One of the leading causes of stress for American consumers? Money.
Although it may not be surprising that a majority of Americans are experiencing financial stress associated with high inflation, increased borrowing costs, record-high levels of debt, and record-low emergency savings funds, what is surprising is just how many more Americans acknowledged the negative impact financial stress has had on their mental health.
In 2022, 42 percent of Americans said money is a significant cause of stress, but in 2023 that increased by 10 percentage points to 52 percent of Americans. Now money is a greater source of stress for Americans than their own health (42 percent), current events (41 percent), the health of family and friends (36 percent), relationships with friends/family (32 percent), and work (31 percent).
Of those Americans who reported money has had a negative impact on their mental health, more than 4 in 5 (82 percent) reported feelings of stress, anxiety, worrisome thoughts, loss of sleep, and depression.
Their biggest money concerns?
- Inflation / Rising Prices: 68 percent
- Rising Interest Rates: 31 percent
- Not Having a Stable Job / Income: 29 percent
It’s not just that a majority of Americans are stressed about money, but those with financial concerns are stressing about money frequently, according to the Bankrate survey.
Of those who reported money has a negative impact on their mental health:
- 56 percent report money affects their mental health at least once per week
- 29 percent report money affects their mental health daily
“There are several sobering statistics in this report,” said Ted Rossman, Senior Industry Analyst at Bankrate, who noted inflation is at the center of many of these money worries. “Despite a strong job market, wage growth has not kept pace with the rising cost of living,” he said. “Debt has been rising, and savings have been dwindling.”
Report: Financial Stress Negatively Impacts Consumers’ Mental Health
Part of the reason everyone is feeling the financial pinch? Inflation, according to the Bankrate survey. Not only does inflation reduce consumers’ purchasing power and ability to save for the future, but experts note that inflation can have a long-term impact, and even after it cools, experts say Americans could still be paying the price in the long run.
In 2022 inflation affected the prices of groceries, gas, summer travel, back-to-school shopping, and holiday purchases. These higher prices led to increased levels of credit card debt that consumers typically would pay off in the first quarter of the following year, but in 2023 that didn’t happen.
Older generations, women, and lower earners are more likely to point to inflation/rising prices as a cause of their money-related stress. For example, baby boomers (79 percent) and Gen Xers (68 percent) are more likely to cite inflation/rising prices, compared to millennials (64 percent) and Gen Zers (52 percent). Women (72 percent) are more likely than men (63 percent) to say the same, while the lowest-earning households (annual household income below $50,000) are more likely than the highest-earning households (annual household income above $100,000) to agree (72 percent vs. 60 percent).
Additionally, inflation/rising prices were the top answer among survey respondents who say their money worries have grown over the past year (57 percent). Nearly half (47 percent) said paying for everyday expenses has become increasingly worrisome, and 41 percent said they’re more worried that they don’t have a sufficient emergency savings fund. Nearly all those who say money negatively impacts their mental health at least occasionally believe one of these concerns has worsened over the past year.
“Inflation really hit us hard this year, as opposed to prior years,” Financial therapy professor Megan McCoy said. “It hit the average American much more closely because it was reflected directly in our gas or in our grocery bills.”
As the Bankrate survey noted, these expenses tend to impact female consumers more than male consumers, as women are more likely to pay for family-related expenses and make purchasing decisions for the family.
Although a majority of Americans are feeling negatively impacted by financial stress, not every demographic is affected by money worries equally, as the Bankrate report found that women, Gen Xers, and lower-income earners are more likely to say that money has a negative impact on their mental health than other groups. While these groups tended to experience financial stress at higher levels than others, the report’s authors noted that every demographic group reported an increase in financial stress in 2023 compared to the previous year.
And as financial therapists noted, women may have more financial anxiety than men due to pay disparities, caregiving responsibilities, and other system challenges.
Women who say money has a negative impact on their mental health are more likely than men to say they have increased concern in the past year over the following:
- Paying down debt (40 percent of women vs. 30 percent of men)
- Inflation/rising prices (61 percent of women vs. 51 percent of men)
- Not having enough emergency savings (45 percent of women vs. 35 percent of men)
- Paying for everyday expenses (52 percent of women vs. 42 percent of men)
- Paying for housing (34 percent of women vs. 28 percent of men)
- Economic factors (73 percent of women vs. 66 percent of men)
The survey also found that 60 percent of Gen Xers (ages 43 to 58) reported that money negatively impacts their mental health, followed by 55 percent of millennials (ages 27 to 42), 52 percent of Gen Zers (ages 18 to 26) and 45 percent of baby boomers (ages 59 to 77).
