Supporting clients through inflation anxiety

Key Takeaways:

• According to data from the American Psychiatric Association’s (APA) Healthy Minds Monthly Poll, which included a question each month from June through December on how anxious Americans felt about a list of trending current events—4 in 5 respondents said inflation made them somewhat or very anxious².
• Due to inflation concerns, clients may hold onto large portions of their assets in cash, which could adversely affect their financial plans.
• To deal with anxiety regarding finances, the APA suggests you “pause but not panic,” identify specific stressors and make a plan, recognize how you deal with anxiety, turn challenging times into opportunity, and ask for support from a mental health professional.

Something that’s likely on your clients’ minds this year: inflation. With the annual reading for 2022 rounding out at 6.5%¹, we’re seeing inflation at it’s highest overall since the 1980s. And although inflation appeared to level off in the second half of 2022, it remains high heading into 2023 and your clients may be understandably nervous.

According to data from the American Psychiatric Association’s (APA) Healthy Minds Monthly Poll, which included a question each month from June through December on how anxious Americans felt about a list of trending current events—4 in 5 respondents said inflation made them somewhat or very anxious². This anxiety about the economy and finances can impact the way people feel about their retirement savings and investments—as a financial professional, it can help to listen to concerns, encourage your clients to stay the course with investments and not make any rash decisions, and let them know that they can always turn to a mental health professional for additional help.

Clients might hold onto cash to quell fear

Inflation anxiety can present itself in different ways, depending on your client and their unique financial situation. Inflation concerns, coupled with the recent periods of unprecedented market volatility and negative returns have many clients holding large portions of their assets in cash—particularly in money markets. But not staying invested in the stock market during periods of high inflation could end up adversely impacting their financial plans. Finding investment options that balance your clients’ desire for protection with their need for growth may help them feel more comfortable about finding an investment strategy that can help them plan for the future.

You can read more about best practices for managing cash on the sidelines to mitigate inflation by reading the blog here:  Are your clients leaving cash on the sidelines? – Nationwide Financial

Tips for managing inflation anxiety

It can be a helpful reminder for anxious clients that the economy is not under their control. But what is? Their financial choices and their own mental health. Being there for your clients through tough financial times can help build trust, and you can help them address money anxiety with these tips from the APA³:

1. “Pause, but don’t panic” – There can be a lot of anxiety associated with the amount of (usually negative) information we take in daily, through various sources like the news and social media. It can benefit you to pay attention, but not get too caught up in the negativity. Avoiding the tendency to overreact or become passive can help you remain calm and focused.
2. “Identify your financial stressors and make a plan” – What are you most concerned about when it comes to your financial health? Investing in a volatile market? Finding the right amount to invest when money is being routed to other necessities due to inflation? Identifying your personal stressors can make it easier to plan for and tackle your anxieties.
3. “Recognize how stress affects how you deal with money” – In tough economic times, some people turn to unhealthy coping mechanisms like smoking, drinking, gambling, or emotional eating. It’s important for watch out for these behaviors, as they can worsen over time.
4. “Turn challenging times into opportunity for growth” – Stressful times can present the opportunity for growth. Economic challenges can be turned into opportunities for healthier ways of living and managing your life. Besides just reducing financial anxiety, finding new hobbies to manage stress can help you become a healthier person in general.
5. “Ask for professional support” – Beyond speaking with a trusted financial professional, a psychologist can help you address the emotions behind your financial worries, manage stress, and avoid unhealthy coping mechanisms.