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The link between financial stress and mental health

Shelly  Gigante

Posted on August 23, 2022

Shelly Gigante specializes in personal finance issues. Her work has appeared in a variety of publications and news websites.
Mental health and financial wellness
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Explain how mental illness makes it harder to attain financial independence.

Describe the symptoms of financial stress. 

Provide steps you can take today to get your financial house in order.

Achieving financial wellness is a challenge for most Americans, regardless of income or ability, but those living with mental illness are often far more vulnerable to economic insecurity.

Indeed, many who struggle with mental health have higher medical bills, making it harder to cover their monthly expenses and save for future goals. Depending on the diagnosis, they may also find it difficult to find a full-time job or manage their money effectively.

Consider depression, one of the most common mental illnesses in the U.S., which affects more than 8 percent (21 million) of Americans each year.1

“If you’re experiencing a state of intense emotional negativity or sadness, which could present as either a source of frustration or a complete inability to get out of bed in the morning, we know that this particular diagnosis has a major correlation with our ability to deal with finances,” said Alex Melkumian a clinical psychotherapist and founder of the Financial Psychology Center in Los Angeles, California. “It’s not just about finding employment, but during employment it may also affect your ability to do your job well and get promoted or receive bonuses.”

Indeed, for some with mental illness, creating a budget, investing in stocks, and planning for their retirement take a distant back seat to simply coping with daily life.

 “If you are high functioning with mild depression, you’re exhausted at the end of every day and the last thing you want to do is look at your finances,” said Melkumian.

Money problems cause financial stress …

The link between financial wellness and mental health is well-established.

  • The American Psychological Association found high levels of debt are a common source of stress, which can cause anxiety and sleep disorders.2 Those problems can increase the risk of developing more serious chronic health conditions.
  • The World Psychiatric Association found that nearly two-thirds of all studies on the topic reported a “statistically significant positive relationship” between income inequality and the risk of depression.3
  • A T. Rowe Price survey similarly found financial stress to be a key predictor of poor financial wellness. Those with higher money-related stress reported saving 25 percent less than those with lower levels of financial stress.4

… but mental health can also cause money problems

As Melkumian points out, however, mental health conditions can also be the underlying cause of money problems. Individuals who overspend during a bipolar manic episode, for example, may find themselves trapped in a cycle of high-interest credit card debt.

The London-based nonprofit group Money and Mental Health (MMH) found that:

  • Almost one in five (18 percent) people with mental health problems are in so-called problem debt.
  • Those experiencing mental health challenges are three-and-a-half times more likely to be in problem debt than people without mental health challenges.
  • Roughly one third (32 percent) said their mental health problems had made their financial situation worse.

Equally important, MMH noted that financial difficulty significantly reduces recovery rates for common mental health conditions. Those with diagnosed depression and problem debt are four times more likely to still have depression 18 months later than people without financial difficulty.

It’s a cycle in which mental health conditions make it harder to achieve financial security, fueling money-related stress (often exacerbated by collections activity or having to go without essentials such as food or heating), which causes mental health to worsen.

Getting the help you need

The process of regaining financial stability can be more complex when a mental illness is involved. In many cases, those experiencing a mental health disorder, whether temporary or chronic, have a hard time asking for help due to fear of stigma.

Yet, obtaining professional help is the key to restoring balance and preventing recurrence, said Luke Chapman, a financial professional with Precision Wealth Partners in New Castle, Delaware.

“Not trying to handle everything on your own is a big key,” Chapman said, noting some of his clients with anxiety disorders are actually overly conservative savers, which can also affect their ability to embrace life. “Trusting a professional to assist, but also allowing oneself to be vulnerable enough to be that exposed and accountable is a hurdle for some.”

In helping his clients achieve financial independence, Melkumian uses a triage approach that prioritizes emotional wellness.

“When clients come to me, we have the conversation first about what they’re going through on a clinical level, from a mental health standpoint, and that can only be diagnosed by a licensed professional,” Melkumian said.

Guidance from the Mayo Clinic indicates that the diagnosis of a mental illness requires a physical exam from a doctor, lab tests, and/or a psychological evaluation from a mental health professional to discuss your symptoms, thoughts, feelings, and behavior patterns.

“Sometimes it's difficult to find out which mental illness may be causing your symptoms,” the Mayo Clinic writes on its website. “But taking the time and effort to get an accurate diagnosis will help determine the appropriate treatment. The more information you have, the more you will be prepared to work with your mental health professional in understanding what your symptoms may represent.”

Reframe your relationship with money

With a mental health treatment plan firmly in place, Melkumian said the next step is to begin reframing clients’ relationship with money. A sense of control is essential.

“If you’re fearful about money, we look at the numbers — your budget, 401(k), or investment strategy — and explore the predominant emotion you are feeling at that moment,” he said, noting stress often triggers the fight, flight, or freeze response. “When we start to have insight and awareness into how we are feeling when we experience a major stress response, it helps to decrease some of the intensity of what we are going through.”

Those struggling with mental health and financial wellness simultaneously need not tackle everything all at once. Think small steps and achievable goals.

“They could start by opening their computer and signing up for free credit counseling or downloading a budgeting app that will help them start to track their finances,” said Melkumian.

Steps you can take today

The American Psychological Association (APA) offers several other proactive steps that can help individuals experiencing money stress restore financial stability. Those include:5

  • Make a plan. Identify your stressors and write down specific ways you and your family can reduce expenses or manage your finances more efficiently. Then commit to a plan and review it regularly. Although this can be anxiety-provoking in the short term, the APA said putting things down on paper and committing to a plan can reduce stress. And, if you are having trouble paying bills or staying on top of debt, reach out for help by calling your bank, utilities, or credit card company.
  • Avoid unhealthy activities. When worries run high, people are more likely to relieve stress by smoking, drinking alcohol, gambling, or emotional eating. They may also be more prone to conflict and arguments with loved ones. Be alert to these behaviors, the APA suggests, and consider seeking help from a psychologist or community mental health clinic before the problem gets worse.
  • Ask for help Credit counseling services and financial planners can help you take control of your money problems.


Money problems lead to stress, which can impact mental health. But mental illness can also disrupt financial fitness.

By working with professionals to address both challenges, you can potentially break the cycle and take back control of your finances.

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1 National Institute of Mental Health, “Major Depression,” 2020.

2 American Psychological Association, “Infographic: stress about money and economy is on the rise,” 2022.

3 World Psychiatry, “Income inequality and depression: a systematic review and meta-analysis of the association and a scoping review of mechanisms,” June 2018.

4 T. Rowe Price, “Retirement Savings and Spending Study: Financial Stress Is a Predictor of Financial Wellness,” June 2022.

5  American Psychological Association, “Stress in America survey,” March 22, 2022.

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