As inflation rates across the globe continue to soar—with US inflation reaching a 40-year high while Eurozone inflation hits double-digits for the first time ever recorded—concerns are mounting that the world is headed toward a global recession in the coming year. Such concerns are taking a drastic toll on employees already battered by a stark decline in wages and a widespread hiring slowdown as more than half say that their mental health has been negatively impacted by the current financial climate, new findings from Nationwide reveal.

With food, housing, and energy prices still on the rise, many are now changing their behaviors in an effort to prepare for an economic downturn, including spending less on discretionary items, saving more for emergencies or retirement, paying down on debts, and searching for additional income. But despite these efforts, research suggests that more than two-fifths of consumers would still not be prepared for a recession by the end of next year. And as efforts to curb inflation continue to fail, talks of recession are likely to spill into much of 2023, as are consumers’ financial woes.

With that in mind, employees are in desperate need of strategies for coping with the stress they may soon be facing, if not already. But before they can effectively manage their stress, employees first need to understand exactly what it is they’re dealing with, what factors may be contributing to it, and how it may be impacting their health.

What is Financial Stress and Who is Most Likely to Experience it?

So what is financial stress?

The Financial Health Institute defines financial stress as “a condition that is the result of financial and/or economic events that create anxiety, worry, or a sense of scarcity, and is accompanied by a physiological stress response.” In essence, financial stress is anxiety—or a fear of losing control—that is specifically related to one’s personal finances. Anyone can (and most likely will) experience financial stress from time to time. According to APA’s latest Stress in America report, close to two-thirds of respondents cite money as a significant source of stress, while nearly nine in 10 say they’re stressed about the rising cost of living. But some groups have been found to experience financial stress more acutely than others. They include:

• Younger people. Gen-Zers are much more stressed out about their personal finances compared to the general population, a new Nationwide survey According to the survey, Gen-Z respondents were more likely to cut back on dining out, adjust their budget, and switch to cheaper brands in an effort to save. But as student loan debt reaches an all-time high, data from Prosper Insights & Analytics shows that these recent or soon-to-be graduates are about seven percent less likely to pay down debt in the next few months compared with other alumni. And as Nationwide research reveals that Gen-Z workers are more likely to experience cuts to their pay or working hours and are more vulnerable to the current hiring slowdown, it’s not surprising that nearly half rate their current financial situation as ‘poor’ and ‘getting worse’.

• Low-income individuals/households. In a new study released by the FINRA Investor Education Foundation, low-income respondents were more likely to report that money had a negative impact on their mental health than other groups. Among respondents with a yearly income of less than $25,000, nearly six in 10 reported that they felt significantly stressed about their financial situation. Conversely, half of households earning $100,000 or more explicitly stated that they are not financially stressed. When probed about their readiness for the impending recession, more than (53 percent) of those making $50,000 or less claimed to feel unprepared—12 percent higher than the national average.

• Women. Women are significantly more likely to experience financial stress compared to men, a new Bankrates.com study has found, as more than two in five women say that their mental health has been negatively impacted by their finances. According to Bankrate analyst Sarah Foster, this disparity can largely be attributed to the gender wage gap that persists, which makes it harder for women to cover basic expenses, never mind retirement funds or investments. As women’s financial health reaches a five-year low, new findings from Ellevest reveal that nearly nine in 10 women are unprepared for a recession.

• Racial/ethnic minorities. Findings from APA’s survey further reveal that, compared to white and Asian adults, Latino and Black adults are more likely to experience financial stress—with three-fourths of all Latino respondents citing money as a significant source of stress. This inequity is largely due to the systemic bias and discrimination that’s embedded across all sectors of the banking industry. According to a new report from the Federal Reserve, Black and Hispanic adults are considerably unbanked or underbanked (with 59 percent and 70 percent considered “fully banked,” respectively, compared to 88 percent of white adults and 89 percent of Asian adults), and are more likely to be denied credit. This comes as additional findings from Bankrate indicate that Black and Hispanic adults pay significantly higher bank fees.

Physical Symptoms of Financial Stress

Both a physiological and physical response, stress can negatively impact all systems of the body, and individuals who experience high financial stress are twice as likely to report poor health overall, Forbes reports. Additionally, those with high financial stress are about four times more likely to complain of ailments—including viral illnesses and worsened chronic conditions—as stress has been shown to weaken the immune system if bodies aren’t given time to recover.

