatively low money anxiety among consumers shows that the stock market is not a predictor of financial confidence.

About The Money Anxiety Index

The Money Anxiety Index measures the level of consumers' financial worry and stress based on their spending and savings pattern. 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 functions as an early-warning system to shifts in the economy, allowing financial advisors to react in time to changes in the economic cycle. The Money Anxiety 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.


 
 
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The January preliminary Money Anxiety Index improved 1.3 points to 62.2 despite market volatility in the U.S. and abroad in the first week of the new year.  The decrease in the level of money anxiety is in part due to a robust December jobs report adding 292,000 non-farm jobs.  Job gains were strong in the service sectors such as professional & business, education & health and leisure & hospitality.

The improvement in the January Money Anxiety Index comes after 3 months of a flat index mostly due to fear and anxiety resulting from terror attacks in the U.S. and abroad in the last quarter of 2015.  Acts of terror promote economic uncertainty and financial anxiety in people, who instinctively react by reducing spending.  Early readings show that the 2015 holiday shopping season was up only about 1.5 percent over the previous year indicting consumers were holding back on spending.

The biggest threat to the U.S. economy is not market volatility, but rather fears of terrorism.  Terrorism impacts the economy in two distinct ways.  The first is the immediate impact on commerce right after a terror attack.  The November terror attack in Paris de facto paralyzed commerce in parts of Paris, and later on in the entire city of Brussels in Belgium, for a few days.  Repeated economic disruptions like these can have severe economic impact on local and national economies. 

The second economic implication of terror acts is in elevating financial anxiety in the aftermath of every terror attack.  The terror act of September 11, 2001 immediately increased the level of money anxiety of people in the U.S.  In the month of the attack, September, the Money Anxiety Index jumped 5.1 points from 56.9 in the previous month and continued to climb up nearly 21 points when it peaked at 77.6 on December of 2001.


 
 
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A 5 percent reduction in personal consumption, brought by acts of terrorism, is enough to push the U.S. economy into a recession. 

Acts of terror promote economic uncertainty and financial anxiety in people, who instinctively react by reducing spending.  A 5 percent reduction in personal consumption, which makes up nearly 70 percent of the U.S. economy, will decrease Gross Domestic Product (GDP) by   3.5 percent or negative 1.4 percent based on the 2015 third quarter GDP of 2.1 percent.

There are two aspects to terrorism’s impact on the economy.  The first is the immediate impact on commerce right after a terror attack.  The November terror attack in Paris de facto paralyzed commerce in parts of Paris, and later on in Brussels, for a few days.  Repeated economic disruptions like these can have severe economic impact on local and national economies.  

The second economic implication of terror acts is in elevating financial anxiety in the aftermath of every terror attack.  The terror act of September 11, 2001 immediately increased the level of money anxiety of people in the U.S.  In the month of the attack, September, the Money Anxiety Index jumped 5.1 points from 56.9 in the previous month and continued to climb up nearly 21 points when it peaked at 77.6 on December of 2001.

Research conducted and published by Money Anxiety shows that fear and uncertainty are the main triggers of financial anxiety.  When the level of money anxiety increases, people tend to react instinctively by reducing their spending and increasing their savings.  This is a normal reaction of survival and self preservation.  Conversely, people spend when safe.


 
 
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Carolyn Ellis, Features Editor for Advisor Magazine, talked with Dr. Dan Geller about Money Anxiety.

Dr. Dan Geller is an expert in behavioral finance and the author of the popular and insightful book Money Anxiety. He frequently speaks to business and academic audiences on how money anxiety affects consumers’ personal finances. We talked with Dr. Geller about how financial professionals can improve sales and be more responsive to clients by understanding money anxiety and the Money Anxiety Index.

L&HA: Why is the concept of money anxiety important?

DG: Knowing how people really make financial decisions will guide financial professionals to the right product at the right time so you can help your clients solve their problems.

