Understanding Financial Stress and Tools to Help You Cope

What is financial wellness?

The definition heavily associated with financial wellness is the “actionable steps one can take to elevate their financial health.”

Financial health, as defined by the Financial Health Network, is “the dynamic relationship of one’s financial and economic resources as they are applied to or impact the state of physical, mental and social well-being.”

There are three categories for financial health:

• vulnerable
• coping
• healthy

In August 2020, the Financial Health Network published its annual Trends Report. The report showed that nearly two-thirds of people in the United States were financially coping or financially vulnerable. These people are struggling to spend, save, borrow, or plan in ways that allow them to be resilient and seize opportunities over time.

Many of us don’t need research to prove that struggling financially causes harm to your financial health and creates financial stress. We also don’t need research to prove that financial struggles, and therefore stress, have a direct impact on your physical, mental, and social well-being.

However, the research around financial stress and its impact may help you feel more validated as you navigate challenging financial situations.

What is the impact of financial stress?

The Financial Health Institute defines financial stress as “a condition that is the result of financial and/or economic events that create anxiety, worry, or a sense of scarcity, and is accompanied by a physiological stress response.”

Emerging research is linking financial stress to mental health. A 2014 study from Yale University explores the idea that some “mental health problems” are actually money problems.

Annie Harper, PhD, the anthropologist and researcher behind this study, noted that the majority of participants were in debt and were very stressed about it. Debt has a strong negative impact on mental health, and she suggested that if an individual’s financial problems were solved, other problems might be solved as well.

On a day-to-day basis, financial stress can have a negative impact on your money decisions. It can lead to extremes of overspending or underspending. Similar to food where one can emotionally eat or severely restrict their diet due to stress, the same effect occurs with money.

An individual may find comfort in “retail therapy” — mindlessly spending on nonessential items — or find relief in restricting their spending to the point where they go without basic necessities, limiting their food intake to save money. However, in the long run, both extremes can be harmful.

What are financial wellness steps you can take?

If you work for an organization, the first place to start is to ask your people and culture team (sometimes known as human resources) about financial wellness benefits.

These benefits can include the following:

• Earned wage access. This is the ability to access your wages or salary before your payday so you can pay for an unexpected expense.
• Financial coaching. Some employers reimburse expenses for financial coaching.
• Hardship short-term loans or grants. Some employers offer access to loans or grants for unexpected expenses that are beyond the coverage of earned wage access. These are either awarded as grants that you don’t need to pay back or as a loan at a very low interest rate — less than 5 percent.