Financial Mindfulness interviewed a dozen people in Hyde Park Sydney while gathering footage for a marketing video, every person we spoke to believed financial stress was all around them.
The problem is “huge, huge”, said one respondent, while others suggested 70 per cent of the population might be under financial stress. A couple said “everyone” was under financial stress; another commented that they “didn’t know anyone” not under financial stress.
Most understood that financial stress could cause, or at least be associated with, other problems in our lives, from depression to anger, insomnia, affecting our concentration and lower productivity at work, and things like social isolation.
Marc Richardson, a Sydney based clinical psychologist, says you can add “hits to your self-esteem”, relationship difficulties and a tendency to alleviate stress with drugs and alcohol to that list.
But there was little consensus among the people we spoke to – and a sense of helplessness – about how to help someone suffering from financial stress: answers ranged from providing financial advice to lending money through to just listening.
When it comes to how we interact with money, the optimum state is one of financial mindfulness.
Financial mindfulness is described as having awareness and paying attention to your finances and financial behaviours. It means more than being money smart or financially savvy, as it includes the capacity to regulate emotional responses that can lead to unhelpful financial behaviour and financial stress.
There is no doubt financial stress is a serious problem. But a key to finding solutions to financial stress is in understanding what it is – and what it is not.
Here are five common beliefs about financial stress – we assess if they are true or false.
Belief 1 – Financial stress is just another type of stress, and stress is normal (so get over it)
Broadly speaking, stress is a physiological reaction to stimulus and is not always bad. “Stress can be helpful and good when it motivates people to accomplish more,” says the American Institute of Stress, while pointing out stress is “a highly subjective phenomenon that it defies definition”.
Technically, the word “stress” is interchangeable with “pressure”, and more often, we use stress when we really mean “distress” or “strain”. Financial stress is a reaction to pressure around money, which can quickly turn to distress. This is undoubtedly partly because – thanks to consumerism – Western society tells us acquiring new stuff is a sign of success. Who would disagree that, in a nutshell, we want more than we need?
Stress can be acute, recurring or chronic. The stress of any type can feel upsetting, but chronic stress can cause illness: the longer we are under money pressure, the worse we feel. That’s where financial stress can be so damaging: it’s mentally exhausting to continually struggle with payments that have no end in sight.
If you add in the tendency to medicate our stress by spending on excesses or luxuries – especially things you won’t or cannot talk about – it’s likely chronic financial stress will take hold.
One expert on financial stress in the United States, DR J. Galen Buckwalter, has identified a syndrome called “acute financial stress disorder”. Think of all the drivers: credit cards, loan and especially mortgage repayments, stress-relief spending and for people on lower incomes, basics like food, heating and rent.
If that last sentence makes it sound like financial hardship is the cause of financial stress, not always.
Belief 2 – Financial stress is the same thing as hardship
The Australian Bureau of Statistics’ indicators for measuring financial stress include being unable to pay various bills on time and being “unable to raise $2000 in a week for something important”. However, further reading shows its indicators are pointers to “households … experiencing economic hardship”.
But that is only part of the story of financial stress: it’s likely many more people are under financial distress. Much of the stress we suffer happens because we’ve convinced we need bigger or newer possessions. Or because of rising prices of, for example, housing.
Disturbing revelations about mortgage stress in recent weeks include the news that 130,000 households in New South Wales and Victoria are spending an unsustainable 30 per cent more on repaying their mortgages. More than half of all Tasmanian households are in this position.
The maximum households should spend on repayments, according to many financial advisors, is no more than 30 per cent of gross income.
With interest rate changes long overdue and the unpredictability of unexpected expenses, spending so much money on a mortgage is a recipe for financial stress. That quickly turns to distress with major expenses or a spending habit that is hard to control.
Rent is “unaffordable” or “severely unaffordable” for the majority of people living within an hour’s drive of Sydney city, according to the SGS Rental Affordability Index (and even worse if you live in the city). This means the cost of renting for most people in or near the city puts them under “housing stress”. The situation is not as severe in Melbourne, although most inner-city rental properties qualify as “unaffordable”.
But few homeowners or renters – at least not those in regular work – would qualify for government assistance based on financial hardship, even if they are struggling to stay afloat.
Belief 3 – Everyone is financially stressed
From one extreme to the other.
When we talk about chronic and damaging financial stress – the kind defined by the Australian Bureau of Statistics’ financial stress indicators such as having trouble paying bills on time – then no, not everyone is financially stressed.
