Your Well-Being and Your Wallet: The Effects of Money on Mental Health

Financial stress is a common challenge for many people and, when left unchecked, can lead to mental and physical health issues. For young adults, cultivating a healthy relationship with money and grasping essential personal finance skills can alleviate financial burdens and support overall well-being.

With education and mindful practices, financial well-being is achievable—not through high income or luxury, but by managing day-to-day finances, securing financial stability, and progressing toward long-term goals while still enjoying life.

For recent graduates or those beginning their careers, here’s what you should know about how finances can affect mental health and strategies to help you build financial wellness.

The Connection Between Money & Mental Health
Understanding Financial Stress
Financial stress is the worry and anxiety tied to money. It can stem from day-to-day challenges, like struggling to cover basic expenses, or a broader sense of financial instability due to debt or unmet goals, such as purchasing a home or affording a car.

Young adults, often dealing with significant financial responsibilities for the first time, may feel especially burdened by financial stress.

“Money is one of life’s biggest stressors,” says Carolyn McClanahan, M.D., CFP, founder of Life Planning Partners. “When stressed, the body releases hormones that can disrupt sleep and undermine overall well-being.”

Financial Stress in Young Adults

Financial worries vary by life stage. While older adults may worry about retirement, younger people often focus on immediate expenses without falling into debt. “Managing daily expenses without going into credit card debt is a common focus,” McClanahan notes. “Financial literacy is crucial, yet many young adults lack the know-how to navigate this.”

Curtis Pope, CFP, CFT-I, founder of Pope Wealth Planning, agrees: “Young adults are often facing numerous life transitions, from moving to new cities and starting careers to managing full independence. When finances feel uncertain during this period, it adds an extra challenge.”

Student loan debt is another stressor for many young adults. The College Board’s Trends in College Pricing 2023 report states that over half of bachelor’s degree recipients from 2021-22 graduated with debt, averaging $29,400.

The Health Impact of Financial Stress
A Harvard study found that over half of young adults (56%) between ages 18-25 feel their mental health is affected by financial concerns. “Physical and mental health are interconnected,” says McClanahan. “When fundamental concerns like finances arise, it can trigger a chain reaction impacting overall well-being.”

Pope outlines several common health effects of financial stress:

Anxiety and Depression: Constant financial worry can exacerbate anxiety and depression.

Sleep Issues: Money concerns often lead to sleepless nights. An American Academy of Sleep Medicine study revealed that 87% of respondents had lost sleep over financial worries.

Physical Health Problems: Chronic stress from financial strain can lead to headaches, digestive issues, and a weakened immune system. The American Psychological Association reports that stress can impact every bodily system.

Relationship Strain: Financial stress can create tension in relationships. Among Gen Z, nearly 30% cite finances as their biggest relationship challenge.

Work Performance Decline: Money worries can reduce productivity and concentration at work. A Morgan Stanley at Work study found that 71% of employees report financial stress impacts their personal and professional lives.

Social Withdrawal: Financial stress may lead people to avoid social interactions due to lack of funds or embarrassment. One study found that 72% of respondents skipped social events for financial reasons.

Lowered Self-Esteem: Financial struggles can affect self-worth, leaving some feeling like failures.
Steps for Reducing Financial Stress

Taking control of finances can significantly reduce stress. “Learning personal finance skills is crucial,” says McClanahan. This involves budgeting, saving, and understanding financial tools like retirement accounts and health insurance.

Here’s a practical guide for managing financial stress and improving your relationship with money:

Understand Your Financial Habits Begin by assessing your finances. Pope suggests going beyond tracking small expenses. Instead, create a spreadsheet or list the answers to these questions:

What is my monthly income?
What are my fixed expenses (e.g., rent, car payments, student loans)?
How much is left after paying bills?
This exercise provides clarity on where your money is going.

Set Up a Monthly Budget With these numbers in hand, develop a budget. If you have $1,000 left over each month, allocate a portion to savings and use the rest for daily expenses. If there’s not enough left to cover lifestyle needs, look at trimming bills or finding ways to increase income.

Consider cancelling unused subscriptions or limiting eating out and shopping. You can also use budgeting apps to track your spending and stay on course.

Establish an Emergency Fund Savings should be a priority, according to Pope. “An emergency fund offers peace of mind and reduces stress.” Start by automating deposits into a high-yield savings account with each paycheck. Aim for three months’ worth of expenses in savings, though even a few hundred dollars can provide a sense of security in case of unexpected costs.

Seek Additional Income Streams While income typically grows with experience, adding extra income streams can help. Consider freelance work, gig jobs, or using skills like teaching an instrument or a sport to earn additional money.

Educate Yourself on Financial Matters Uncertainty can fuel stress, especially regarding finances. By educating yourself on financial basics, you can feel more empowered and less intimidated by personal finance.

Building financial stability is within reach and can have far-reaching benefits for mental and physical health, as well as overall quality of life.

 

 

 

 

 

 

 

 

Paraphrasing text from "Investopedia" all rights reserved by the original author.