We know that when we have money worries, they can seem all consuming. We go to bed worrying about money. We wake up the next morning and it’s the first thing that pops into our head.
So, it would seem logical that when we’re in this all-consuming money worries state that we find it hard to focus on other things. And more importantly, we find it hard to make sound rational decisions about anything (not just money).
Research has not only confirmed this logic, but has taken it one step further: Money worries affect your intelligence!
Two quite different studies have confirmed it.
The first was a 4-month study on sugar cane farmers in the Indian state of Tamil Nadu. Prior to the annual harvest, money is very tight. The farmers frequently have to borrow money to get them through to the harvest. During this tight period in 2004, psychologists tested the mental processes of 500 farmers. A few months later once the harvest was in and payment received, the farmers were given exactly the same test.
What the study found was that during the period of money worries, the farmers’ IQ was 9 – 10 points lower than it was after the harvest and the money worries were alleviated. This movement in IQ was enough to shift the farmers one classification down in the scale, for example from superior intelligence to normal.
What this study highlights, is that when we have money worries, our brain just doesn’t have enough ‘bandwith’ to focus on other things. It’s like when our internet can’t keep up with the traffic and there’s a lag when things are loading. That’s how Harvard Psychologist Sendhil Mullainathan described it.
As interesting as this study is, most of us aren’t sugar cane farmers. So this next piece of research may be a bit more relatable to our lives.
The second study was based in a shopping mall in New Jersey. The research participants were asked to imagine they needed repairs on their car. One group was told the repairs would cost $1,500. The other group was told $150.
Once the car bill was planted in their minds, they were then given two psychological tests. One measured skills in problem-solving and logical thinking. The other measured the ability to think and act fast.
Another important factor in the study was the participants’ level of income. Researchers identified those in the study who were better off financially, and those who weren’t.
For those in the richer category, their performance on the tests didn’t change whether they thought they had a $1,500 or $150 car bill. But those in a tighter financial position had lower intelligence results when they had taken on the worry of a higher $1,500 bill than those with the lower $150 bill.
Both of these studies have serious implications for those on low income who constantly have money worries. The more you worry about money, the harder it is to make the right decision to move yourself forward. It’s another aspect of the poverty cycle.
Do you have money worries that are keeping you awake at night? Now is the time to do something about them.
Take the first step in the process and give us a call (or drop us an email). Let us take some of the stress away by helping you understand and improve your mindset around money and how you manage it.