According to the World Health Organization (W.H.O.), an estimated one in eight people globally are living with a mental disorder. As World Mental Health Day approaches (October 10th), it is important to address a key contributor to stresses that impact enormously on mental health. Those of course are financial.
Financial stress can be caused by any sequence of life events. These include loss of income, health as well as relationship breakdown and today, the severe impact of inflation on people’s ability to cope with rising costs.
The simple fact is that financial difficulty creates any number of stresses in people’s lives. These can have far reaching consequence’s including social, work performance and behavioral. Research from the US insurance giant MetLife found that financial stress can result elevated incidents of migraines, ulcers and depression.
The role of financial wellbeing
A means of developing financial resilience is through financial wellbeing. And financial wellbeing is about having the knowledge, income and tools to make informed financial decisions that allows a person to both identify and plan for financial disruptions, including inflation. This is a core feature of the MoneyWhizz financial wellbeing programme.
Where knowledge impacts
Across Ireland, there continues to be a significant knowledge gap when it comes to money. According to a 2014 study carried out by ratings agency, Standard & Poor, Ireland scored badly across a range of key financial areas. Many people here have a poor understanding of investing, risk and how to build financial resilience. Similar research carried out in 2022 by MoneyWhizz reached a similar conclusion.
Key pillars to financial wellbeing and resilience
Financial resilience is having the ability to withstand a financial disruption. This could be because of a loss of income due to an employer downsizing. Or it could be because of someone taking time out of work to raise a child, or care for a family member or retiring from employment. Financial disruptions happen all of the time and in many cases, people may not have planned sufficiently.
Knowledge and money
Financial stress can develop simply because of someone not knowing their current state of financial affairs. They may feel ‘blind’ as to where their money goes. Although this is a natural reaction, it is not sufficient to continue as-is. Instead, to ensure they lay the groundwork to becoming financially resilient, they first need to establish where their finances are presently. This can be easily achieved by completing a detailed household budget for at least three months in-a-row. This will help identify all income and expenses and in doing so, assist in identifying possible areas of compromise and improvement. For example, where can costs be examined and reduced? Where can savings be made?
Key financial wellbeing pillars
There are several financial wellbeing pillars that should be prioritised. First, having an emergency fund equal to at least three to six months of the cost of running a household is a primary line of defence against a life event (loss of income). Second, accessing security of tenure is a major financial wellbeing pillar. Third, having sufficient protection / insurance will be necessary for a range of risks. And finally, ensuring that adequate planning for long-term needs, including retirement are put in place is important.
Elimination of financial stress.
Financial stress can have a corrosive impact in mental health. But having a detailed understanding of one’s current financial situation can play a major role in reducing financial stress. Additionally, putting a financial wellbeing plan in place and having a detailed understanding of broader supports will also serve in their own way to reduce financial stress.
Frank Conway is a qualified financial adviser and founder of MoneyWhizz.