my two cents

The Fear of Losing It All

Photo-Illustration: by Stevie Remsberg; Photo: Getty

In My Two Cents, advice columnist Charlotte Cowles answers readers’ questions about personal finance. Email your money conundrums to

About five years ago, I received a tax bill in the mail for a crazy amount. I can’t even remember what the number was because I practically blacked out. I had to lie down on the floor to stop the room from swimming. I couldn’t pay this money. I didn’t have it. What could I sell? Who could I borrow from? Could I charge it on my credit card? Should I open an additional credit card?

My immediate reaction was a textbook case of what psychologists call “scarcity mind-set” — the panic of not having enough, the doomsday thoughts that immediately followed, and the onslaught of bad ideas for “quick” fixes. As it turned out, I had misread the bill, and after closer examination and a couple of phone calls, I was able to sort things out and resume my normal heart rate.

In theory, the threat of coming up short should have spooked me into making smarter financial decisions in the long run (saying no to an expensive dinner and bulking up my savings instead), and research does show that it can incentivize people to stretch their money further. But that effect is only temporary, and it can backfire. According to several studies, people’s brains function differently when they perceive or anticipate scarcity. More specifically, people get dumber: One study found that when subjects simply thought about a big bill that would strain their finances, their cognitive abilities plummeted by an average of 14 IQ points — a similar deficit to pulling an all-nighter.

“When you experience the feeling of not having enough, your concerns with money consume your cognitive resources,” says Jiaying Zhao, a psychologist who studies scarcity at the University of British Columbia. “As a result, you’re no longer able to perform at the same level that you would otherwise.” This fight-or-flight response affects people of all socioeconomic levels, she adds. “Scarcity is inherently subjective. Your perception of how much you have versus how much you need is different from your objective level of income. A rich person can still experience scarcity if they feel they can’t juggle their demands.”

Once in scarcity mode, people tend to become hyperfocused on the present and lose perspective on longer-term planning. “Any time we get into fear-based thinking, the part of our brains that can compare options and accurately assess risk and opportunity goes offline,” says Amanda Clayman, a therapist who specializes in money issues. “People in this mind-set tend to do things like put more money on their credit cards and let debt creep up because they’d rather borrow money than spend down what they actually have.” (My reaction to the tax bill, in a nutshell.) Of course, this decision makes sense in the moment — you want to avoid hitting zero at all costs. But you may be digging yourself into a bigger hole in the process.

Many people don’t just experience this abject terror every once in a while, like I did — they live with it all the time, says Zhao. If it’s not at the forefront of their brains, it’s squatting somewhere in the back, weighing down their cognitive bandwidth and inducing that fluttery dread when a bill arrives, even when they can technically afford what’s on it.

This anxiety is very real. But the reasons behind it can vary, and sometimes they aren’t entirely rational. Psychologists have found that this “starvation” mentality is more prevalent in those who grew up in financially volatile families or have experienced periods of intense budgetary pressure, which can make security seem more tenuous. Even if these people are financially stable, they may never feel that way, and miss out on opportunities to manage their money more strategically as a result (the classic example is hoarding cash instead of investing in the market). Symptoms of scarcity mind-set are also common among people who see fluctuations in their income. “Research has shown that when people’s paychecks are irregular, they tend to borrow money more frequently and be more present-focused,” Zhao notes. (Freelancers and other gig-economy workers can probably relate.)

So, how can you prevent feelings of scarcity from hijacking your brain and making your problems worse? First, you have to realize that the mind-set is even there, says Clayman. Financial agita is so common (and in many cases, perfectly healthy) that it can be tough to notice when it’s going haywire. “One sign is, you find yourself thinking, If I only could get to X dollar amount, the fear will go away,” she explains. “Another is shrinking your life and your needs because you think it will control your anxiety. It can translate into workaholism. It can translate into stress in your relationships, because you’re always saying no and having a strong emotional reaction to a reasonable request.”

Zhao and her research colleagues refer to this behavior as “tunneling”: “People think, I don’t have any other options. This is the best that I can do. And they lose perspective,” she says. To make matters worse, most people are pretty powerless once they’ve dug in. “When I’m tunneling, there’s not much I can do to yank myself out of that mind-set — it’s too hard, because of the cognitive impairment it causes.”

Instead, Zhao recommends trying to anticipate moments when this mind-set might cause you to make poor decisions, and arrange for better coping mechanisms beforehand. “If you know that you will behave in certain ways when you’re experiencing scarcity, you can set up external cues and reminders to mitigate these impairments,” she says. One example would be to make your savings harder to access so that you’re forced to think twice before pillaging it when you’re feeling strapped. Another would be taking certain financial decisions off your plate entirely. “If I automate transfers toward my savings and debt, it removes decision-making that might be compromised,” she suggests.

But becoming more self-aware is always easier said than done. And Clayman points out that a lot of people aren’t that attuned to their money, either: According to a 2018 survey by Prudential, one-third of Americans don’t have an accurate handle on the state of their own finances, and 12 percent think that they’re worse off than they really are. You may not be one of them, but either way, grounding your problems in hard facts can make them more tenable. That’s why Clayman advises leaning on external, objective information: “Get an outside point of view, whether that’s a friend or family member, a financial planner, or a therapist. Then you can ask, ‘Is my reality being overly shaped by the sense of fear and anxiety that I’m experiencing?’”

This isn’t to suggest that anyone’s financial concerns are not valid, or that everything would be fine if they just loosened up. This is not the case for most people. Instead, you want to make sure that your reactions to scarcity are in your own best interest. “I’m so sympathetic to the existential distress that people are experiencing in these moments, and wish that there was some sort of rescue, but there’s not,” says Clayman. “My goal is for you to do what’s required to make you safe, but does not cost you one bit more in terms of emotional burden. I want you to do what’s responsible without sacrificing your health, your attention, or your relationships.”

That requires calming down your physical response. Take a walk. Lie on the floor. Call your mom. Sleep on it. These actions won’t solve your problem, but they will work wonders for boosting your cognitive resources, which will put you in a better position to tackle the problem more effectively. “Once your body’s reaction is moderated, we can get into a mode that allows us to meet this problem where it is,” says Clayman. The point isn’t to eradicate scarcity mind-set — that would fly in the face of human instinct. Instead, you want to recognize when it’s happening, and build in reality checks for yourself when it does.

The Fear of Losing It All