It’s no secret that people behave differently during an economic downturn. The purse strings are drawn tighter for many households, emphasizing essentials and value for money over brand recognition and loyalty. Studies of consumer behavior in the wake of the Great Recession of 2008 back this up with historical evidence.
The real problem emerges when difficult times condition us to adopt a scarcity mentality. It prevents us from moving on. Amid the pandemic and the recovery from the recession it induced, we mustn’t be swayed by the perceptions of scarcity and bring an abundance mindset towards financial survival.
Scarcity versus financial discipline
Humans will naturally respond to resource availability in their environment. We do this on a physiological level. Our bodies accumulate fat when we consume more calories than our physical activity requires and grow lean if we burn enough energy to create a deficit.
We also reflect this tendency on a behavioral level. Employees celebrate a bonus by splurging with the excess cash. They obsess over every last cent as the last paycheck runs out. In the latter case, we are adjusting our financial behavior to deal with scarce resources.
It can be easy to confuse budgeting with a scarcity mentality. Both enable us to take the necessary steps to survive difficult times. But the former puts you in control of your behavior, while the latter conditions you to think only in terms of limited options.
For example, if you realize that you’re spending too much with credit, you apply for a debit card instead. It forces you to work with the funds you have in your bank account and encourages you to develop better control of your finances.
On the other hand, if you let scarcity affect your financial management, you fail to view money as a potential tool to achieve bigger goals. You might view all spending as negative, which makes you averse to investing surplus. Such an attitude doesn’t foster proper financial discipline, and in fact, may leave you prone to the occasional urge to spend unwisely on things of the moment.
Crippling your financial ability
The scarcity mentality, in general, has a crippling effect on our behavior. In fact, the term was first coined by Stephen Covey in his self-help classic, The 7 Habits of Highly Effective People.
In the book, Covey recognized that letting scarcity govern our thinking makes us view the world as a ‘resource pie.’ It is predicated on the assumption that this pie is limited, and everyone is competing for a bigger slice of that pie in a zero-sum game.
When you have a scarcity mentality towards finance, the same negativity takes control of your actions. You become hypersensitive to anything that might be perceived as a threat to your limited resources. It makes you stressed, fearful, reactive, and defensive. Rather than any inherent mental defect, these factors make poor people more likely to fall into bad decision-making patterns.
Also, you tend to keep score of ‘right’ and ‘wrong’ money decisions. You blame yourself excessively during difficult times, hindering your ability to forgive yourself, learn from mistakes, and move forward.
Practicing abundance in finance
Fortunately, in the same book, Covey also offers an idea of what could offset scarcity: a mentality of abundance.
The concept of abundance may not seem applicable to our personal finances. After all, believing that you’ll get rich doesn’t make it so.
Rather, what abundance really means is believing that the world offers more than enough to go around. You may not be rich, but that only needs to be true right now. The future holds countless opportunities to take a step forward and build wealth.
We need an abundance mentality to perceive those opportunities amid a crisis. The situation induced by the pandemic is one such difficulty, but there will be others to come.
People experience hardship all the time. Those who are encumbered by a scarcity mentality will prioritize short-term thinking and eventually be overburdened by decision fatigue due to their stress and fear. It prevents them from making sound, long-term financial decisions.
Believing in abundance doesn’t mean you ignore the day-to-day decisions involved with running the household budget. But it frees you of the associated anxiety and negativity, keeping one eye trained on the big picture.
Moreover, it changes your relationship with money. You realize that you do, in fact, have enough to be happy. You don’t feel compelled to spend to feel good or tempted to compare your financial status to others.
Abundance frees you to invest money in yourself and give more of your time and energy to help others. Doing so will inevitably pay dividends in the future, even in ways you can’t predict.