My book Money Anxiety explains the research and factors of what we call Behavioralogy, a matrix of predictable consumer financial behaviors. In Money Anxiety I cover the six financial behaviors we all exhibit and what’s appropriate to do in each one of them.

L&HA: What, really, is money anxiety?

DG: Money anxiety is a biological survival mechanism. True money anxiety originates in the reptilian or earliest part of the brain. Our ancestors, when there was uncertainty due to the elements, behaved with food and wood the same way that we behave today with money. There are people who suffer from general anxiety disorder which can include money, but that’s not money anxiety.

L&HA: How prevalent is money anxiety?

DG: The latest study from the American Psychological Association confirms that money anxiety is common and normal. Their study issued in February 2015 shows that 7 out of 10 people reported money as their highest concern and highest factor for stress and anxiety. In the social sciences, anytime you get 70 percent or 7 out of 10 people, that’s a normal level.

L&HA: We know money anxiety exits but how do you measure it?

DG: In statistics money anxiety is what we call a latent variable. With advanced statistics there are ways to measure it indirectly by measuring the impact that money anxiety has on behaviors like saving and spending. We use the same principle used by physicists to measure behavior of sub-atomic particles. Our model is also predictive, so we can know in advance where spending and savings are headed.

L&HA: Your work uses scientific methods to account for instinctive behaviors.

DG: We have developed the Money Anxiety Index to demonstrate and predict how the level of money anxiety affects consumers’ financial behavior. We have data for the Money Anxiety Index going back 50 years. Companies in the financial sector license this data to do statistical analyses.

Money Anxiety Index is the only index that is objective. Indices like consumer sentiment and financial confidence rely on questionnaire-based surveys and are subjective. People are asked, “How do you feel about the economy?” The Money Anxiety Index relies on what people do with their money. We monitor financial activity, not what people say. It’s much more reliable.

L&HA: How can agents and advisors use this information to provide the right products and services?

DG: Products that are more attractive to consumers at an elevated level of money anxiety have less risk and are more liquid. Let’s say someone has an insurance policy on the house or other assets with a deductible of $10,000. When money anxiety goes up, sensitivity to this potential loss gets greater. There is an opportunity to approach clients to lower their risk by paying a higher premium to lower the deductible.

L&HA: Is the Money Anxiety Index applicable to all clients?

DG: The Money Anxiety Index is universal. In developing the Money Anxiety Index, we measured the financial behavior of people, regardless of demographics or psychographics. Everyone cuts spending when money anxiety increases, and they increase their savings. The proportions can be different in different sub-groups. People of means might cut spending by buying a $50,000 car instead of a $100,000 car.

L&HA: Are insurance carriers working with your data?

DG: We license the Money Anxiety Index data throughout the financial sector including to banks, brokerage firms and research companies for analysis. They are very interested in how consumer financial behavior and money anxiety impact the industry and products. For example, a good time to promote life insurance is when money anxiety is elevated. Life insurance provides for the survival of the family unit. Also when money anxiety is elevated, people tend to prefer liquid assets. Life insurance with cash value that the policyholder can use if needed is even more attractive. The Money Anxiety Index is a proven predictor of financial confidence.

L&HA: Looking back on 2015, how you would describe the year?

DG: The trend shows that people are less financially anxious now than they were in early 2015. However, in the last few months the Money Anxiety Index has been flat. That shows consumers are confused. In first quarter 2015 GDP was almost zero. Second quarter growth was tremendous, at close to 4 percent. The third quarter was somewhere in between. With volatility like this people are sitting on the fence.

L&HA: Are there other factors like the upcoming presidential election that have an impact?

DG: Money anxiety is really all about money. Yes, elections and politics might have some impact but economic factors like employment and wages are the real drivers.

L&HA: What are your expectations for 2016?

DG: I think we are headed into an improved economy here in the U.S. I don’t predict a tremendous jump; I foresee slow and gradual improvement. Globally, it’s a different picture.

