Home Mental Health & Well-Being How Your Financial Health Affects Your Mental Health

How Your Financial Health Affects Your Mental Health

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Mental health has become a major talking point in recent years, which has helped destigmatise conditions like anxiety and depression. However, many are still unaware of the connection between money and mental health.

Time and again, studies show a strong correlation between the two, and the relationship is generally cyclical. As an individual struggles with financial problems, their mental health deteriorates, which makes it even harder to manage money. In turn, these difficulties lead to more money troubles, and so on. Understanding how this downward spiral works can ultimately help people break the cycle, ease stress, and find financial stability again.

Socially withdrawn

One of the most common side effects of financial instability is being social withdrawn. Without the extra cash, those struggling with poor financial health will turn down invites and avoid others in an effort to save money. While this decision benefits their budget, it can have consequences for their mental health.

When the loneliness sinks in, their mood can quickly nosedive and eventually cause them to develop anxiety, depression, or both. These conditions discourage them from engaging with others, even after they’ve saved up enough money to go out again.


Whether an individual is dealing with debt, a settlement, the probate process, or a similar financial predicament, ruminating on their monetary issues can keep them up at night. Ultimately, intense worry can lead to insomnia, a contributing factor to the initiation and worsening of mental health problems.

This bidirectional relationship between sleep and mental health means that insomnia is often associated with depression, anxiety disorder, seasonal affective disorder, schizophrenia, and even attention-deficit hyperactive disorder.


Living under a cloud of money troubles can affect anyone’s mood. However, if problems persist, a sour mood can quickly turn into hopelessness and severe bouts of depression. One study found that people who live below the poverty line are one-and-a-half times more likely to suffer from this mental illness than those who live above the poverty line. Researchers pointed to psychological distress, reduced quality of life, and the looming obligation to repay the debt as the main reasons for these individuals developing depression.


A recent survey from Bankrate found that more than half of Americans have less than three months’ worth of expenses saved up for emergencies. Meanwhile, one in four have no emergency fund at all – a 4% increase from 2020.

It’s no wonder, then, that so many people eventually develop paranoia and anxiety over making ends meet or recovering from even minor setbacks. These same individuals may also experience social anxiety from not being able to afford the things they need or want.


There’s a fair amount of stigma surrounding debt and other financial issues, so it’s common for those with money troubles to experience humiliation, shame, and low self-esteem. Even perceived stigmatisation can have mental and emotional consequences.

In this case, individuals might try to maintain a certain level of self-respect by flaunting their strengths and confronting those who express negative attitudes toward them. When these strategies prove ineffective, many people fall into a downward spiral of increasing money problems, problematic behaviors, and declining mental health.

Unhealthy coping methods

Regardless of whether they face social stigma, individuals struggling with financial stress often develop unhealthy coping mechanisms to escape their reality.

In an effort to numb the pain, they turn to drugs and alcohol and run the risk of substance abuse and addiction. Others cultivate an unhealthy relationship with food and may overeat or under-eat to cope with their financial instability. Ultimately, these behaviors can exacerbate both mental health issues and money troubles.

Stopping the cycle

Because the link between mental and financial health is often cyclical, it’s often difficult to address one without also addressing the other. Luckily, understanding how financial stress affects mental health can help individuals develop healthier coping mechanisms to improve their situation and stop the cycle.

Ginger Abbot has written for The National Alliance for Mental Illness, HerCampus, Motherly, and more. When she’s not freelancing, she works as chief editor for the learning publication Classrooms, where you can read more of her work.

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