How Do Our Finances Impact Our Mental Health?
This year, our finances have taken a bumpy ride. Up and down, and down, up slightly, down and down again. Unfortunately, our depleting assets affect more than our pocketbooks; it also affects our mental health. One study revealed that in the U.S., 90% of individuals said that money has an impact on their stress levels. Stress can cause anxiety and sleep disorders, and even has an impact on your ability to save. Indeed, individuals with higher money-related stress reported saving less than those with lower levels of financial stress.
When it comes to mental health and finances, people also associate money with worry, anxiety, feeling overwhelmed, and insecurity. The activities that trigger the most negative feelings include checking bank accounts, paying bills, and making a purchase.
Who is Affected the Most?
Millennials (aged 26 to 41) experience the most financial anxiety, at 48%. These individuals are starting careers and families and have not yet built up savings to ensure financial security. Millennials entered the workforce following the 2008 recession and are still struggling to catch-up. According to the National Bureau of Economic Research, it takes about a decade to recover from a setback like that of the recession. So millennials were only just starting to get back on their feet when COVID-19 impacted the economy. Gen Xers (aged 42 to 57) and the Gen Z generation (aged 18 to 25) follow, at 46% and 40% reporting financial stress, respectively.
How does money affect mental health between genders? Money impacts the mental health of women (46%) more than men (38%).
Lower earners experience more mental distress related to finances than higher earners.
How is Your Financial Health?
According to the Financial Health Institute, financial health is defined as “[t]he dynamic relationship of one’s financial and economic resources as they are applied to or impact the state of physical, mental and social well-being.” Financial and economic resources include the amount of your savings, how much you put aside for retirement, your debt to income ratio, your ability to earn money, and how much of your discretionary income you spend. These resources combined determine your financial health, the state of which directly affects every area of your overall well-being.
Poor financial health can negatively impact your over-all well-being. The influence is cyclical. Financial stress leads to a decline in decision-making abilities. So, the more stressed you are, the more difficult you will find making decisions related to spending and saving. In turn, this can further impact your mental health. Unfortunately, it can also impact your physical health. Stress over money has been linked to heart disease, diabetes, migraines, and more. These conditions can lead to high-cost medical problems, which can then lead to more financial worry.
One way to combat this challenge is by improving your financial literacy.
Financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing. The benefits of financial literacy include preparing people for emergencies, preventing people from making financial mistakes, and helping people reach their financial goals. There are many vehicles for achieving financial literacy, including reading books, listening to podcasts, reading blogs, and speaking with a financial professional. Studies show that if you are financially literate you are generally less vulnerable to financial fraud.
Taking control of your financial issues should reduce the likelihood you will face mental health issues (at least those based on your financial situation). Some tips for taking back financial control include:
- Setting goals
- Creating a budget
- Dealing with debt, including negotiating with debt collectors – some will take less than 50% of the initial amount of the debt
- Reducing credit card use to reduce spending and debt
- Finding ways to save money
- Speaking with a financial adviser
- Addressing coping habits, such as drinking and smoking
- Taking better care of yourself, including getting more sleep and exercising
Get Help if Necessary
If you have concerns regarding your financial health and its impact on your mental health, get help. Speak to a financial professional to get your finances in order and speak to a mental health professional to get your personal health back on track.