I was talking with the owner of
one of our favorite antique stores in an area close to our weekend
ranch. He said, “People are just not spending money.” The
downtown area of the little town was somewhat dead, and the nursery
where we frequently visit had few customers.
He continued, “They don’t
seem to be out of jobs, no one is making any less money, but people
just aren’t spending.”
Since I believe homespun
research can come close at times to the neuroeconomics lab, I asked
why he felt this was the case.
“Everybody is watching the
news too much.”
The positive wealth effect
occurs when rising values of homes, stock portfolios, and retirement
accounts make people feel wealthy. Even though no one takes a
single dollar from these assets, the heightened mood results in
People feel the impact of the
economic downturn in an inverse way: the negative wealth effect.
Even though they make the same money at their same job, people spend
We spend not according to how
much money we have, or even what we need, but we spend according to
how we feel.
demonstrated that people who are fearful cling to what they have.
Our nervous systems constrict in a primitive but adaptive effort for
survival. With this withdrawal and fear, people reduce spending.
The condition people seek to avoid becomes what they bring about.
When fear is dominant, money may not only be constricted, but
horded. Since we make what we do hitchhike on something conscious
and logical so that it makes sense, consumers become “risk-adverse”
and hunker down. Spending gets a bad reputation.
A study at the University of
Toronto demonstrated that when people are in a positive mood, their
visual cortex takes in more information. In a positive mood people
both see and process a greater number of possibilities in their
environment. A good mood enhances the size of the window of their
The emotional contagion
(“collective tilt”) of the economic downturn has the reverse
effect on spending of an expanding economy—even without a direct
impact on the individual. Increased tension produces both emotional
regression and narrows perspective. The stress hormones of
epinephrine and cortisol block information processing.
For both good and bad stress, a
modicum of balance is crucial to regulate states of mind. Look for
opportunities to see the big picture when a natural inclination is
to remain hyper-focused. Being grounded and centered allows a state
of mind for optimum synthesis of thinking with access to existing
knowledge. When you’re relaxed and centered, you have the
greatest access to all your states of mind—all the information you
From a Buddhist teaching:
“Return to the earth now if your mind is troubled and your heart
is uncertain, for it is by returning to the beginning that we can
clearly see the path.”
A reminder: The Teleseminar
series Your New
September 29, 2009 at 7:00 PM Eastern for five Tuesdays. It is
recorded for schedule conflicts.
Your New Money Story™
with 48 annotated exercises and work tools will illuminate your
money story and systematically guide you to write a new one.
"people are in a positive mood, their visual cortex takes in more information" is an interesting idea, as a photographer, artist, and designer, I wonder if the opposite is also true? I spend a lot of time looking, really looking and actively trying to take in more information, does that make my brain happier?sOs that why so many people like making or looking at art?
On a different note (and one more in keeping with your post), I'm not convinced that people are really that worried. At least not most people. I still see people spending money quite liberally. For instance, I have a group of friends who play video games and everyone of them recently bought a new game that cost $60, even though the game has had mixed reviews. I was shocked that they all bought it without thinking. They don't seem too bothered by the economy.