Good money habits improve mental health

Saving regularly and paying off credit card debt on time are two stable financial behaviors that significantly contribute to better mental health, finance experts at the University of South Australia have found.

A new study from the University of South Australia, published in the journal Stress and Health, found that stable financial habits can significantly contribute to better mental health, which in turn can lead to improved productivity and employment. This was found to be true across all socioeconomic groups in the population.

Researchers examined data from the Household, Income and Labor Dynamics in Australia (HILDA) survey database, which includes socioeconomic status, physical and mental health, labor market dynamics, family circumstances and life experiences of more than 17,000 Australians aged 15 years and older from 2001 to 2021.

After examining the data, the researchers found that people who engaged in stable financial behaviors, such as saving regularly and paying off credit card payments on time, had better mental health, vitality, social functioning and overall well-being.

Rajabrata Banerjee, a professor in UniSA’s Department of Applied Economics, said that while the link between financial behavior and mental health is already known, research on patterns of stable behavior and their impact on mental health has been lacking.

“We already know that high debt and low savings rates have a negative impact on mental health, but we wanted to learn more about positive financial behaviors – such as how regularly someone saves or pays off debt – that can make it possible to reduce financial strain, worry less about money and improve mental health,” he says.

Given that Australians are already facing the high cost of living, and given the ongoing mental health crisis following the COVID-19 pandemic, the researchers wanted to find out what role positive financial behaviors could play in making a significant difference to mental health.

They found that people who save and save regularly have the best mental health. Those who don’t save money at all have the worst mental health. In terms of paying off credit card debt, the same principle applies.

To examine the impact of the cost of living, the study also looked at whether financial burden was a factor in regular saving and debt behavior. Financial burden was measured by the cost of utilities such as electricity, gas and water, adjusted for how close a person is to retirement.

The study found that soaring utility prices put a greater financial burden on young adults, who typically have little savings and a lot of debt. This burden further drains their finances and negatively affects their savings and debit behavior and mental health.

The study also found that the positive impact of savings behavior on mental health was stronger in men than women, suggesting that financial management in Australia is still dominated by men and therefore has a greater impact on this population.

However, the study found that stable financial behavior leads to better mental health regardless of whether a person belongs to a higher or lower socioeconomic stratum, meaning that even saving a small amount when spending is high can lead to better mental health.

Prof. Banerjee says that financial hardship can be a deeply depressing experience that can be detrimental to a person’s mental health as well as their long-term economic interests.

When people experience financial hardship, they are often unable to save as much money or invest, so they miss out on opportunities to grow and achieve goals they may have set for themselves in the future. In addition, people can become dependent on borrowing to meet their basic needs, and this can lead to high interest payments and constant cycles of debt.

That’s why healthy financial behaviors are important for stability and long-term security, goal achievement, independence and access to opportunities, as well as stress reduction and good mental health.