Financial Worries VS Mental Health, & The Psychology of Money

In March 2023, The Bank of England raised interest rates again, taking the base rate to 4.25% in the 11th rise since December 2021. With this news, and the ongoing cost-of-living crisis in the UK, we collaborated with consultant clinical psychologist Dr Nick Johl to discover Britain’s biggest money worries, commenting on the impact on mental health, and share insight into psychological money ‘tricks’ retailers use to get us to spend more.  Read on to find out more…

Money and Mental Health

Firstly, we wanted to discover Britain’s biggest money worries, so we spoke with Nick to discuss the topic and talk about how money worries can impact our mental health, also sharing tips on how to deal with money-related stress:

Why is money a particular topic that we worry about?

Nick shared that “put simply, money makes the world go round. We currently live in a society with a cost-of-living crisis, rising costs in all aspects of our living and economic downturn. The key worry for most adults is affordability. The ability to afford the house we live in, to fuel the cars we drive, feed our families and at times; treat ourselves. With money, there can be a worry about the consequences of not being able to afford the cost of living and the impact this could have on our lives. This includes the risk of losing our home, going into debt, not being able to provide for our family. This in turn can cause us to become very anxious, stressful and turn to unhelpful coping mechanisms”.

How does our upbringing impact our habits of spending and saving, and how might this lead to money worries in adult life?

“Our early experiences shape how we think, feel, and behave in adulthood. Our upbringing in relation to spending habits is no different. If we have had positive experiences of being financially stable, seeing our parents or carers be sensible with money, we are more likely to follow in their footsteps. The social learning theory suggests that ‘what we see, is what we do’. This can be the same concept in a negative way. If we have been exposed to debt growing up, parents not being able to financially survive and the impact on our childhood experiences, this can teach us to worry more about money and fear that history can repeat itself”.

Nick also shared a case example to demonstrate this – “a child growing up whose family experienced the father passing away. When he passed there was less income, loss of the business they ran and ultimately loss of their home. As an adult that person may have a fear of ever being in that situation again which could shape their attitude to worry. We may predict this would impact on their spending and saving habits”.

How can money worries impact our mental health, and what are symptoms that we might be struggling?

“If you find yourself consumed with worry about your finances, ruminating on your finances and unable to focus on other things; this could be a sign you are struggling. If most of your thoughts are related to money worries, it is all you talk about and creates arguments in relationships; this would also be a concern of the worry impacting on various aspects of your life”.

Which specific mental health conditions are worsened by money worries?

“Money worries can impact on our mental health in a range of ways. The most common symptoms which seem to occur from money worries are an increased experience of anxiety, depression, stress, and burnout. In addition to this, money worries are known to increase the risk of adopting unhealthy coping mechanisms like deliberate self-harm, thoughts of wanting to end life, increased use of alcohol, drug taking and smoking. It can also put a strain on our relationships too”.

What are the most common money worries, and why do these issues particularly affect us?

• Can I afford to pay my mortgage?
• Can I afford to look after my children?
• Does my job pay me enough?
• Can I afford to pay my bills?
• Can I afford the financial pressures as a parent?
• Can I enjoy life during my current financial situation?
• Can I afford to heat my home?
• Can I afford to buy food for the week?
• Can I afford to put petrol in my car?

What are some actionable tips that people can use to deal with money-related stress?

“As humans, we like two aspects in life: to feel in control; and have solutions to our problems – this is the best approach to your finances. Carry out a financial review of all of your outgoings and see if any adjustments can be made. This might include changing the brands of food you buy, reducing wastage of food, reducing spending habits on treats, cancelling subscriptions you could do without and the use of comparison websites to see if you can get anything cheaper.

“Another method would be to realign some of your goals. If you are too rigid in having to save a certain amount of money each month which leaves you very close to having no money at the end of the month, you may want to consider saving less. Don’t see this as a failure, but an acceptance of how expensive things are at present

“Another approach you can do it think about finances in terms of ‘needs’ and ‘wants’. Needs would be those bills we cannot avoid e.g. bills, mortgage, petrol. The wants would be those things you want to treat yourself with but that you don’t really need. Instead, these are an emotional pull e.g. ASOS shopping, buying aftershave to the collection you already have, takeout when you could have a freezer job for dinner.

Psychology of Money

We also discussed the psychological techniques and ‘tricks’ that retailers use to get people to buy items they don’t need, or spend more money:

What are some common psychological techniques and ‘tricks’ that retail businesses use?

Retail business overload your senses which trigger certain emotional responses in your brain. This could be in relation to the colours you see, and product placement to encourage you to spend more.

A few common techniques retail businesses use to get you to spend more include:

• Constant sale section in retail or online shopping sites

This creates a mindset of ‘bagging a bargain’, which can encourage people to part with their cash.

• Highlighting price reductions

Typically retailers will show a huge price drop or reduction of an item without the ability to compare it to how much other shops are selling it for. This makes it look like a great deal, whilst consumers may unknowingly be able to purchase it for cheaper elsewhere.

• Multibuy offers

As attractive as multibuy offers can sound, sometimes a quick calculation shows that it can actually cost more when buying items through these deals.

Putting lots of items in the eyesight of children is another tactic retailers use, with the aim of pestering parents to buy the item for them.

• Placing stock at checkout aisles

It is unlikely you have ever seen a checkout with no other products around it. Quite often it is full of things you did not have on your shopping list, but then you have an urge to buy them.

What are some common psychological techniques and ‘tricks’ that hospitality businesses use?

“The hospitality industry spends millions of pounds each year to make your experience a memorable one so you will enjoy your experience and visit again. They invest in the sensory overload from the moment you walk in. This is related to temperature of the environment, colours used, music played and the smell when you walk into the lift for example.

“We remember things more when they are attached to our senses and this makes us more likely to emotionally invest in the hospitality experience. Taking a hotel for example, they want you to unpack as quick as possible and make it your home. This way you are more likely to treat the hotel like your home, consume more, and return again”.

What are the signs to look out for that might indicate we might not be getting the best deal?

“The best judge on whether you are being ‘tricked’ is to check your emotional response to the purchase – if you notice a rush of emotions, excitement, even physical changes to your body you are most likely purchasing something with impulse. Impulse impacts on our logical thinking in two ways – first ‘can I afford this’, and secondly ‘do I even need this’. Quite often we can recognise we are purchased something impulsively when we don’t use the purchase, it remains in its box, the excitement soon wears off or we forget about it.

“Another aspect which we need to be mindful of is FOMO (the fear of missing out) – shops use a range of marketing tactics to ensure you feel like you will experience FOMO if you do not engage in their offers. They achieve this by stating ‘limited time offer’, or ‘once it’s gone, it’s gone’. This can be the same when mailing lists send you first access to sales before anyone else, such as Black Friday”.

This article has been produced by the second charge mortgage team at ABC Finance who specialise in bad credit second charge mortgages.

*Insight shared in March 2023, and is subject to change

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