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“Just think positive, and everything will turn out fine.”
“Preparing for the worst just opens the door for bad things to happen.”
“Oh, I’m sure it’s not that bad.”
Statements like these are examples of financial denial. Denial—ignoring the reality of a situation in order to avoid anxiety—is a common defense mechanism. It’s one of the strategies we use to protect ourselves from emotional distress. It can be useful in the short term to cushion a shock and allow us a little time to accept an overwhelming blow like a sudden financial disaster.
In the longer term, however, denial can cause a great deal of damage. Denial around money matters can result in serious financial harm.
Why do so many people live in denial or avoidance, especially when it comes to money? Because denial feels like a safe place to be. If we don’t open the credit card statements, we don’t have to think about how much we owe. If we don’t question an “investment advisor” who promises too-good-to-believe profits, we don’t have to acknowledge that they might be taking advantage of us. If we don’t see all the things our overspending spouse brings home, we don’t have to experience the pain of confronting the behavior.
Denial is a protective strategy that essentially comes down to, “If I don’t see it, it won’t hurt me.” A part of us may know logically that ignoring a financial problem will most likely make it worse. Yet another inner part of ourselves may still work very hard to help us avoid the problem. It does this with the very best of intentions, trying to protect us from the emotional pain that comes with acknowledging a difficult truth.
Denial is an effective tool and one that many of us use. Among the findings of a recent survey of 2,000 adults in the US was that 35% avoided looking at or paying their bills. The survey was done by OnePoll on behalf of Beyond Finance for Mental Health Awareness Month.
Financial denial is not about the money. It is about avoiding emotional pain. There is often a great deal of shame around financial mistakes, a feeling that we “should have known better.” Even financial setbacks that are not the result of any mistake or misjudgment can result in a sense of shame.
Nor is financial denial always about negative financial circumstances. I have seen successful people who avoid acknowledging the truth that they are wealthy. Again, this is commonly about shame.
Financial denial can contribute to money stress for couples as well as individuals. Ironically, if both partners are in denial there is often less stress, at least in the short term. If neither acknowledges a financial problem, there is nothing for them to disagree about. It is more chronically painful when one partner is in denial and the other wants to deal with the problem.
Overcoming denial is rarely done by “forcing someone to face reality.” Shaming and blaming someone who is in denial is not helpful. This is true whether we are blaming ourselves, one partner is accusing another, or financial advisors are lecturing clients. Confrontational approaches like these are more likely to cause the person who is in denial to dig in deeper than they are to make progress in solving the problem.
A more effective approach is to begin by understanding that someone who is in denial is not acting illogically. There is a protective intention behind the denial, which is often based on an unconscious belief about money. Exploring that belief, with courageous curiosity rather than judgment, can open the door to accept the truth and begin to change.
Related: Why Your Financial Planner Needs a Financial Planner