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Scarcity, Stress and Financial Health

“There’s too much month at the end of my money!” This is a basic theme that runs through my work with clients. People who are struggling financially or economically are typically told that they need to learn how to “budget” their money better, or that they need to take a closer look at their wants and needs so that they can prioritize their expenses better. The belief of most people is that if a person can recognize that they spend too much money on their “wants” and that they don’t allocate their funds properly to meet their “needs,” they will see the error of their ways and immediately make the necessary corrections. This belief, that we are all capable of being the perfect Homo Economicus, is a massive oversimplification of a more challenging problem.

In their 2013 book, “Scarcity: Why Having Too Little Means So Much,” Sendhil Mullainathan and Eldar Shafir define ‘Scarcity’ as “having less than you feel you need.” The critical word in that definition is “feel.” And that is because “Scarcity” is a subjective and relative experience for an individual. Mullainathan and Shafir’s work demonstrates that the impact of feeling like you have less than you need, whether it is time, money or any other resource in your life, turns out to be a very powerful feeling that can lead to some otherwise irrational behaviors. Which is why many budgeting classes can be ineffective. In many cases they are attempting to apply a logical solution to an emotional problem.

Let’s briefly explore why this can be less than effective. Here’s what has been discovered to happen to your brain as a result of feeling “scarcity.”

  • Impaired cell communication in the brain’s learning and memory region.
  • Damage to virtually ever kind of cognition that exists, including: Memory and Executive Function.
  • Impaired ‘cognitive capacity,’ which includes your fluid intelligence. (While experiencing “scarcity” a person can score as much as 13 to 14 points worse on an IQ test).

However, it doesn’t end there. If the “scarcity” causes you to develop a stress response, which I would argue that it regularly does, it can lead to some well-documented health issues and additional behavioral problems. It’s odd, because people easily recognize that feeing ‘scarcity’ leads to stress. They know, rationally, that it can have an impact on their health and well-being, and they also know, rationally, that they should be working to develop healthy coping mechanisms (“all you have to do is budget better!”). And yet they don’t. In fact, sizeable proportions of adults of all ages report using maladaptive coping behaviors (that is to say behaviors that would appear irrational) such as, shopping, overeating or eating unhealthy foods, skipping meals, smoking, drinking and sedentary activities such as watching television or listening to music, to alleviate stress in the short term rather than taking the necessary steps to decrease stress and improve health in the long run.

The results of utilizing so called “maladaptive coping behaviors” frequently leads to future shortages of resources which leads to feelings of scarcity, which leads to stress, which leads to maladaptive coping behaviors. And this unfortunate cycle tends to lead to behaviors that then spill into many areas of a person’s life.

In the work place and/or in an educational setting, this chronic cycle of scarcity, can lead to employee/student absenteeism, distraction, an inability to retain information and to make rational decisions – in other words it can lead to poor performance.

In the health care field, it can lead to a patient’s poor self-care, poor med management and frustration and misunderstandings between the patient and medical team.

In Human Services, it can lead to a client’s ineffective time management, the inability to manage funds and resources, and frustration and misunderstandings between the client and the human service professional.

As mentioned above, the part of our brain (Prefrontal Cortex) where our Executive Functioning resides, that is our planning and rational thinking, is one of the main areas impacted by scarcity and stress. The research consistently demonstrates that rationally based coaching/counseling strategies are going to be less effective on a person struggling with these feelings. Yet, when someone begins to perform poorly, the typical first response to influence the change we desire in that person is to appeal to their logic. We tell them to go to a budgeting class, to make better decisions, to get more rest, eat healthier, exercise more and so on and so on. After all, it’s the totally rational thing to do.