Money doesn’t make you happy, but bad debt makes you sick

on February 11, 2021 / by Financial Mindfulness

Money doesn’t make you happy, but bad debt makes you sick.

You can’t buy happiness, goes the old saying. We also know that being in poverty decreases happiness, but instinctively we know having lots of money doesn’t guarantee happiness.

Research backs up the motherhood statement too. In a landmark study, Daniel Kahneman and Angus Deaton, of Princeton University found that after an income of US$75,000, earning more money does not increase happiness.

In 2010, the pair studied the survey responses of 450,000 Americans and found that “high income buys life satisfaction but not happiness”, aka emotional wellbeing.

Then in 2020, three Harvard researchers, Ashley Whillans, Lucía Macchia and Elizabeth Dunn looked at whether prioritising time over money left us happier than focusing on money over time by studying 1000 students graduating from the University of British Columbia.

In short, the students who aimed for money were less happy a year after they graduated than those who made time a priority.

It seems even more obvious that people with lots of debt are not happy, but the extent to which this is true is shocking.

In 2016, Australian investment advice company Acorns Grow Australia surveyed 1000 people and found 70 per cent suffered depression and anxiety because of their money worries, while 76 per cent had trouble sleeping for the same reason. More than half assigned physical health problems to money worries.

In 2013, University of Southampton researchers Thomas Richardson, Ronald Roberts and Peter Elliott found links between severe unsecured debts (such as credit card debt, student and personal loans) and poor health, especially mental health by reviewing 65 previous studies.

Those with unsecured debts were 3.24 times more likely to suffer “mental disorders” than those without unsecured debt and 2.77 times as likely to have depression. They were 2.68 times more likely to be problem drinkers but a scary 8.57 times as likely to be dependent on drugs. Sadly, people with debt are 7.9 times more likely to take their own lives.

Back to the Acorns survey results, a third of Australians aged between 25 and 44 had “abused” alcohol because of financial stress, while 20 per cent coped with money worries by using illegal drugs. It did not say how many turned to prescription drugs to manage.

“The majority of studies found that more severe debt is related to worse health,” the Southampton university team found. Their research was published in the Clinical Psychology Review.

Then there’s the phenomenon of ‘debt-anger’, in which instead of getting fearful about money, people in debt get very angry. By definition, the person affected becomes stressed, and can experience damage to their relationships, feelings of isolation and despair and even weaken one’s immune system.

Australia has world-leading levels of household debt according to most measures. When debt is taken as a percentage of net disposable income, Australia had the fifth highest debt per household out of 35 OECD nations, at nearly 210 per cent of net income, in 2020.

Australia was also the worst in the Asia-Pacific region, in relation to its household debt-to-GDP ratio, according to The Asian Banker website.

Even though most of Australia’s household debt is related to wealth creation or an asset, such as a home loan (the average mortgage debt is $350,000), well over a third of Australians (37 per cent) report they are struggling to repay their debt.

In various research the percentage of Americans struggling with debt is anywhere between 30 per cent and 70 per cent. Even the smaller number is a huge worry.

Citizens of both nations – and people throughout the so-called ‘first-world’ – repeatedly cite money worries as at or near the very top stressors in their lives in surveys and studies.

The Southampton university study didn’t go into which came first – poor mental health or money problems. But the links are clear and so is the message: heavy financial stress will either make you sick, or keep you that way.

The study also didn’t go into what to do about severe financial stress – but there’s plenty of advice out there. The traditional options include consolidating debt, budgeting and financial planning, or studying or working longer hours to try and land a more lucrative role. The latter approaches can come with their own problems: the stress that results from overwork and social disconnection.

One widely praised and usually inexpensive option is to be mindful about money. Mindfulness, defined by some as moment-by-moment awareness, helps to still the mind and improve messy and negative thinking. A huge amount of research worldwide has shown mindfulness positively affects a range of mental health issues including depression, anxiety, memory loss and sleeplessness.

If you are experiencing distress in your life and live in Australia call: Lifeline 131114, Mensline 1300 789 978 or Beyond Blue 1300 224 636; regarding debt problems, the National Debt Helpline may be of use on 1800 007 007.