Financial Stress And Mental Health: Can Money Issues Cause Mental Health Challenges?

Financial stress is often caused by situations outside an individual’s control, such as emergencies, unexpected expenses, rising living costs, and systemic financial barriers. In some instances, poor spending habits or lack of financial education may exacerbate these challenges. In any case, economic stress can significantly affect mental health in many ways. Here, we’ll explore the relationship between money and mental and physical health, including tips on cultivating financial stability and caring for your well-being during times of stress. 

Financial stress can impact mental health

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Understanding financial stress

Financial stress is the emotional, physical, and sometimes social strain caused by money-related issues or worries. It commonly arises when people struggle to afford necessities like food, rent, and healthcare and are unable to save money for unexpected expenses. In the US, it’s estimated that 77% of adults experience financial anxiety, and 58% report feeling as if money controls their lives.

Common causes of financial distress

A combination of low income or unemployment and the rising cost of living can be stressful. Having a large amount of debt or debt that's difficult to manage can feel overwhelming and contribute to a cyclical predicament of debt and the spending behaviors that cause or add to it. Financial emergencies or unexpected expenses are often a significant cause of economic distress too, particularly when one doesn't have savings to cover such events. Poor budgeting and spending more than you earn can lead to financial problems, too. 

Who is most affected by financial stress?

Studies suggest that inflation and other economic challenges disproportionately affect low-income families. Women—particularly women of color—are more likely to feel stressed about finances than men. Young people with student loans or other types of debt are often affected, as are individuals past working age receiving social security or those nearing retirement without savings. 

The connection between financial stress and mental health 

Money problems can lead to stress, anxiety, depression, low self-esteem, sleep disturbances, and feelings of hopelessness—particularly when individuals struggle to meet basic needs or manage large debts. In addition, money problems can create tension and conflict within relationships and households. In some cases, individuals might also turn to unhealthy coping mechanisms like alcohol or drug use to manage money stress. 

Physical health problems that chronic stress may cause

Regardless of its source, prolonged stress can lead to physiological and psychological burnout. People experiencing money-related stress might also experience tension headaches and migraines, muscle aches, and long-term high blood pressure, which can increase the risk of heart disease, diabetes, and other complications. Stress can also cause digestive issues like irritable bowel syndrome (IBS), sleep problems, and weight gain or loss. 

The impact of mental health challenges on financial behavior

Depending on the condition, some people with mental health challenges might have impaired capabilities that lead to unhealthy financial habits. For example, depression can lead to a lack of energy and motivation to manage finances, possibly causing procrastination on tasks like budgeting or paying bills. Or, some might avoid checking bank statements or engaging in other routine financial tasks due to anxiety and overwhelm. 

Some mental health conditions can also cause impaired cognitive functioning, making it harder to evaluate financial risks and make informed decisions. Or, some people might use shopping as a temporary mood booster to cope with anxiety and depression, which can lead to overspending on unnecessary items. 

The cycle of financial stress and mental health challenges

Financial difficulties can spark or worsen mental health challenges, and mental health challenges can make managing finances more difficult—leading to further financial strain. This sort of “feedback loop” between poor mental health and worsening financial situations can manifest in several ways. Here are some examples of how the cycle might appear:

• Worrying about debt, bills, or lack of income can cause or contribute to anxiety, depression, and stress, impacting daily functioning and overall well-being. Symptoms of such conditions might include trouble concentrating and poor sleep, which could result in poor financial decision-making. 
• Feeling overwhelmed by financial worries can lead a person to engage in unhealthy coping mechanisms like excessive alcohol or drug use that could eventually evolve into substance use disorder. The physical challenges of the disorder might cause reduced work productivity or missed days, leading to less income or job loss.
• Living in poverty can cause trauma and related mental health conditions. Symptoms can make it more difficult for a person to receive mental health care, maintain a job, and effectively manage their money, which could keep them in the cycle of poverty.

Social and economic factors that may amplify the relationship between money worries and health problems

People with lower socioeconomic status are more likely to experience financial stress due to factors like low wages, limited job opportunities, and inadequate availability of resources, which can significantly impact their mental and physical health. Other examples of social and economic factors impacting money stress and health include the following:

• Job insecurity or having a job with irregular hours can contribute to financial stress and anxiety about meeting basic needs.
• Student loan debt or high medical bills not covered by health insurance can lead to overwhelming financial stress and feelings of being trapped. 
• Unforeseen costs like sudden medical bills or car repairs can further strain finances and exacerbate financial stress, particularly for individuals with limited savings. 
• Difficulty affording rent or mortgage payments can lead to significant stress and worry about potential eviction and homelessness. 
• Individuals with limited social networks or weak social connections may struggle to cope with financial stress due to a lack of emotional support. 
• Experiencing discrimination based on race, ethnicity, sexuality, gender, or other factors can further exacerbate financial stress and mental health challenges. 

Cultural stigma and money

A societal stigma exists around both financial struggles and mental health challenges in many cultures, creating a bi-directional relationship between the two. For example, individuals with money troubles may experience shame, guilt, or fear because of societal attitudes about being financially disadvantaged. This can cause an individual to withdraw from social activities and relationships or neglect to ask for financial support when needed. 

