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December 15, 2022 | By: Randolph Taylor

The Surprising Link Between Finances and Mental Health

Financial Stress | Mental Health

You’ve heard the phrase “money can’t buy happiness.” The phrase is nuanced by related results of money, like better access to personal care, shelter, entertainment, food, and more. Here’s the thing: money is often a result of financial health — which improves your mental health. See the domino effect?

While material goods won’t make you intrinsically happy, the freedom to pay for basic needs and enriching experiences will certainly help. 

Today, we’ll walk through the surprising link between finances and mental health, how to address it, and where to get help if you need it.

How Finances Affect Mental Health

The mental health umbrella covers a lot of ground. Our research and advice speak to the effects finances have on:

Psychological State and Disorders

Health scholars discuss financial worries and distress to overall poor psychological health, especially for lower-income people. Interestingly enough, the study also cites a disparity in psychological distress between: 
  • Married versus separated or divorced people
  • Unemployed versus employed people
  • People who earn under $35,000 versus those who earn more
  • Homeowners versus renters

Of course, we don’t take this to mean renters are blanketed as more prone to psychological issues. However, the findings definitely present the possibility that renting might not offer the mental security that an owned home does. 

But medical literature is clear — financial stress is powerful enough to alter your state of mind. 

The Canadian government references a study linking financial stress to mental health conditions like anxiety.

Relationships (social well-being)

Business Insider shows us that 36.1% of divorces are caused by financial problems. One Winnipeg law firm goes further and names money the top cause of divorce. Money is an important topic for romantic relationships, but also familial and platonic relationships. 

For example, loose boundaries with money could lead to feelings of dependency on validation from friends and family. One example is learning how to say no to costly experiences amidst peer pressure (more on that later).

Autonomy (decision-making, independence)

How confident do you feel in your decisions? Do you feel independent in your day-to-day? Financial distress can cause low self-esteem and feelings of dependency, which can slowly chip away at your sense of identity. 

7 Finance Tips to Improve Mental Health

Your financial decisions can drastically improve your mood and mental health. That’s why financial self-care is just as important as emotional or physical self-care. In fact, the Canadian government sees the three areas as pillars of strong health. 

Financial educator Minaa B describes financial self-care as having “rituals and habits to help us reach our goals.”

Here are a few tips informed by financial health experts, psychotherapists, and of course, our certified credit counsellors.

1. Learn to say no and understand why

In a conversation about financial insecurity and mental health, California psychotherapist Alyssa Mancao describes saying no as uncomfortable, especially for family-related financial issues.

She advises us to overcome the “people pleaser” within and be firm in our values. This rings true for refusing to lend money, attending a costly social event, or giving in to a request for an expensive gift.

And if you have trouble saying no? Mancao has some advice:

“I think for people who are on the ambivalent side… it might be helpful to get really concrete about it and create a list of pros and cons. Pros and cons of saying no, pros and cons of saying yes — that might internalize what they’re saying yes and no to.” 

“And in terms of honing in on that skill, honing in on operating from a sense of your truth — really, it’s a lot of practice and doing it over and over again until you get comfortable and confident with it.”

2. Establish Boundaries and Failsafes

We know — easier said than done. In that same interview, Mancao advises you to dive deep into your reasoning behind lifting boundaries. She invites you to conduct self-exploration and ask yourself why setting boundaries feels difficult. If you understand the fear behind maintaining boundaries, you’re one step closer to addressing it. 

You might immediately think of boundaries with loved ones, but you should also set boundaries with yourself. Mancao proposes the idea of “failsafes,” so you can protect yourself from making bad financial decisions. She suggests putting limits on your credit cards. Other examples of failsafes might include:
  • Hard limit on holiday gift spending
  • Mandatory one-day consideration before making a big purchase
  • Automated saving each month

The results of setting boundaries? Better self-esteem, independence, confidence, and awareness. Aka, improved mental health!

3. Address Debt

Excessive debt is one of the world’s most common financial stresses. The worst part is that avoiding it only makes it worse, with compounding interest and dipped credit scores. Unaddressed debt has a profound trickle effect on your mental health, affecting your anxiety levels and even your ability to find shelter (rental applications and mortgages). 

If you want to improve your mental health, your debt is a great place to start. You might create a repayment plan for yourself, or have a Licensed Insolvency Trustee (LIT) help you negotiate your debts. 

Sometimes, all you need is a few conversations with an expert. Our certified credit counsellors provide free services to help you deal with debt. On top of that, we can help you map out your options, from debt consolidation to a robust budgeting plan.

4. Track Expenses

Think about times when you felt the most overwhelmed. Perhaps those were times of uncertainty — you can experience similar feelings if you’re uncertain about your finances. 

For example, have you ever avoided checking your credit card balance and expenses because you were simply worried about what you would see? That’s actually more common than you’d think, but a big negative for your mental health. One financial planning expert describes “knowing the numbers” as the beginning of better decisions and reaching financial goals. 

Plus, budgeting and subsequently saving money helps reduce existential anxiety. If you need help getting started, download our free Money Management and Budgeting Guide.

5. Create Goals

Do you feel satisfied checking off tasks on your to-do list? Imagine that satisfaction tenfold if you reach a financial goal. The sense of accomplishment in saving enough money for your next vacation, or paying off your student loans, for example. 

Goals help you maintain a sense of purpose, which is equally important in your personal and financial life.

6. Plan for the Future

Experts say that security and stability are key drivers of mental health. While this article discusses disparities in security between homeowners and renters, the takeaway is true for all Canadians. You’ll feel more at ease if you’re financially secure, whether through:
  • Owned property
  • Retirement savings
  • Predictable income and budget

7. Get Support with Your Mental Health and Finances

Your finances have a profound effect on your mental health. Don’t discount them when considering your personal self-care routines. Now that you know the effects and some tips to mitigate, what’s next? If you still need support, help is available. 

Credit Canada offers free credit counselling services to any and all Canadians who need it. No matter your financial worries, our certified credit counsellors can help you through discussion, consultation, and tangible plans of action, whether that includes simple financial advisory sessions and budget plans or debt consolidation. 

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