A study published in the July/August 2006 issue of the European Journal of Social Psychology suggests that powerful people are more likely to take risks. The authors of thestudy theorized that high-powered individuals often benefit when they make choices that are considered high-risk.
The more power these people believe they have, the more risk they are willing to take. However, this behavior can set up an incredibly damaging dynamic. Consider, for instance, the number of scandals that regularly arise involving high-powered executives, wealthy stock-market investors, or political figures.
How power affects relationships
I’m quite sure that former president Bill Clinton never believed he would get caught when he embarked on an affair with a White House intern. Another psychological effect of constant risk taking is the impact the adrenaline rush that such behavior can provide. These thrill seekers “self-medicate,” and I see in my practice their self-destruction. Individuals who are prone to addictive behavior are in danger of falling into a damaging cycle where the rush of taking the risk becomes all the reward they need.
Whether or not their risky behavior is beneficial becomes secondary. And the more risks they take, the more powerful they may feel. This type of power dynamic in a relationship can have a significant impact on a couple’s shared finances. When faced with a crisis, risk takers, who generally take a “don’t worry, don’t plan” approach to money management, may make rash decisions that result in emotional and financial catastrophes for them and/or their partners.
The brain’s reaction to powerful emotional even
According to Bret t N. Steenbarger, clinical psychologist and author of Enhancing Trader Performance, “When humans experience a powerful emotional event (and a big gain or loss in our wealth, even if it is on paper, is one) our brains don’t work the way they do when we’re calm. During times like these the analytical part of the brain shuts down….” You need a plan to limit risk, especially at these times when your brain fails you.
Assess your risk
To help you understand how much financial risk is present in your relationship, ask yourself these questions:
- Do you have a plan in case of a financial emergency, such as loss of a job or a medical crisis?
- Are there a lot of high-risk stocks in your portfolio?
- Do you own your home?
- Do you have multiple credit cards with high interest rates?
- Can you easily make the minimum monthly payments on your credit cards?
- Do you have an adjustable rate mortgage?
- Do you have six months’ living expenses set aside in case of emergency?
- Have you ever had to take a loan from friends or family to “bail you out” of a bad financial situation?
- Do you pay yourself first by putting money in savings before paying your bills?
If your answers to the even-numbered questions are mostly “yes” and your answers to the odd-numbered questions are mostly “no,” you are living with a very high level of risk in your relationship. If the reverse is true (the even-numbered questions are mostly “no” and the odds are mostly “yes”), then you have an extremely conservative approach to financial risk.
In order to successfully navigate the power struggles that occur around money, it is important to know how comfortable both you and you partner are with financial risk. It is also
important to consider your relationship’s power dynamic and your personal relationship to money and power. Acknowledging these different perspectives can help you to understand where your partner is coming from when you find that you are locked in a power struggle about money.