The Link Between Emotional and Financial Health

It's a common sight in neighborhoods across the country: row upon row of "for sale" signs. Families who, up until now, felt comfortably ensconced in the American dream are experiencing the financial squeeze caused by a slowed economy, rising gas prices and a burst housing bubble. What can you do to survive the crunch with your credit in tact? How can you avoid such situations in the future?

Believe it or not, many of our financial woes have a psychological basis. By recognizing and understanding the psychological reasons behind our financial behavior, we become empowered to create lasting change. Recognize yourself in any of the following scenarios? Ready to make a change? Let's get started.

I spend because I feel inadequate.

The desire to keep up with the Joneses is nothing new. Upon their return from overseas stations during WWII, many young men married, began college on the GI bill, and, with the help of VA loans, bought a nice home in the suburbs, quickly settling in to a life filled with backyard barbecues and friendly neighborhood gatherings. Nicer homes and better cars became a way of life for these post-war veterans and their families, and the desire for bigger and better trappings has continued to rise phenomenally since that time.

In her book The Overspent American, Harvard University economist Juliet Schor theorizes that an increased gap between lower and upper classes emphasizes the difference between the two. In an effort to close the gap, consumers spend much more than they can comfortably afford. To avoid being labeled as "poor" or "lower class" consumers strive to emulate the possessions and lifestyles of the wealthy.

At the heart of this grandiose spending spree is dissatisfaction with self. When one bases one's self-worth on material possessions, one is destined to fail miserably, both emotionally and financially. When we base our self-worth on our social status, we no longer have control over the outcome. Trends come and go, jobs begin and end, and the economy swells and dives. And so will our self-worth, if this is the foundation upon which it is built.