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Big Money Worries

Feeling dumb and in debt? Turns out money worries really can lower your IQ, writes Money Mentalist Lynda Moore.

11 June 2024

You know how money worries can take over your mind, right? They’re like that annoying song you can’t get out of your head, popping up right when you wake up and lingering until you fall asleep. It’s no surprise that when we’re stuck in this money-stress zone, focusing on anything else becomes a real challenge. And making smart decisions? Forget about it!

Turns out, research backs this up ... and then some. Money worries can actually mess with your intelligence!

I recently watched a video blog by Andrew Yang, the entrepreneur, philanthropist, author, and 2020 presidential candidate. He talked about a series of studies showing that financial stress can lower your IQ.

One famous study from 2004 involved 500 sugarcane farmers in Tamil Nadu, India. These farmers are usually strapped for cash before the harvest and often need to borrow money to get by. Researchers gave these farmers IQ tests during this tight period and then again after the harvest when they had been paid. The results? The farmers scored much lower on the tests when they were broke; their scores went up after they had money again.

That car repair

But hey, most of us aren’t sugarcane farmers. So, let’s look at another study from New Jersey. Participants were given IQ tests, then told they needed car repairs. One group was told the repairs would cost $2,800, and another group $280. After learning about these imaginary bills, they took the IQ test again. Those facing the $2,800 bill scored lower, while the $280 group’s scores barely changed.

The takeaway? Worrying about money can have the same effect as losing IQ points.

When we don’t have enough money, time, food, or companionship, it’s like our brains go into a slow mode, making us less focused and more prone to poor decisions. Psychologist Sendhil Mullainathan compared it to slow internet ... it just can’t keep up with the traffic.

In contrast, a mindset of abundance (often seen in entrepreneurs) is all about optimism and believing things will get better. This positive outlook can snowball, leading to more resources, customers, and success, provided the environment is right.

Financial insecurity

Unfortunately, many of us are stuck in a scarcity mindset because of financial insecurity. In the US 78 per cent of people live from paycheck to paycheck, and 57 per cent can’t handle an unexpected $500 bill. This growing financial stress is making people less reasonable, more stressed, and more prone to relationship issues. In fact, 80 per cent of couples who break up cite money problems as the cause.

Shifting from a scarcity mindset to one of abundance can transform your approach to finances and life. So, if money worries are keeping you up at night, maybe it’s time to make a change.

Informed Investor's content comes from sources that Informed Investor magazine considers accurate, but we do not guarantee its accuracy. Charts in Informed Investor are visually indicative, not exact. The content of Informed Investor is intended as general information only, and you use it at your own risk.

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