Are You Suffering From Financial Phobia?

Suzanna De Baca -- Expert Business Source, 3/24/2008 10:29:00 AM

Last week I talked to a friend who admitted she’d stopped looking at her 401(k) statements altogether, preferring not to know the extent of the damage during the current economic downturn. She throws the paper statements, still in the envelope, in a pile and doesn’t check online.

“It’s not so bad to ignore my investments if I’m in it for the long haul, right?” she asked in a tone that suggested she wanted my blessings over that behavior. 

During volatile markets like the one we’re experiencing, you may feel like disregarding your investments, avoiding financial news or turning your back on your brokerage statements. While the swings in the stock and bond markets are making many individuals feel like running away, there is a not-so-small percentage of the population for whom financial phobia is not just problem; it is a very real disease.

Revulsion to financial and investment information is a more pervasive problem than one might suspect. According to a 2003 University of Cambridge report cited on Forbes.com’s Investopedia, almost one in five people in the U.K. suffered from "financial phobia,” a condition which is characterized by various physical symptoms of illness.

The study reports that nearly 50% of the individuals who suffer from financial phobia suffer a racing heart when confronted by dealing with their money. In addition, the study says, “15% feel frozen and immobilized, 12% feel ill and 11% become dizzy.”

I told the friend who is ignoring her investments about this.  “I do feel immobilized when I get my statements,” she offered. 

We discussed her symptoms and I diagnosed her with an aversion to dealing with finances stemming from a lack of confidence and some general issues with taking responsibility for her life, which is different and distinct from bona fide financial phobia.  Still problematic, but not the full blown disease.

Financial phobia tends to be more prevalent among women and younger people - groups who already have a tendency to lack confidence and experience in investing and financial matters.  Unfortunately, those who are inexperienced and intimated by finances have the most to lose when stricken with financial paralysis. They are more likely to completely ignore financial matters, or to turn over financial authority to a disreputable stranger who may take advantage of the situation.

But, whether or not you suffer from true financial phobia or some milder version of it, you are the one who ultimately suffers from ignoring your bills, savings, investments, and taxes. The consequences are can be disastrous.

While it may not be particularly smart for my friend to ignore her 401(k) for a few months during a market downturn, I do know that she has a good asset allocation designed to withstand volatility over the long haul.  Since she wasn’t actively moving money around anyway, ignoring it may bring her peace of mind right now; however, as time goes by, one must monitor investments to make sure that they are still performing the function for which they were selected.  Similarly, one must rebalance the portfolio on a regular basis (annually, in many cases) if it is not done automatically. Putting your portfolio on autopilot can be fine for short stretches, but you have to periodically check the controls and perform maintenance.

It is one thing to hate bill paying and investing; it is another to become physically sick when confronted by these tasks. If you know a person who chronically avoids dealing with finances, consider discussing the depth of the aversion with them.  Psychologists and counselors can help a person suffering from this illness.  Encourage them to seek out a credible advisor who can oversee their finances. If you suffer from this phobia, know that you are not alone and that there are solutions.

If you simply don’t like dealing with your finances, that’s a different story. Education and practice can create confidence. Creating a long term plan and perspective can help you develop a practical road map for your financial future, one you can turn to during volatile markets like the one we’re experiencing. And if you still hate handling the money and investments, please, hire someone to help you.

Suzanna de Baca is President of Private Capital Solutions Group.  She is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS), 7 Hanover Square, New York, NY 10004, (888) 600-4667.  Securities products/services and advisory services are offered through PAS, a registered broker/dealer and investment advisor. Private Capital Solutions Group is not an affiliate or subsidiary of PAS.

PAS is a member FINRA, SIPC.

Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal or investment advice. Although the information has been gathered from sources believed reliable, please note that individual situations can vary, therefore the information should be relied upon when coordinated with individual professional advice.