The pandemic’s daunting psychological challenges are largely behind us. Now it’s time to deal with the financial challenges. These are uncertain, upsetting, unprecedented economic times. Savings are being eroded by inflation and stock market losses. Credit card debt is growing more costly due to rising interest rates. Just keeping a roof over one’s head is harder due to skyrocketing rents and home prices. And many businesses still struggle with tight labor markets and troubled supply chains.

Financial advisers are full of advice for weathering today’s challenges, but Bottom Line Personal asked Alex ­Melkumian, PsyD, financial psychologist and founder of the Financial Psychology Center, how to handle the psychological impact of 2022’s economic upheaval…


Inflation eats away at the value of our savings, leaving us all worried about whether we’ll be able to pay our bills in the future. It can seem like an unstoppable, invisible force that is robbing us and potentially putting our survival at risk. That’s why inflation causes widespread anxiety and even outright panic.

What to do: Break down your budget into needs and wants. You need to pay your utility bills…you want to take a trip to Europe. If you’re middle class or wealthy, there’s a good chance that even steep inflation won’t truly threaten your ability to pay for your needs. Do some quick calculations to prove to yourself that your needs are safe. Just doing that can help you overcome inflation-driven anxiety and panic. Inflation that forces you to scale back spending on your wants might make you unhappy, but unhappy is very different from anxious and panicked.

Next, consider whether there’s anything you could do to boost your earnings until inflation eases. If you’re retired, maybe you could take a part-time job…if you’re still working, maybe you could apply for better-paying jobs—hiring remains strong in many sectors—or earn some extra money on the side. Remind yourself regularly that you’re earning this money to offset inflation’s erosion of your savings. This should give you a sense that you’re taking control of the situation—a lack of control is a big part of the reason inflation can trigger such powerful anxiety and panic.

Rising Interest Rates and Credit Card Debt

The Federal Reserve has increased interest rates repeatedly in 2022 as it attempts to confront inflation. Rapidly rising rates can be a big financial blow to anyone who has significant amounts of credit card and other variable-rate debt. Just one year ago, you could find credit cards with rates below 15%, but these days many charge 20% or more.

The financial solution to rising interest rates is obvious—pay off variable-rate debt quickly. But the psychological solution requires greater nuance.

Aggressively paying down credit card debt can be like going on a crash diet—most people who attempt it make progress for a while, then backslide and end up right where they started or worse. The crash-diet approach to paying down debt often fails because most people who are deep in credit card debt got there due to a long-term overspending habit. Shifting suddenly from this chronic overspending to extreme frugality triggers a sense of deprivation…and that only increases the drive to overspend.

What to do: If you’re a chronic overspender trying to pay down debt, include a “mandatory splurge” in your monthly budget. In other words, require yourself to spend some predetermined amount, perhaps 2% to 5% of your budget, on something that you want but don’t need. This monthly splurge can prevent the deprivation mindset, similar to how a “cheat day” is helpful for many dieters. Potential exception: Avoid mandatory splurges if you have credit card debt not due to chronic overspending, but because of a single unexpected event, such as uncovered medical bills.

Stock Market—and Maybe Real Estate—Losses

The S&P 500 lost nearly 20% of its value in the first half of 2022, and many analysts are predicting further declines ahead. Like inflation, a bear market is a force that threatens our savings. Unlike inflation, there’s an obvious option for investors who want to take control of these losses—they can sell their stocks and leave the market. Trouble is, that can be a costly mistake—investors who flee the market often miss the subsequent rebound.

Meanwhile, home values are showing signs of weakness and could fall in value in many parts of the country as well.

What to do: Take psychological control of declining stock values by deciding to not take your money out of the markets until stocks rebound. When you’re tempted to abandon stocks, remind yourself that selling locks in recent losses…while not selling means short-term losses can’t affect you. Since World War II, the average bear market has lasted less than 12 months, so patient investors usually can simply wait it out.

If you’re retired or unemployed and must tap your investments to pay your bills, trim your budget so that you don’t have to sell more stock than absolutely necessary. Tell yourself you’re making a choice to live frugally for a year or two as a way to contain your stock market losses—framing frugality as a personal choice helps avoid the deprivation mindset mentioned above.

If falling real estate values are a major worry, tackle a relatively inexpensive DIY home-improvement project that will make your house a more pleasant place for you to spend time. This can provide a useful reminder that our homes are, first and foremost, a place for us to spend our lives with the people we love. Their resale value is secondary.

Unfair Division of Economic Winners and Losers

There are winners and losers in any economy, but the line between those groups has seemed especially stark lately. Some sectors and businesses that could easily transition to remote work flourished during the pandemic and its aftermath…others floundered because they were forced to shut down during the worst days and/or they couldn’t obtain the employees or supplies they needed in the aftermath. It’s perfectly understandable if people who find themselves on the wrong side of that divide look at their neighbors who prospered and think, This isn’t fair. Interacting with people who are doing well financially adds to the pain of those who are struggling. There’s a saying in the world of financial psychology—“compare and despair.”

What to do: When you catch yourself thinking, It isn’t fair, tell yourself, No, it isn’t fair…but it also isn’t over. The pandemic didn’t create winners and losers…it created winners and people still fighting for their wins. This isn’t a football game where the clock has hit 0:00—you haven’t lost until you decide to leave the game.

Tap into your feisty side to combat the defeatism that unfair setbacks can foster. In the business world, people sometimes speak of “peacetime CEOs” and “wartime CEOs.” Many executives are effective peacetime CEOs—they can run their businesses well when seas are calm and things are normal. But we’re not living in calm, normal times. Right now, your career—and your business, if you’re an entrepreneur—require you to be a wartime CEO. The pandemic and the post-pandemic economy have gotten some hits in—how will you hit back? Framing the current economy this way can break the victim mentality and help you fight for the win that still might be within your reach.

Related Articles