- Money troubles can cause stress—and vice versa.
- Stress can lead to spending on things you don't need.
- Taking the time to reflect on your choices and how you feel before you buy things can lead to better financial and mental wellness.
At TCG, we've been privy to conversations where individuals had feelings of impulsiveness and/or recklessness in regards to their financial decisions. We've heard time and again how those decisions have left people feeling empty and regretful.
Millions of people struggle with mental health and money issues at the same time. Like the proverbial chicken-and-egg conundrum, the two are closely linked, and each makes the other worse.
Which comes first?
Not surprisingly, research has shown that money problems can negatively affect mental health. But it turns out the opposite can also be true. A recent study by MMHPI found that poor mental health can affect financial behaviors, with 71% of respondents saying that, during periods of poor mental health, they "always" or "often" spent more money than they usually do, and 73% saying that they found it harder to make financial decisions during periods of poor mental health. It can literally pay to take care of your mental well-being.
Mental health problems amplify our financial issues because we're more likely to be at the mercy of a lot of negative emotions and that will all come out in our relationship with money. We also tend to feel more helpless and overwhelmed when we're under financial stress. Emotional instability is like a fog that makes it harder to navigate the truth of what's actually causing our financial problems or how to get out of it. Poor mental health can also take your attention away from everyday financial tasks, such as paying bills, getting to work on time and saving money. Interestingly, this applies equally to people across all income brackets.
"Money is one of the biggest stressors in American life, and it has been for years," the American Psychological Association's Stress in America surveys. The 2022 report shows that stress about money is at its highest recorded point since 2015, with 81% of people ages 26 to 43 saying money is a significant source of stress.
An August 2021 Fidelity study on mental health in the workplace further proves the link. People with high levels of concern about both their finances and their physical health were least likely to be in good mental health. People with low levels of concern about their finances and physical health were most likely to be in good mental health.
Even people who don't struggle with mental health are prone to making emotional money decisions that don't benefit them. We're heavily influenced by how situations make us feel in that moment.
Whether it's a new pair of shoes or a cup of coffee, buying can boost your mood.The moment you put something into a shopping cart—real or virtual—you feel happier, thanks to the release of feel-good chemicals: dopamine and endorphins. Your brain pumps out even more of them when you hand over cash, tap your phone or credit card on a contactless payment terminal, or click "Place Your Order" to complete a transaction.Unfortunately, this can lead to binge shopping or buying things that you can't afford or simply don't need.
"When you're sad, you feel out of control," says Scott Rick, a behavioral scientist and associate professor of marketing at the University of Michigan's Ross School of Business. "Retail therapy can help restore a sense of control over our world while making shopping choices. It doesn't have to be big purchases either. It can be tiny things as long as you're making a choice."
When money hurts
Sometimes, money problems cause depression. Losing a job or dealing with unexpected expenses, such as medical bills, are directly linked to poor mental health, according to researchers. One study found a significant relationship between debt and mental disorder. There's good reason for that: We tend to feel more helpless and overwhelmed when we're under financial stress. Money issues often blow up relationships, too, which can lead to deeper depression.
Both scenarios—mental health affecting finances and vice versa—can prevent financial wellness, that is, how you're doing with and feeling about budgeting, debt, investing and protection. Our financial wellness is the same as our health life—if you have a healthy heart and mind, it's easy to stay healthy. If you are in a bad state to begin with, you will see the effects show up in your quality of life.
No matter which came first, mental health or money issues, there are ways to improve your financial wellness.
First, acknowledging your emotional relationship with money. Look at your purchases over the last 3 months, whether they're planned or not, and ask yourself, What was I feeling before, during and after this purchase? What was my emotional state? Was I nervous about something? You'll see whether there are certain emotions that are driving some of your unplanned purchases.
Next, create a budget if you don't already have one. It can help boost accountability for your spending.
Finally, whenever you're about to spend money, pause to reflect on the choice. Research supports that this mindfulness can improve decisions and well-being. Some people use journaling to be more mindful, and track spending habits. This type of organization can serve to reinforce positive habits, bringing you closer to your goals.