The Link Between Money & Mental Health

Many of us have experienced the worry that comes with realizing your bank account isn’t big enough to cover your living expenses. Additionally, many people struggle with long-term financial anxiety as a result of larger economic circumstances, such as recessions and lack of a cushion to fall back on in tough times. What happens to your money isn’t just a matter of financial health; it’s a matter of mental wellbeing, too.

How Your Money Affects Your Mental Health

A study from the Money and Mental Health Policy Institute revealed that nearly four in ten people with mental health problems say their financial situation makes their mental health issues worse. And if you’ve never experienced such problems before, financial issues can have a big psychological impact if they occur.

Confusion and Disorientation

According to TIAA and Stanford University's Global Financial Literacy Excellence Center, only 47% of American adults are considered “financially literate,” meaning they understand how personal finance works, have an arsenal of money management skills, and use those skills to effectively navigate their financial lives. As their financial literacy grows, people tend to save more, spend less, make decisions more confidently, and be more optimistic about the future.

For the remaining 53%, yearly taxes, managing interest on things like credit cards, student loans, and cars, and the daily minutia of creating and sticking to a budget are just a few of the interlocking factors that can make personal finance seem confusing. They are vulnerable to certain money problems, including frequent overspending, high levels of debt, and increased risk of falling for financial scams. They also have a higher likelihood of developing other emotional and physiological problems, such as those detailed below.

Anxiety and Stress

The American Psychological Association’s Stress In America survey revealed that about 64% of Americans regularly worry about their finances. This is made worse by the fact that most American households are unprepared for unexpected expenses; nearly 40% couldn’t afford an emergency that costs more than $400 to fix.

Financial stress can have a variety of symptoms, including irritability, struggles with interpersonal relationships, and physical ailments like headaches, stomach problems, and high blood pressure. Anxiety may also drive someone to unhealthy saving patterns, where they’re preoccupied with saving money to an unreasonable degree and “oversave.” They might obsess over their savings, never feel as though they’ve saved enough, or deny themselves small, basic pleasures - perhaps even necessities - in order to save as much money as possible.

Guilt and/or Shame

For many of us, money problems are a source of embarrassment. Common situations that can cause financial shame include:

• Not having enough money to pay for necessities like rent, food, or utilities
• Carrying significant debt
• Being declined for a credit card or loan
• Among other things, a person struggling with financial shame may deny the severity of their situation (running the risk of making it worse), suffer from low self-esteem, or withdraw from family and friends.

Envy and Insecurity

Particularly in the era of social media, where you’re only a click or tap away from seeing photos of your friends’ beautiful homes, glitzy nights out, and extravagant vacations, it’s easy to feel envious of what they have. In addition to jealousy, constant comparison to others can lead to painful insecurity if you feel inadequate compared to the more well-off people around you.

Depression

Clinical depression affects million Americans every year, and those living in the grip of financial hardship - particularly if it’s worsened by debt or long-term poverty - run an even greater risk of developing depressive symptoms. According to the Center for Disease Control and Prevention, depression is more common among people from lower-income households.

How Your Mental Health Affects Your Money

Mental health struggles, even temporary ones, can impact the way you spend, save, and earn money. This can take a big toll on your finances.

Compulsive Shopping and Overspending

Whether you call it “impulse buying,” “emotional spending,” or “retail therapy,” it all refers to the same thing: shopping to feel better when you’re upset. This is an extremely common behavior that costs the average consumer $254 per month.

High Medical Costs

The cost of mental health care in the United States has risen steadily over the last decade. As of the most recent reports, Americans spend about $225 billion annually on mental health maintenance, including therapy, psychiatric medications, hospitalizations, and substance abuse treatment. For many who deal with long-term mental health concerns, this cost puts them at an economic disadvantage.

Struggles with Employment

Indirect costs, such as missed work days and decreased productivity, make the costs of mental illness pile even higher. According to a study from the World Health Organization, absenteeism because of mental illness affects about 264 million Americans and costs the U.S. about $1 trillion per year. This is especially prevalent in workplaces with inadequate health and safety policies, poor communication, and unsupportive leadership.

Increased Risk of Debt

People with mental illnesses are more likely to be in debt than their neurotypical counterparts. A study from the UK’s Money and Mental Health Policy Institute discovered that one in five people living with a mental illness are in “problem debt,” or debt they can’t reasonably repay.

Take Control and Break the Cycle

The relationship between your mental health and your money may be difficult right now, but the good news is you can improve it by paying off high-interest debt, setting a budget, and building an emergency fund.

Pay Off High-Interest Debt

In an economic landscape where many credit cards have variable interest rates and federal interest rates are rising, it’s important to reduce interest charges by paying down your credit card debt. You can accomplish this in a few ways:

• Make larger monthly payments, and/or make multiple payments per month.
• Combine multiple credit card bills into a single payment with a debt consolidation loan. You can even check your rate now with no impact to your credit score.
• Transfer variable-rate credit card balances to a fixed-rate credit line.

Paying off a credit card doesn’t just help you save on interest; it can also boost your credit score over time. For round-the-clock access to your credit score, credit-boosting tips, and more, download Upgrade’s free Credit Health monitoring tool.

Set a Budget and Monitor Your Money

A budget is one of the simplest and most effective ways to regain control of your money. Whether you’re a budgeting novice or a pro, there are steps you can take to give you more control over your money. You can also trim your spending through simple hacks like unsubscribing from marketing emails, waiting until items go on sale before you buy them, and replacing costly expenses (e.g. gym memberships, cafe coffee, dining out) with cheaper alternatives like working out at home and eating fewer meals out.

Build an Emergency Fund

Much of the stress related to money comes from fearing unexpected expenses, such as healthcare bills or extensive car repairs, that can upend your financial life. An emergency fund can help pay for financial surprises when they come up. You can start building yours by setting money aside from every paycheck. If you’re trying to pay off debt, save $1,000 in your fund and then focus on paying off debt; otherwise, make it a goal to save between three- and six-months’ worth of living expenses.

When to Seek Help

If financial worries are taking over your life and making you feel powerless, there’s no shame in getting professional help. According to the Association for Behavioral and Cognitive Therapies, you should consider talking to a licensed mental health worker if you experience these symptoms:

• Loss of enjoyment in activities you used to love
• Feelings of worthlessness, guilt, and/or hopelessness
• Obsessive worrying about things you can’t control
• Thoughts of death and/or of hurting yourself or someone else

The Bottom Line

Managing your mental health and your money can seem difficult, but you can make it simpler. Remember that by taking control of your money, prioritizing paying off debt, and saving for the future, you can see improvements in your mental health.