Why is Gen X so financially stressed? Lindsay Bryan-Podvin, a social worker-turned-financial therapist and author, says the money worries surrounding Gen X is likely due to the fact these individuals are 10 to 20 years out from traditional retirement and many identify as members of the “sandwich generation,” where they’re caring for their aging parents and their children simultaneously.
“They’re at this double whammy disadvantage of not just caring for themselves, but also often caring for children and their aging parents, and getting toward the later half of their earning years,” she said. “So, of course, they’re experiencing higher rates of financial anxiety.”
The third group most likely to experience financial stress that negatively impacted their mental health were those who identified as low-income earners. Nearly 60 percent of people earning $50,000 or less say money negatively impacts their mental health, compared to 45 percent of those with household incomes of more than $80,000 annually, according to Bankrate.
“In the early years of the pandemic, there was more government support and subsidies for people, and we saw how impactful it was to help lift people out of the edges of poverty,” Bryan-Podvin said. “With that money going away, coupled with rising inflation and red flags about the economy and jobs disappearing overnight, it’s causing a ton of anxiety.”
Among those who say money has a negative impact on their mental health, 35 percent of households earning below $50,000 say they worry about money every day, compared to 23 percent of households earning $80,000 or more annually.
Bryan-Podvin says lower-income earners are likely to feel the effects of financial stress day to day because they are in far more financially precarious situations than higher-income earners, making the stakes much higher if they are faced with a costly emergency or can’t work.
“Often lower income earners are working hourly wage jobs, which means that if they get sick or can’t work, they’re not getting paid. They might be putting expenses on a high-interest credit card,” she adds. “The stakes are just literally so much higher because they don’t have the financial cushion.”
4 Tips to Lower Financial Stress
One way to reduce financial stress is to improve your financial situation. Of course, this may sound easier said than done when you’re mentally struggling with your finances, but by taking baby steps to improve your financial situation, you may find that it improves your mental well-being as well.
1. Pay Off High-Interest Debt
Not only is inflation affecting the cost of just about everything, but interest rates on credit cards are at record highs as well. One way to lessen the stress associated with your debt load is to pay off your high-interest credit card debt once and for all.
If you have multiple credit cards with debt, consider the snowball method of paying off the card with the lowest balance first and then applying the money you would have spent toward that payment to the card with the next lowest balance. Repeat until all credit cards are paid off.
For those who need someone to keep them accountable, are struggling to afford minimum payments, or are overwhelmed by their outstanding debt, consider setting up a complimentary budget analysis with one of DebtWave Credit Counseling, Inc.’s certified credit counselors to discuss your options.
2. Build Your Emergency Savings Fund
One way to avoid financial stress? Having an emergency fund that would cover six months’ worth of expenses should you experience an unexpected job loss or other financial emergencies.
Although funding an emergency savings account with six months’ worth of expenses may sound daunting, it’s best to take baby steps, putting away what you can afford in an account such as $20 to $25 per week. Within a month, you’ll have nearly $100 in savings. In six months, you’ll have $600.
“Try to gradually increase those contributions. You might be amazed at how much money you’re able to accumulate over time,” Rossman said.
If possible, set up a high-yield savings account for your emergency savings fund as these types of savings accounts typically pay higher rates than typical savings accounts, and you can withdraw from it at any point.
Another tip? Rossman suggests automatically transferring your checking account to a savings account every time you’re paid to make the process seamless. “I’m a big fan of automation,” Rossman said. “Every paycheck, aim to have some money automatically transferred into a retirement savings plan and other funds diverted into a high-yield savings account.”
3. Prioritize Needs vs Wants
In times of economic uncertainty, prioritize health and basic needs. Now is the time to fortify your finances by prioritizing essential bills and reducing your minimum expenses as much as possible. To do that effectively, you’ll need to have a budget. As a budgeting exercise, consider what you spend your money on, and see if you can find some discretionary bills that can be eliminated or reduced, like subscriptions or travel. By knowing which bills you must pay first, you won’t have to scramble to decide if you find yourself in a bind later.
4. Focus on What You Can Control
Some financial factors are outside of our control, like inflation, rising interest rates, and even a recession. But there are things we can control, like our budget. If you are worried about money, or if you are living paycheck-to-paycheck, check in with your budget and see if there are any adjustments you can make. For example, examine your food budget and consider reducing the number of times you order takeout or dine out. When you go to the grocery store, consider buying cheaper alternatives or making meals based on what is on sale that week. Not only will you save money, but having that financial cushion will likely help you reduce financial stress.
“I’d stress that it’s never too late to turn things around,” Rossman added. “Even if you’re not feeling great about the current state of your debt or savings or another financial topic, there are plenty of things you can do to get back on track.”
Are your money worries having a negative impact on your mental health? Contact one of our certified credit counselors for a complimentary budget analysis!