Your brain on finance: 80% lack cognitive clarity when thinking about money

January 2, 2018

Thinking about important financial decisions doesn’t just stress people out; it actually impacts their brain function, based on research results released at the end of November by Northwestern Mutual. And that mental stress can often lead to poor decision making.

This new brain research was prompted by recent findings from Northwestern Mutual’s annual research—The Planning and Progress Study—that revealed Americans’ high levels of financial anxiety. The 2017 study found that, regardless of age, at least 80% of U.S. adults feel some anxiety due to the rising cost of healthcare, unplanned financial and health emergencies, income and savings

Northwestern Mutual partnered with ThinkAlike Laboratories—a neuroscience research firm led by Sam Barnett, Ph.D., who is also a researcher at Northwestern University—to measure the electrical activity of people’s brains when they are evaluating various financial scenarios.

The 2017 Brain on Finance Study revealed that providing assistance with financial scenarios can actually improve brain function and help enhance cognitive responses: In fact, neural signals associated with relaxation and recognition in study participants increased by 20.8% and 28.6%, respectively, for “assisted” scenarios compared to “unassisted” scenarios.

Neuroscientists found the guidance and assurance of financial assistance affected the brain in three important ways:

  1. Attentional demand: How much concentration is needed When comparing times when people received assistance with times when they have had to make decisions on their own, researchers found the latter situations led to brain signals associated with 20% more effort to pay attention during decision-making. In other words, people concentrated significantly harder when facing financial scenarios without assistance. With assistance, their brains appeared to have an easier time, which helped individuals make better decisions.
  2. Recognition: Understanding, remembering and getting it right During assisted financial scenarios, people experienced a 28% stronger ability to recognize and understand the crucial concepts they were considering, making for clearer and more effective decision-making than without any assistance.
  3. Relaxed attentional control: Less stress for clearer thoughts Not only did assisted scenarios provide better mental clarity and understanding, but assistance helped people relax nearly 21% more and focus calmly,compared to when they did not receive assistance.

Research contact: mediarelations@northwesternmutual.com

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