Financial literacy often brings to mind budgets, investments, and market headlines. But beneath the spreadsheets and strategy is something just as powerful: psychology. The way people think and feel has a surprising amount of influence over the financial decisions they make.¹

Even with all the data in the world, emotions can still manage to sneak into financial decisions. As financial author Morgan Housel explains, it’s impossible to predict every risk in investing — there will always be surprises, and emotions often play a big role in how people respond to them.²

Market drops can stir up strong emotions

When the economy contracts or markets get shaky, emotions tend to run higher. Behavioral finance research shows that uncertainty can lead to heightened anxiety, impulsive decisions, and a tendency to act without all the facts.³

In times of financial stress, the brain can actually start to shift gears. Instead of relying on the prefrontal cortex — the part of the brain that handles planning and rational thinking — activity may move to the amygdala, the center that processes emotions. That switch makes people more likely to react on instinct. Fear and anxiety take over, and short-term decision-making can be made under pressure. This shift increases the likelihood of reactive behavior, as fear and anxiety take over and people become more susceptible to short-term decision-making.⁴

Fear of missing out could lead to impulsive behaviors

Not all market-driven emotional responses are negative. The fear of missing out, or FOMO, is documented in both consumer behavior and investing psychology.⁵ When markets are rising or new trends dominate the headlines, the emotional trigger isn’t fear of loss, but fear of missing out on something big.

The same emotional trigger plays out in everyday investing. When crypto surges or hot stocks hit the headlines, that feeling of being late to the party can kick in.⁶ Fear can show up on the other side, too — especially during downturns. Market selloffs can spark panic selling, driven by short-term emotion instead of long-term thinking.⁷ Acting fast might feel like taking control, but could leave behind regret.

Decision-making blind spots

It’s not just feelings — it’s behavioral patterns. Personal decision-making styles that can lead to blind spots such as overconfidence.⁸ Being sure doesn’t always mean being right — especially when it comes to not focusing on potentially helpful input.

Then there’s anchoring, where a single number or idea becomes hard to shake.⁹ Sticking to a stock’s original purchase price or fixating on what something “should” be worth can lead to missed opportunities. Spotting these habits early can open the door to smarter, more flexible choices.

Emotions are part of everyday money moves

Moods can drive financial behavior more than most realize.¹⁰ Stress can lead to impulse spending or hesitating to invest at all. Confidence can fuel bold choices — sometimes too bold. Even subtle shifts in mood can show up in spending, saving, or splurging.¹¹

Emotions don’t need to be erased from financial decisions — they just need the right seat at the table.¹²