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Scarcity mindset is natural, but can lead to poor financial decisions. Learn to make the fear work for you. – Morningstar

By Sara Rathner

When you view resources as limited, it’s normal to want to grab what you can, …….

By Sara Rathner

When you view resources as limited, it’s normal to want to grab what you can, but that can cost you mentally and financially

This article is reprinted by permission from NerdWallet.

We all saw it at grocery stores in 2020. The shelves, once brimming with toilet paper and hand soap, were bare. We hid in our homes, deep-cleaning every surface, occasionally braving the threat of COVID-19 to hunt down the last remaining bottle of hand sanitizer in a 50-mile radius. We felt out of control, so we controlled what we could: the contents of our kitchens and bathroom cabinets.

Today, this fear of scarcity plays out differently, due to rising prices, a volatile stock market and whispers of a looming recession. We’ve simply rolled one set of worries into another, continuing to assume all our resources are scarce, whether that’s true for us or not.

If the current situation has you avoiding any long-term planning or fearing spending any money, even on things you need, you’re experiencing a scarcity mindset. This basically means you view your resources — like money, food and employment opportunities — as limited. And when you’re concerned about access to these things, it’s natural to want to grab onto whatever you can.

At times, this impulse is useful. “It helped humans survive back in the day when we faced existential threats from nature,” says Courtney Cardin, co-founder of Aura Finance, a financial wellness and investment platform that’s currently in the private testing phase. “Everyone who’s here had an ancestor who benefited from a scarcity mindset.”

But when a scarcity mindset isn’t rooted in a real need to avoid hungry lions or preserve a season’s worth of food without refrigeration, it can work against you, persuading you to make financial choices that aren’t actually in your best interest.

See: Home buyers, panicked by rising rates and prices, are making critical mistakes when buying a house

The emotional and financial effects of a scarcity mindset

Factors beyond your control, like inflation or supply chain shortages, can limit your access to the things you need and make it harder to achieve your financial goals.

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Source: https://www.morningstar.com/news/marketwatch/20220831208/scarcity-mindset-is-natural-but-can-lead-to-poor-financial-decisions-learn-to-make-the-fear-work-for-you

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