In turn, social isolation often leads to loneliness and depression, which can make it more difficult to cope with economic challenges. Additionally, social pressures to spend or to “keep up” with peers can influence people to overspend or put themselves in debt, leading to financial stress. 

The psychology behind financial stress

In addition to cultural stigma, a person's own relationship with and attitude toward money can also play a role in financial stress. For example, one might seek validation from other people with money or tie their self-worth to material possessions or how much they make. Another might think wealth will solve all their problems, including those unrelated to money.  

Other people may have trauma that causes them to self-inflict a sense of scarcity, thinking they don’t deserve to spend or enjoy their money—even if they’re financially stable and responsible. Being secretive or mistrustful of other people about money can also cause problems with money management, especially for those who need support. Some even use money to control or manipulate others, such as in cases of financial abuse. These are just a few examples of many different ways in which a person’s outlook, upbringing, and environment could impact their financial behaviors.

Debt stress syndrome

Though all types of financial worries can be impactful, studies suggest that debt may uniquely affect one's mental health. Researchers examining the relationship have coined the term “debt stress syndrome" to describe how it can differ from other types of economic stressors. As opposed to economic hardships like job insecurity that tend to affect lower-income households, studies indicate that debt overwhelm is more common among people with steadier jobs and higher incomes. It often contributes to feelings of hopelessness, depression, and shame. 

Studies also suggest a link between debt, toxic stress, and power imbalances in relationships, as owing money to another person in any form often implies obligation and dependence. Although this relationship can exist between an individual and a commercial lender, it can be particularly distressing when it takes place between two individuals—especially if the parties are estranged or have a complex relationship. This type of debtor/debtee relationship can cause considerable additional stress and may undermine mental health.

Compulsive buying disorder 

While it isn’t recognized officially as a mental health condition in the Diagnostic and Statistical Manual of Mental Disorders (DSM), experts have developed the term “compulsive buying disorder” (CBD) to describe the relationship between impulse spending/compulsive buying and mental health. 

CBD is characterized by “some level of difficulty controlling the purchasing of possessions, which in turns leads to clinically significant distress [...] and/or psychosocial impairment.” People with CBD might have a preoccupation with shopping that leads to tension or anxiety before purchases and then relief and catharsis after, which sometimes may be followed by guilt or regret. Experts studying CBD have found that the disorder often co-occurs with mood and anxiety disorders, substance use disorders, eating disorders, and others associated with impulse control. 

Strategies for breaking the mental health/money cycle 

While many elements of a person’s finances may not be under their control, taking charge of those that are could help an individual end the financial stress cycle. Learning to budget, save, and spend wisely can give individuals a greater sense of control and confidence in their financial situation. Books, workshops, online tools, and apps can help boost financial literacy. 

In addition, here are some other ways you can increase your mental and financial wellness:

• Set financial goals, make a budget, and do your best to stick to them. Automatically transfer a portion of your monthly income to a savings and/or an emergency funds account, if possible. 
• If you have debt, explore approaches like the snowball or avalanche method to pay off or pay down high-interest debt. 
• Take care of yourself by getting enough sleep, eating well, exercising, and practicing stress-relieving exercises like mindfulness, meditation, and relaxation breathing techniques. 
• Seek support from people you trust. Talk to friends and family about your financial stress and how it affects your mental health. 
• Seek guidance on budgeting, saving, and spending from financial professionals like advisors or credit counselors. Some offer free financial advice to those who qualify. 

Financial stress can impact mental health

Learn to cope in therapy

Asking for help with financial stress

Coping with the overwhelm that often accompanies financial stress can be challenging, which is why reaching out for help can be an impactful step forward. Talk therapy with a mental health professional can be a powerful tool to help you question harmful or limiting thoughts and beliefs about your finances and reframe them in a healthier, more constructive way. A therapist can also help you develop healthy habits and coping mechanisms for stressful situations.

Despite its potential benefits, people with financial challenges might not feel comfortable talking to a therapist in person about highly personal topics like finances, or they may assume they can't afford therapy. One possible solution to explore is virtual therapy, which allows an individual to speak with a licensed mental health professional from the comfort of home via video, audio, or messaging. Online therapy is often more affordable than traditional in-person treatment without insurance as well.

Studies indicate that internet-delivered cognitive behavioral therapy (CBT), a method often used to treat anxiety and depression, can often be as effective as in-person treatment for many people. For example, in one study, researchers recorded treatment outcomes for individuals engaged in an online CBT program for managing financial anxiety and depression. They found that the participants experienced “statistically significant improvements in symptoms of depression and anxiety and improved perceived financial well-being” after receiving treatment. 

Takeaway 

Financial challenges and mental health challenges often tend to have a cyclical relationship with each other. While the source of financial challenges are not always within an individual's control, certain approaches may help a person improve financial well-being and reduce stress. Making a budget, practicing self-care, and seeking professional financial advice can all be helpful, as can meeting with a therapist for support in coping with stress.