Mental Health Awareness Week: the impact of financial insecurity on well-being

interactive investor outlines practical steps for addressing financial stress.

• With household budgets facing mounting pressure amid rising inflation, many people may begin to see their mental health and general well-being suffer as a result
• Recent research by the Money & Pension Advice Service found that 57% of those who have experienced a recent mental health problem say thinking about their financial situation makes them anxious
• London Institute of Banking & Finance research in March suggested that anxiety in young people about finance has increased to 81% from 67% last year
• interactive investor outlines practical steps to help address financial stress.

The cost-of-living crisis can take an emotional as well as a financial toll - and is a reminder that we must take care of our mental well-being. Many have faced tough personal and financial challenges during the pandemic which can have an impact on mental health, and now we have a cost-of-living crisis to contend with.

interactive investor, the UK’s second-largest investment platform for private investors, explores some of the impact, with long and short-term suggestions (for government as well as consumers), to take at least some strain out of personal finance.

Financial education

Adults aren’t the only ones feeling the pressure - financial anxiety is trickling down to younger generations. The 2021-22 Young Persons' Money Index, published in March by the London Institute of Banking & Finance,suggested that anxiety in young people about finance has increased to 81% from 67% last year.

Moira O’Neill, Head of Personal Finance, interactive investor, says: “It’s so hard to shield kids from money worries, as the London Institute of Banking and Finance research devastatingly highlights, and the cost-of-living crisis comes at a time when many young people’s anxiety levels are already heightened after two years of Covid. But teaching our children how to get on top of how to budget and manage debt could offer a beacon of hope.

“The findings echo our campaigning at interactive investor to create a more robust framework for financial education in the UK. This is another rallying cry to the government and regulators to tackle the issue of financial literacy with the urgency it demands.

“Last year, together with the judges of the interactive investor Personal Finance Teacher of the Year Awards, we published an open letter to the Department of Education, asking for a series of crucial measures to help address the impact of a clear lack of financial capability in the UK. With the levelling-up agenda a long-term commitment, we continue to ask the government to give personal finance lessons the priority they deserve.”

It’s good to talk

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Managing the ballooning cost of seemingly everything from energy bills, food and petrol has become a daily struggle for many. A large number of people are being forced to make difficult decisions to stay financially afloat as the cost-of-living storm rages on. With the pinch set to intensify before easing, more and more people will unfortunately find themselves on the brink of financial breaking point.

“Living under the cloud of money woes can leave anyone feeling the strain, and can make it harder to think about your finances and find solutions to money problems you may find yourself in.

“Those struggling to keep on top of their finances needn’t suffer in silence – there is support out there. Energy companies have schemes to help people who are struggling to afford their bills. The key is to act swiftly and contact creditors for more support. It is worth consulting a debt advice charity such as StepChange or Turn2Us and they will go through all of your options.”

Myron Jobson outlines some other practical steps to address financial stress

1. Make use of financial support measures

There are a host of schemes and initiatives to help households with the rising cost of living. Households in council tax bands A-D have started to receive a £150 rebate on council tax bills and this will be followed by a £200 “discount” on energy bills in October (although this will have to be repaid in instalments over five years).

Struggling households can get free cash or vouchers to help with bills through the Household Support Fund. The grants are distributed through local councils. However, not everyone qualifies for this benefit and eligibility process can vary from one council to another.

Additional help may be available through your local councildepending on your circumstances and where you live in the UK.

2. Find out where your money is going – and budget

It is difficult to pinpoint your money habits and areas for improvement until your finances are laid out in front of you. Trawl through your bank and credit card statements for the last three months, group your expenses and highlight areas where you think you are overspending.

Your spending will consist of both fixed expenses – those unlikely to change every month such as rent/mortgage and insurance - and variable expenses such as food, clothing and travel.

Budgeting is integral when it comes to keeping your financial house in order. It allows you to plan how much you will spend or save each month as well as track spending habits.

It’s worth keeping a spreadsheet of your own spending habits. There is a plethora of budgeting templates available for free online as well as apps to help you on your way.

The rising cost of living means we are saving less to maintain current levels of spending, so be prepared to make tweaks to your budget as inflation continues to rise.

Once you have a better idea on how you spend your money, you can explore ways to help you live within your means. For many households, hikes in the cost of food and fuel are most noticeable when prices increase.  Even simple things such as opting to purchase a store-brand equivalent of traditional larder products can help to cut down the cost of groceries.

It is also important to keep tabs on how many subscriptions you have and cancelling those that you no longer need. Removing a £10 subscription from your monthly outgoings might not sound like a lot, but this amounts to £120 over a year – not to be sniffed at.  

3. Have a cash buffer

Easier said than done, but it is really important to have a financial cash buffer of at least three, if not six, months. Some people became accidental savers during the pandemic, by keeping jobs while facing fewer outgoings during the Covid lockdown. Some of these savings might be needed to tide people over during the cost-of-living crisis. Those considering locking their cash into a fixed-rate, fixed-term deal for a better rate of interest should consider whether they’d need to access some of that cash if the cost of living continues to grow.

While the high rate of inflation means that most people’s savings are effectively losing value, it still pays to shop around for the best deal.