Investing is emotional. Although experts try to drive decisions with data, analytics and evidence, regardless there is emotion fueling much of the financial markets. With that same premise, we know that changes in the market, significant fluctuations and drops lead to emotional responses.
We are seeing this actively in today’s global markets related to the novel Covid-19 Coronavirus pandemic.
The stock market crash in 1929 led to the ‘Great Depression.’ The term depression certainly spans the societal affects of the financial crisis as well as the mental and emotional health of those who suffered.
There is certainly literature describing a solid relationship between socioeconomic status and health. However, the relationship between large wealth losses and mental health is much more complex. Terms like ‘recession depression’ and ‘stock market anxiety’ are used in the relational linkage of market fluctuations and mood disorders.
If we refer to the stock market crash in 2008, people who were interviewed post-crash were more significantly depressed in comparison to pre-crash. In addition, anti-depressant consumption was the largest amongst those who had the largest wealth losses associated with the 2008 housing plunge and stock market crisis.
This was when three trillion dollars of value evaporated in the worst financial crisis in decades.
According to the American Psychiatric Association, the national anxiety level increased by five points in 2018 with wild market swings compared to the prior year.
The increase in money-related anxiety and depression was consistent across all age groups, races, and genders. When the stock market drops for five consecutive days, hospitalizations for mental illness increase by 1.5%. Significant drops have an increased correlation. For example, the 1000 point drop in the Taiwan Stock Exchange can result in a 4.5% increase in hospitalization.
Even casual investors are influenced by financial variability. Twenty-five percent of self-described millennials say financial stress affects their job performance. People in their late twenties and early thirties often report that financial anxiety has been responsible for their physical illnesses or depressed moods. And there is an even younger population affected by a market crash. When stocks slide children get sick more often and are hospitalized more often.
There is also something called a ‘loss aversion effect.’ This means that anxiety, depression and other bad feelings that are associated with a market downturn and financial instability usually outweigh the positive emotions felt when stocks do well. Therefore, money is always a significant stressor that correlates with increases in depression or other mental illnesses.
Regardless of the circumstance, money and market downtrends always pose a real stressor. It’s not possible to predict what the market will do tomorrow, so it’s extremely important to take care of yourself cognitively and emotionally.