Inflation is the highest it’s been in 40 years and nearly nine in 10 adults say they’re at least somewhat concerned about inflation.1 Reassurances that inflationary spikes would be temporary proved inaccurate, contributing to the groundswell of financial anxiety that now holds many firmly in its grip.

It’s natural for investors to feel angry, anxious, and even helpless when they see prices continuing to rise. From a physiological point of view, just thinking about inflation can set off a heap of neurological responses which can further inflame clients’ fears about the market taking a plunge. As a result, they can be tempted to make rash investment decisions that will make their portfolio “safer” to avoid losing money. Often, those types of decisions do the opposite and hurt their long-term results (see Figure 1). Fortunately, understanding the science behind how inflation can trigger investors can help us reduce their anxiety.

How Inflation Can Affect Clients’ Brains

As clients are exposed to a steady barrage of price increases, millions of neurons fire simultaneously across three areas of their brains: the primal, emotional, and rational brain. The result? Financial anxiety. And with prices seemingly set to rise further, anxiety may intensify.

The Primal Brain Sounds the Risk Alarm

Our primal brain (basal ganglia) is the most powerful region of the brain. It’s an unconscious driver of our behavior—a valued first responder and defender of deep-seated survival instincts for security, certainty, and safety.

It’s so sensitive to risk that even small price increases can be perceived by clients as threatening. This response can be triggered by paying more at the grocery store and the gas pump or seeing inflation news coverage. Any optimism about the stock market can quickly fall away. Instead, an investor’s fast-acting primal brain responds by placing their body on high alert, releasing fight-or-flight chemical messengers into the bloodstream that make them hyper-focused and vigilant.

As a result of these chemical messages, an investor’s primal brain will sound the physiological alarm that inflation will result in investment losses and a different part of their brain will step up to influence how they might respond to the warning.

The Emotional Brain Activates Fight-or-Flight Responses

After the primal brain sounds the inflation alarm, the emotional brain (amygdala) tells clients what to do about it. Using existing data, such as memories stored in the hippocampus, the emotional brain acts as a control center to determine how to deal with the risks. A client’s emotional brain prefers a quick fight-or-flight response, fueled by the secretion of adrenaline, cortisol, and other stress-reactive hormones. With inflation risk, a flight response could be, “I better choose safer investments now to avoid future losses.”

Baby Boomer clients might feel particularly sensitive to today’s inflation. Why? Because the amygdala-hippocampal relationship can recall distressing memories from inflation in the 1970s. Those memories can influence the assessment of the investment threats today, potentially increasing the intensity of a flight response.

As clients continue noticing price increases, the emotional brain keeps triggering the flight response—much like a driver keeping his foot on a pedal, revving an engine. If clients don’t take action to reduce inflation’s risks to their investments, they can experience further anxiety, fatigue, and insomnia. But their rational brain can be the key to helping them resist the flight response.

The Rational Brain Can Help Clients Analyze Situations

When a client perceives a threat, it’s often best for them to remain rational and analyze the situation. Yet, when they’re stressed, their rational brain (prefrontal cortex) can be switched off. They likely won’t be aware of this happening. So why does it happen? 

The rational brain is far weaker than the emotional and primal areas of the brain. It can be easily overruled by their emotions or survival instincts. When investors face a threat, their fight-or-flight response calls for immediate action—not slow, rational judgment. While this hardwired, emotion-first, response may remain ideal in the face of an angry bear, it’s often far less helpful when a client is considering financial decisions in a volatile, inflationary market.