Sara Yoke, age 35, always thought she was bad with money. The Fayetteville, West Virginia, public affairs officer says she often made "impulsive and reckless financial decisions" that would leave her feeling sad. "I'd spend money I didn't have on dining out and going on trips. I had no cash savings and little in my 401(k) when I turned 30, and that really scared me."
Recently, however, she had a breakthrough about her financial stress. "I realized, through therapy, that my inability to be financially savvy was rooted in feeling inadequate," she explains.
Yoke is like millions of people who struggle with mental health and money issues at the same time. Like the proverbial chicken-and-egg conundrum, the 2 are tied together, and each makes the other worse, according to research from the UK-based Money and Mental Health Policy Institute (MMHPI).1
Which comes first?
If you're low on savings, it makes sense that that might lead to financial stress. Not surprisingly, research has shown that money problems can negatively affect mental health.2 But it turns out the opposite can also be true. A study by MMHPI found that poor mental health can affect financial behaviors, with 71% of respondents saying that, during periods of poor mental health, they "always" or "often" spent more money than they usually do, and 73% saying that they found it harder to make financial decisions during periods of poor mental health.3 That's why it can literally pay to take care of your mental well-being.
"Mental-health problems amplify our financial issues because we're more likely to be at the mercy of a lot of negative emotions, and that will all come out in our relationship with money," says Ken Honda, author of Happy Money: The Japanese Art of Making Peace With Your Money. "We also tend to feel more helpless and overwhelmed when we're under financial stress. Emotional instability is like a fog that makes it harder to navigate the truth of what's actually causing our financial problems or how to get out of it."
Nathan Astle, a certified financial therapist who helps people behave differently with money and a board member of the Financial Therapy Association, says poor mental health can also take your attention away from everyday financial tasks, such as paying bills, getting to work on time, and saving money. Interestingly, this applies equally to people across income brackets.
"Money is one of the biggest stressors in American life, and it has been for years," Astle says, pointing to the American Psychological Association's Stress in America surveys. The 2022 report shows that stress about money is at its highest recorded point since 2015, with 81% of people ages 26 to 43 saying money is a significant source of stress.4
An August 2021 Fidelity study on mental health in the workplace further proves the link. People with high levels of concern about both their finances and their physical health were least likely to be in good mental health. People with low levels of concern about their finances and physical health were most likely to be in good mental health.
The chemical connection
Even people who don't struggle with mental health are prone to making emotional money decisions that don't benefit them. We're heavily influenced by how situations make us feel in that moment.
Whether it's a new phone online or a candy bar in a store, buying can boost your mood.5 The moment you put something into a shopping cart—real or virtual—you feel happier, thanks to the release of feel-good chemicals: dopamine and endorphins. Your brain pumps out even more of them when you hand over cash, tap your phone or credit card on a contactless payment terminal, or click "Place Your Order" to complete a transaction.6 Unfortunately, this can lead to binge shopping or buying things that you can't afford or don't need.
"When you're sad, you feel out of control," says Scott Rick, a behavioral scientist and associate professor of marketing at the University of Michigan's Ross School of Business. "Retail therapy can help restore a sense of control over our world while making shopping choices. It doesn't have to be big purchases either. It can be tiny things as long as you're making a choice."
When money hurts
Sometimes, money problems cause depression. Losing a job or dealing with unexpected expenses, such as a car repair or medical bill, are directly linked to poor mental health, according to researchers. One study found a "significant relationship between debt and mental disorder."7 There's good reason for that: We tend to feel more helpless and overwhelmed when we're under financial stress. Money issues often blow up relationships, too, which can lead to deeper depression.8
Both scenarios—mental health affecting finances and vice versa—can prevent financial wellness, that is, how you're doing with and feeling about budgeting, debt, saving, and protection. "Our financial wellness is the same as our health life—if you have a healthy heart and mind, it's easy to stay healthy," Honda says. "But if you are in a bad state to begin with, you will see the effects show up in your quality of life."
No matter which came first, mental health or money issues, there are ways to improve your financial wellness and help lower your financial stress. Step 1: acknowledging your emotional relationship with money, says Astle. "Look at your purchases over the last 2 weeks, whether they're planned or not, and ask yourself, ‘What was I feeling before, during, and after this purchase? What was my emotional state? Was I sad? Was I nervous about something?' You'll see whether there are certain emotions that are driving some of your unplanned purchases."
Next, create a budget if you don't already have one. It can help boost accountability for your spending. Finally, consider talking to a mental-health professional and a financial advisor who can help you move forward. Keep in mind that what you're going through is very common, Astle says, and you shouldn't be embarrassed. "Shame is the enemy of change," Astle adds. "If you're beating yourself up for poor financial choices, you're still doing harm. Have hope in yourself and your ability to change."
Whenever you're about to spend money, pause to reflect on the choice. Research supports that this mindfulness can improve decisions and well-being.
Yoke now keeps a journal about her spending and cross-references it with her bank transactions. "My therapist asks me to go through everything I spend money on and journal about how I was feeling before I made my purchases," she says. "It's helping me be more mindful and prioritize my spending decisions." Yoke also uses an app to track what she's spending throughout each day.
This work helped her raise her credit score 180 points over the past year and save money, too, bringing her closer to her ultimate goal: homeownership.
"By making changes and creating a plan and structure around spending, I'm reinforcing good habits," Yoke adds. "I still struggle. I am still learning. But seeing progress and understanding why I make the purchases I do is so rewarding."