Having a regular savings habit as well as paying off credit card debt on time are two financial habits that can lead to improved mental health.
Research from the University of South Australia found that stable financial habits can lead to improved mental health which can then leave to higher levels of productivity.
“Stable financial habits (e.g. regular savings behaviour and regular credit card payments) can positively contribute to improving mental health. This supports the fact that it reduces financial strain, provides mental peace and boosts confidence in one’s life. We also found the effect is higher among Australian men than women (probably because men tend to manage financial matters more), however, it is important to note that the positive effect was observed in both men and women,” Rajabrata Banerjee, author of the study and a Professor of Applied Economics at the University of South Australia told Theravive.
“Going forward, a crucial lesson to learn is that women need to be more financially independent and take control of their financial matters. More research is needed in this area before we can comment definitively. We also found that the positive effect persists irrespective of whether an individual comes from a lower or upper socioeconomic background, with no significant differences in the impact.”
The researchers examined data from the Household, Income and Labour Dynamics in Australia survey database. The database included the experiences of 17 thousand Australians aged over 15 between 2001 and 2021. The database included the socioeconomic status, physical and mental health, family conditions and life experiences of the participants. It also included labour market dynamics.
As they examined the data, the researchers found those who had stable financial behaviors reported having better mental health as well as social functioning, vitality and general wellbeing.
“While the link between high savings and debt (e.g. if someone has money in their bank account or has a high amount of debt) and mental health has been researched in the past in both the US, Australian and European context, research into patterns of consistent behaviour and the impact on mental health was lacking,” Banerjee said.
“There are a number of reasons why regular savings habits have such a strong correlation with improved mental health. First, regular savings habits reduce financial strain, that is, less worry about money and, therefore, better mental health. Second, good financial habits foster autonomy and self-efficacy, which in turn lead to improved mental health. Third, positive financial behaviour may lead to financial largesse and the capacity to afford necessities and pleasures of life (e.g., buying a house or going on a holiday), thereby facilitating participation in social and community activities with positive effects on mental health. Finally, positive financial behaviours may encourage individuals to adopt healthy coping mechanisms to manage stress rather than relying on negative coping strategies, such as substance abuse or avoidance behaviours, which can exacerbate mental health issues.”
The researchers also examined cost of living pressure and whether the financial burden from that was an influential factor in savings and debt behaviors.
Financial burden was measured by noting the cost of utilities like water, gas and electricity and adjusting these based on how close a person was to retirement age.
They found that a sharp increase in cost of utilities placed a greater burden on younger people who often had low savings and high debt. They found that the financial burder put a strain on their finances, impacted both their savings and debt behaviors, as well as their mental health.
The researchers also concluded that stable financial behaviors were associated with good mental health regardless of whether a person was from a higher or lower socioeconomic background.
This suggests that even a small amount of savings could lead to better mental health.
“Financial burden affects everyone, regardless of gender, income, or socioeconomic level. We all want to have a good standard of living and provide the same for our family members. But this desire to have a better financial condition can bring unnecessary stress, trauma and even lead to being a victim of financial scams,” Banerjee said.
“Along with educational measures, including financial literacy and avoiding scams, it is also important to teach people about better money management and coping strategies for managing stress related to financial matters. This will also help individuals reduce their anxiety and depression.”