When you think of a mental health fix, you probably picture a psychiatrist’s couch, meditation apps or a prescription pad. But what if the real hack for your peace of mind was your bank account? financial habits mental health
A groundbreaking study has revealed stable financial habits can significantly contribute to improved mental health, which in turn can lead to higher productivity and employment. Interestingly, this was found to be true across all socioeconomic demographics.
There are several reasons for this, explains Rajabrata Banerjee, study lead and Professor of Applied Economics at the University of South Australia.
“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 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,” he says.
His research is based on the extensive Household, Income and Labour Dynamics in Australia (HILDA) dataset. It comprises the socioeconomic status, physical and mental health, labour market dynamics, family conditions and life experiences of more than 17,000 Australians aged 15 years and older from 2001 to 2021.
“The average mental health score of an individual is above the 50th percentile, indicating overall good mental health scores for average adult Australians,” Prof. Banerjee tells Indian Link. financial habits mental health
So, all is well for Aussies? It’s not quite as simple as it sounds!
He saves, but what about her?
Interestingly, Professor Banerjee’s study reveals that men benefit from stable financial behaviours more than women do.
“This result may indicate that men tend to manage financial matters more in Australia,” he says.
“A crucial lesson to learn is that women need to be more financially independent and take control of their financial matters.”
Having said that, more research is needed in this area before researchers can comment definitively.
The study also looked at socioeconomic differences. While savings habits had a stronger impact on mental health for high-income earners, those from lower-income backgrounds showed greater improvement in their mental health when they made timely credit card payments.
“Both high and low socioeconomic background types benefit from stable financial behaviours,” Prof. Banerjee clarifies. financial habits mental health
Young and broke
More concerning is findings on the impact of utility bills and debt on the mental health of younger Australians.
“We explain this with the life cycle hypothesis, which states that individuals seek to smooth consumption over their lifetime income by accumulating more debt (fewer savings) during their early working years when income is low, and accumulating more savings (less debt) in the later phase of their working lives and just before retirement when income is high,” Professor Banerjee says,
Australia, in particular, has few support systems in place to address this issue, he adds.
“At present, there is no dedicated national program that integrates financial counselling with mental health support, despite the well-documented link between financial hardship and psychological distress,” he notes.
“While GP services are more accessible, access to psychologists and psychiatrists, especially bulk-billed or low-cost options, remains limited. Programs that combine mental health support with financial counselling, housing assistance, and employment services may provide further assistance, particularly for young Australians.”
As a country grappling with rising cost-of-living pressures and a mental health crisis, these insights could not come at a more urgent time. financial habits mental health
“Financial hardship can be a profoundly disheartening experience,” Prof. Banerjee warns. “Given an ageing population and a tight labour market, financial hardship is likely to persist, causing stress and anxiety for many Australians into the future.”
Start small, gain big!
For those with unstable or low incomes, Prof. Banerjee suggests that small, consistent financial habits can add up – mentally and monetarily.
Set a small goal to save some money each month (even $1–$5 per week adds up over time), identify essential expenses, and save a percentage of your income instead of a fixed amount (e.g., 5% to 10% of whatever is earned),” Professor Banerjee advises.“Once again, we need policymakers’ attention to provide more training and education.”
While behavioural nudges and policy tools show promise, Professor Banerjee stresses that more research is needed to determine what works best. He recommends trialling incentives like emotionally resonant savings goals, visual progress tracking via apps, and small cash bonuses for saving regularly.
“Programs offering subsidised financial counselling alongside welfare or employment services could particularly benefit women and lower-income groups,” he concludes. financial habits mental health
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