Money and mental health: disrupting a vicious cycle

Money pokes its head into every aspect of our daily lives, influencing all manner of choices, big and small:  from the clothes we wear and the food we eat, to the homes we make and the jobs we take.  

And it’s not just how we live. For better or for worse, our finances play a vital role in how we feel, too. 

In 2018, a staggering 75% of Britons reported being worried about money. Three years on, as we emerge from a pandemic that has wrought havoc on our health and finances, we're living in a time of even greater economic uncertainty. Covid-19 has hit households and businesses hard, with 28% of families losing income, rising to 66% among the self-employed. Of those who lost their jobs, many will have relied on savings to keep them afloat. 

As if we weren’t worried enough, former UK pensions minister Steve Webb painted a gloomy picture of our collective retirement prospects in a recent report. Titled “The Ski Slope of Doom,” the report outlined how, despite the success of automatic enrolment, pension contribution levels are currently too low for us all to retire comfortably.  

All the while, the fabric of working life is rapidly changing. More people than ever are going self-employed, the vast majority of whom aren’t paying into a pension at all.  

This is particularly worrying for those in early careers since the state pension looks a less and less reliable prospect by the time they reach retirement age. 

Considering the ticking time bomb of public and household finances, is it any wonder economic anxiety is so rife?! 

 The link between money and mental health 

Financial difficulties impact relationships, social status, health, time and mental energy.  

Recent studies show that people with problem debt are twice as likely to develop major depression as those without, while 86% of people with existing conditions claim their financial situation has made their mental health worse. This is a troubling cycle that needs disrupting – but, given the bleak picture I’ve painted above, it looks set to get worse before it gets better. 

So, what’s the answer? What steps can we take to tackle Britain’s growing financial and mental health challenges? Well, I’m no economist or policymaker, but I am fortunate enough to witness many of the innovative new businesses coming to the fore in financial services – and a few thoughts spring to mind... 

•  Improve financial literacy 

Teens and young adults need to be taught how to save – and should be encouraged to start earlier. The simple fact is that the current state pension is not enough to support the lifestyle most people want to lead in later life, and all the signs point towards is being gone by the time their generation retires.  

Young people may also benefit from learning about the power of compound interest. Small sums saved up from an early age– e.g., the odd night out spared or the daily latte sacrificed – can make an enormous difference over 30 or 40 years. Few are taught to see the bigger picture of how these small savings could impact their financial future.  

Luckily, organisations like MyBnk (a charity that works with 32,000 young people a year and has the UK’s strongest evidence base on the impact of education around money) are working to plug the financial literacy gap and give people a better grasp on their money from a young age. 

In terms of educating older adults, there is still a lot to be done. A step in the right direction was the launch of PLSA’s Retirement Living Standards in 2019, which was designed to show people what their retirement will look like and how much it will cost. The PLSA wants schemes representing 90% of active savers to adopt the standards by 2025. 

Education is all the more pressing in the context of the dramatic investor interest that we’ve seen over the last 12 months.  Most investment platforms have seen their user bases grow substantially – and while on paper that’s a good thing, the trend towards gamified trading has its worries, too. Just look at the Robinhood/GameStop Saga. 

The addictive, gambling-inspired UX of apps like Robinhood raises alarm bells around the issue of mental health, making the need for education absolutely crucial if we want to avoid an already perilously positioned generation getting burned in get-rich-quick schemes. 

•  Champion innovative, technology-enabled solutions 

Now more than ever, technology must be part of the solution. We need higher-functioning financial guidance tools and broader access to coaching for individuals. Already making headway are some incredible fintechs providing disruptive, ambitious solutions to some of the problems outlined above.  

Octopus Moneycoach (formerly Hatch) is helping to make holistic financial planning more accessible to all using a combination of smart planning software and real financial coaches. The service appeals to those who would benefit from a human to help them make financial decisions, but don’t have the assets to seek traditional advice. It’s currently being rolled out to employers to offer as a tax-free benefit.  

Penfold and Raindrop are enabling simple, flexible pensions for the self-employed, while disruptors like Smart Pension are building auto-enrolment platforms for businesses of any size.  

Multiply offers affordable, mobile-first financial advice through a clean, user-friendly interface. Then of course there are savings platforms like Chip, which is already helping 300,000 users (and counting) to save spare cash – and now even set up investment pots, too.  

•   Break down the stigma  

There’s also, I think, a cultural angle to this. At a time when we're actively addressing stigmas surrounding religion, sexuality and mental health, why is money still so taboo? Too many of us are afraid to look at our finances or talk to the people in our lives about theirs, despite money being integral to the way we live.  

A recent YouGov survey found that 41% of people don’t ask for financial advice when they need it, while 32% said money worries them more than anything else in their life. 

We need to work harder to create a culture of openness around money and mental health. That way, more people will have access to the tools and education needed to improve their financial outlook, and fewer people will have to suffer in silence.  

As ever, the solution starts at the top. Employers need to create an environment that breaks down the barriers to financial and emotional support and reduces stigma. Financial guidance tools, like the ones I’ve mentioned above, should be offered wherever possible as a company-wide benefit, while an open-door policy around employee mental health is also crucial.  

The cost of poor financial education and lack of resources can be enormous, but the toll on mental health is even more devastating. We have all the tools, innovation and knowledge at our fingertips to plug the gaps in people’s understanding and improve their relationship with money. And there’s no time like the present! 

Sam is Co-Head of Seccl Technology, the digital custodian and investment technology provider supporting fintechs and advice firms in building digital businesses