L&HA: Can financial planners help their clients overcome money anxiety?

DG: Yes they can, by alleviating some of their clients’ financial concerns. Remember, money anxiety is not a clinical condition. Having insurance and knowing that even if something were to happen the exposure is minimal will help to alleviate money anxiety. Having savings is helpful, too. When the Money Anxiety Index is elevated, it’s good to advise clients to stay more conservative. Our research has proven that people hate to lose more than they love to win. They spend when they feel safe and save when they are scared. ◊


 
 
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In the third quarter of this year, consumers nearly doubled the pace of spending and reduced the pace of savings by half as their level of money anxiety subsided compared to last year.

The amount of consumer spending in the third quarter of this year increased by 3.0 percent compared to an increase of only 1.7 percent during the same time period last year according to the latest personal consumption data released by the U.S. Department of Commerce.

Conversely, the pace of bank savings decreased by half in the third quarter of this year up only 0.6 percent compared to an increase of 1.2 percent during the same period last year according to the latest data reported by the FDIC.

The increase in the amount of spending, and at the same time, the decrease in the amount of savings, is prompted by a lower level of financial anxiety. The Money Anxiety Index, which measures the level of financial stress and anxiety among consumers, decreased by 7.4 index points between the two periods. In the third quarter of this year, the Money Anxiety Index stood at 64.5 compared to 71.9 during the same time last year. 


 
 
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Immediately after the September 11 attack, the Money Anxiety Index jumped 5.1 points and continued to climb up 21 points in the aftermath of the terror attack.

Analysis by the Money Anxiety Index shows that the terror act of September 11, 2001 immediately increased the level of money anxiety of people in the U.S.  In the month of the attack, September, the Money Anxiety Index jumped 5.1 points from 56.9 in the previous month and continued to climb up nearly 21 points when it peaked at 77.6 on December of 2001.

Research conducted and published by Money Anxiety shows that fear and uncertainty are the main triggers of financial anxiety.  When the level of money anxiety increases, people tend to react instinctively by reducing their spending and increasing their savings.  This reaction originates in the reptilian part of the brain, which oversees survival and self preservation.

The level of money anxiety is the catalyst between analytical thinking and instinctive reaction.  Research in behavioral economics shows that when the level of money anxiety is low, people tend to use their frontal cortex for analytical thinking, also known as “system 2.”  Conversely, when the level of money anxiety is elevated, people tend to react more instinctively, using their reptilian brain or so called “system 1.”

The Money Anxiety Index measures the level of consumers' financial worry and stress based on their spending and savings pattern. 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 functions as an early-warning system to shifts in the economy, allowing financial advsors to react in time to changes in the economic cycle. The Money Anxiety Index Is highly preidictive. It predicted 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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The November Money Anxiety Index at 62.5 is exactly where it stood on December 2007 when the Great Recession officially started.  It took the Money Anxiety Index, which measures consumers’ financial stress, 8 years to go back to its pre-recession level.  
During the 8-year cycle, the Money Anxiety Index peaked in December of 2010 at 95.5 and started its gradual decline to its current 62.5 level.  The Money Anxiety Index was faster on its way up than on its way down.  It took the index only 3 years to reach its peak in December of 2010, and 5 years to go down to its current pre-recession level.

The decline in the level of money anxiety among consumers is a reflection of improving economic conditions. Among them is the latest jobs report showing that the labor market added 271,000 nonfarm jobs in October with healthy gains in construction, professional & business services, education & health and leisure & hospitality.

The timing of the decline in the level of money anxiety is also important.  November is the gateway to the holiday shopping season, which is a critical time for retailers.  The return of the Money Anxiety Index to its pre-recession level suggest that consumers are ready to spend more this holiday season than in any of the past 8 years.  

The Money Anxiety Index is produced by Dr. Dan Geller, a behavioral finance scientist and the author of the book Money Anxiety. The index measures the level of consumers' financial worry and stress based on their spending and savings pattern. 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.