Financial Crisis Definition
Financial crises can happen unexpectedly. With more than half the country unable to come up with a few thousand dollars, even a small emergency can upend people’s state of financial well being. This issue can easily spill over into other areas of their lives.
In today’s uncertain world, understanding potential risks is a must. We can start gaining knowledge about preparing for potential financial issues by starting with the financial crisis definition. From there, people can begin to proactively prepare for any emergencies through working with financial crisis counselors or other trusted financail professionals.
National Financial Educators Councils Definition of Financial Crisis
The NFEC defines financial crisis from a personal perspective. A financial crisis can be:
A situation where an individual is experiencing financial challenges due to lack of funds to meet basic human needs.
A situation where an individual is suffering from mental health issues due to his or her financial circumstances.
What is Financial Crisis Definition from Other Organizations
In a financial crisis, asset prices experience a steep decline in value; businesses and consumers are unable to pay their debts; and financial institutions experience liquidity shortages. A financial crisis often is associated with a panic or a bank run during which investors sell off assets or withdraw money from savings accounts because they fear the value of those assets will drop if they remain in a financial institution.
View Source: https://www.investopedia.com
A situation in which the supply of money is outpaced by the demand for money. This means that liquidity is quickly evaporated because available money is withdrawn from banks, forcing banks either to sell other investments to make up for the shortfall or to collapse.
View Source: http://www.businessdictionary.com
A financial crisis is any of a broad variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults.
View Source: https://en.wikipedia.org
How People Process Information in a Financial Crisis Situation
According to Tonya Young, who holds her NFEC Financial Coach financial counselor certification, “A crisis can cause stress, worry, fear, and a wide range of emotions that take us away from logical thinking.” During these times, many people make emotional decisions that can cause more problems at this critical time.
According to the CDC publication, Psychology of a Crisis, people often exhibit these decision-making processes:
Simplify Messages
People often are unable to juggle multiple facts during a crisis, don’t retain the information, and/or misinterpret the actions they should take.
Hold on to Current Beliefs
Beliefs often are held very strongly and not easily altered, especially in a crisis situation. During these times, people tend not to seek any evidence that contradicts the beliefs they already hold.
Believe the False Messages
Often the first message we hear shapes how we interpret information. People do not conduct in-depth research and often fall for false data presented by the media, politicians, and other people they know.