But it’s very common, and the chances are it’s affecting someone in your family or someone you interact with regularly at work. The Australian Psychological Society’s Stress and Wellbeing Report in 2019 found 35 per cent of Australians report having “a significant level of distress in their lives”.
That report found “personal finances” (49%) were the single biggest cause of stress for Australians for the preceding five years, ahead of “family issues” (45%) and “personal health” (44%).
Those numbers suggest that someone around you is financially stressed, and probably a few people.
ANZ Bank chief executive Shayne Elliott says the lender is preparing to deal with a much larger number of financially distressed customers next year as government support fades, though ultra-low interest rates will give struggling borrowers more time.
The critical question that may never be answered is why some people suffer financial stress while others faced with similar challenges do not.
The American Institute of Stress uses the analogy of people on a roller coaster to show the difficulty of predicting distress. Some people thrive on the shock and discomfort of the roller coaster experience, while for others, it’s pure torture.
“Many times, we create our stress because of faulty perceptions you can learn to correct,” The institute explains. The use of the word ‘perception’ indicates that the institute of stress believes this is partly a problem of thinking as much as anything else.
It elaborates: “all of our experimental and clinical research confirms that the sense of having little or no control is always distressful – and that’s what stress is all about.”
This suggests our personal relationship with the unexpected is a factor that perhaps a sense of helplessness determines whether we turn a normal level of stress into distress.
So, what do we do about financial stress?
Belief 4 – financial stress will go away if I have more money
A windfall or pay rise is the holy grail for the chronically financially stressed, but unless you are debt-free – or are one in a million and suddenly get rich – it’s unlikely to work for long.
Chances are, the reasons you are chronically stressed about money are more complex than how much you earn (or the state of the housing or job market), as suggested by the above. It may seem the outside world is causing your financial stress, but it’s also possible at least some of your financial stress comes from inside you.
For example, if you can be prone to impulse spending, wanting to buy the latest expensive gadget, or even have a tendency to shower people in your life with gifts, you will likely spend much of that extra money.
Or if you committed yourself to spend 40 per cent (or more) of your salary on your mortgage or rent and a pay rise gets your head above the waterline, might that extra income justify the risky decision you made to over-commit?
If a windfall were the cure to financial stress, then the ultimate solution would be a lottery win, right? Wrong. A shocking 70 per cent of lottery winners end up bankrupt, according to America’s National Endowment for Financial Education.
The truth is that the cost of living, especially in a capital city, combined with servicing debt caused by a lifestyle beyond what you need creates financial stress. Full stop.
When dealing with or preventing financial distress, it is not just about how much money you can acquire. But, unfortunately, that may be missing the point.
So, time to be honest: how much freedom do you have around your spending?
What may be causing you as much distress as the dollar figures keeping you up at night and distracting you at work is the stress itself. In other words, ruminating on the problem of ‘how do I get better with money is probably a painful process.
Perhaps it’s time to go back a step and examine your whole relationship with money?
Belief 5 – You can only help someone under financial stress by giving them money or financial education
There’s no doubt the answers to financial stress – which at least superficially presents as having trouble meeting financial obligations – has a few elements.
Some of those include effectively setting goals that promote change, learning more about how to manage money – Andrew Fleming, Founder & CEO of Financial Mindfulness says “in addition to improving financial literacy and goal setting, being self aware of your current financial behaviours, good or bad, is so important to unearth those unconscious behaviours. For example, why did I buy another phone when the one I had is perfectly fine. I ended up paying more than I had to and the upgrade features didn’t change anything significant. It was an impulsive decision I made at the time. The clever marketing achieved is purpose at my expense.”
ANZ’s national survey of adult financial literacy showed many Australians have strong levels of understanding around money. However, there were still many people who didn’t save regularly (23%) and did not feel in control of their finances (22%).
“Those most likely to feel out of control were … household incomes of $65,000 or less with children at home and people with a mortgage of $300,000 or more and a household income of less than $100,000,” the report found.
Marc Richardson, says; “mindfulness is very effective at shifting old, hard-to-shift negative beliefs we have about money, such as “I’m no good with money”, “spending makes me feel better” and “money is stressful”.
“Through mindfulness, we can raise awareness of our thought patterns,” he says.
“It’s only through raising awareness of when our negative emotions arise that we can develop capacities to deal with thoughts and feelings. Mindfulness is a beneficial strategy for breaking the cycle of negative thought patterns that lead to negative emotions and enhance feelings of helplessness, hopelessness, and then negative behaviours.
“In fact, without mindfulness, it would be tough for us to catch the underlying attitude which then governs our thoughts, reactions and behaviour.”