Has Lockdown Affected your Financial Behaviour?

Whilst most of us will have thought about how we will emerge from lockdown socially, few of us will have taken the time to think about how we will respond financially. The last 12 months has been anything but normal and it therefore makes sense that there will be an ongoing impact on the way we approach different aspects of our life, and this inevitably includes our finances.

Some behavioural finance experts believe that the pandemic will have an effect on our attitudes towards spending, saving and investing.

Here are some of the investor behaviours that may emerge following the pandemic…

Spending aversion

Many people will be cautious in the way they approach the easing of restrictions, and post-lockdown social anxiety may permanently effect some people and their everyday lives.

The pandemic hit us from out of the blue and its effects have lasted far longer than many people will have expected. For some, the force of Covid and the ongoing uncertainty it has created may have invoked wider feelings of insecurity. Individuals that already felt anxious about money and the way they managed it are likely to feel even more so.

As a result, it may be tempting to try to stockpile money and avoid unnecessary spending altogether – which could lead to ‘penny pinching’. There is a fine line between having a good attitude towards long-term saving and having an unhealthy approach to saving that actually leaves you depriving yourself of life’s pleasures or feeling guilty when you do buy small treats.

Don’t forget that there is also a risk to ‘playing it safe’ – particularly in the current environment of low interest rates where money held in cash could lose value over time against inflation.

Tip: Having a financial plan can help people in these circumstances as the stress of making money decisions is taken away and condensed into just a few days a year when plans are made and reviewed.

Although those with an anxious approach to money may be averse to investing in stocks and shares, taking small steps and seeing the proof of the pudding can inspire confidence to do more.

Boom time spending

On the opposite end of the scale, after spending months cooped up indoors; unable to spend on entertainment or socialising in particular, some people might relish in their new-found freedoms to go, do and buy what they like, when they like. If you’ve built up savings over the course of the pandemic, the odd splurge could be justified. However, if your financial position is a bit less stable, over-spending could very quickly cause problems down the line.

Tip: If you know you have a habit of overspending, limiting the amount you have available in your current account and avoiding credit cards is good practice. Lockdown is likely to have limited your exposure to situations where you may be tempted to overspend. So take a more mindful approach to re-introducing all of these back into your everyday life. When going into these situations, plan ahead how you will spend – for example putting a budget on a meal or deciding what you will buy ahead of going shopping.

The quick fix thrill

Life has lacked a bit of excitement over the last year… the mundanity of the same routine and being restricted in where we can go and who we can see may have led to some people looking for thrills in other areas of their life. One of these is ploughing money into risky investments in the hope of generating a quick win.

We often have clients that come to us wanting to invest in a certain company or seeking our opinion on an alternative investment strategy. The general rule of thumb is only invest money in high-risk strategies if you are prepared to lose it and could easily manage without it.

Saving and investing sensibly for the long term isn’t exactly thrilling, but you will more than likely thank yourself later!

Tip: If you are tempted to invest in a risky environment, do your research thoroughly before paying over any money. Always look at things with a sceptical eye and ask yourself how you would feel or manage if you lost the money.

 

Emotions steer our decision-making in every aspect of our lives. Identifying and acknowledging how you feel about dealing with money can go at least some way to turning any financial biases you have from a liability into an asset.

Having a financial plan in place that has been designed specifically to meet your circumstances and goals can also go a long way to avoiding emotionally led responses to your finances. To discuss working with one of our financial planners to develop your own financial plan, please get in touch.

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