When people are stressed, their muscles tend to tense up, which subsequently constricts respiratory airways, making it harder to breathe, and contracts ventricular muscles, making it feel like one’s heart is racing. This can lead to an array of both short- and long-term physical health problems for individuals experiencing financial stress, including:

• Insomnia or trouble sleeping.
• Headaches or migraines.
• Stomachaches or ulcers.
• Chest pains.
• Asthma or COPD.
• High blood pressure.
• Chronic fatigue.
• Diabetes.
• Changes in weight.
• Heart disease, including increased risk of heart attack or stroke.

Its Impact on Mental and Behavioral Health

Behavioral changes brought on by financial stress can also affect individuals’ physical health. Various studies have revealed a link between financial stress and poor self-care, which often includes a reliance on unhealthy coping mechanisms. Due to costs associated with gym memberships, doctor’s visits, and organic foods, people with financial stress are considered more likely to struggle with poor physical activity, disordered eating, including skipping meals or overeating, and delayed medical care.¹ And while addiction is often considered a risk factor for financial stress, many tend to underestimate the role that money plays in the development of substance use disorders.

Additional behavioral changes associated with financial stress include:

• Ignoring texts, phone calls, emails, and invites.
• Canceling social plans and avoiding friends; withdrawing from coworkers.
• Struggling to maintain relationships.
• Easily angered or irritated.

Another connection often overlooked is that between financial stress and mental health. Decades of studies have shown that people in debt have comparatively higher rates of mental health issues like depression and anxiety compared to those who do not. One study conducted by the Money and Mental Health Policy Institute found that nearly half (46 percent) of people with debt also have a mental health diagnosis, while nearly nine in 10 (86 percent) of people with both mental health issues and debt said that debt made their mental health issues worse. Further, the study concluded that those living in debt are up to three times more likely to contemplate suicide, while additional research suggests that some mental health symptoms can be so severe, they mimic those of PTSD.

Other commonly reported mental health symptoms of financial stress include:

• Depression.
• Anxiety.
• Feelings of shame or embarrassment.
• Excessive worry, concern, or hopelessness.
• Loneliness or feelings of isolation.
• Poor self-esteem.

Additionally, financial stress has been found to hurt the bottom line. While data from the Bureau of Labor Statistics reveals the sharpest plunge in productivity on record, leaving some employers scratching their heads, many experts are attributing this sudden decline to high levels of financial stress. According to Peter Tzanetakis, president of the National Payroll Institute, on average, a financially stressed worker spends at least 30 minutes every day dealing with their financial situation rather instead of focusing on their work. New findings from the Financial Wellness Lab of Canada also reveal workers’ awareness of this dilemma, as nearly three-fourths of working Canadians admit to actively handling or thinking about their personal financial situations for at least a portion of the workday, and nearly half admit they are aware that their performance at work has been negatively impacted by financial stress.

When financial stress spills into the workplace, employees may struggle with:

• Completing tasks on time, or at all.
• Producing quality or average work.
• Maintaining positive relationships with coworkers, supervisors, and leaders.
• Burnout.
• Excessive worrying about the possibility of cuts in pay, cuts to their hours, or termination of employment.

Coping with Financial Stress

Thankfully, there are a number of ways in which individuals can attempt to reduce or eliminate their financial stress; namely, these include a combination of stress and financial management strategies that aim to restore individuals’ sense of self-efficacy and control over their financial situation, promote self-acceptance, and foster positive and effective spending, saving, and lifestyle habits. Although one’s personal finances may be slow to change or improve—especially on the heels of a recession—adjusting one’s perspective on their finances and money in general can have positive effects on their health and overall wellbeing.

While the combination and chronology of these steps may vary depending on an individual’s unique needs and preferences, outlined below are 13 key ways in which individuals can cope with their financial stress and better manage their money:

• Take a step back and reflect; practice mindfulness and acceptance. Regardless of its duration or severity, financial stress can cause significant damage to an individual’s sense of agency, sense of competence, and overall outlook on life. As a result, people experiencing financial stress tend to adopt a defeatist mindset when it comes time to addressing the problems they might be faced with, oftentimes perceiving them to be harder than what they actually are which makes overcoming them an even more challenging feat. That said, in order to effectively cope with stress and eliminate these challenges, individuals first need to focus on improving their mentality. With the right attitude, individuals can approach problems both calmly and confidently. This not only helps to restore people’s sense of control over their current situation, but it also helps them to make better financial decisions moving forward.

There are a number of healthy practices or techniques that one can use to brighten their perspective and set themselves up for financial success; chief of them being mindfulness meditation. There are several ways in which individuals can cultivate mindfulness, including through yoga, tai chi, and qigong—but given the circumstances that trigger financial stress, individuals may be dissuaded from signing up for classes and using up gas and their spare time to travel to sessions. Mindfulness meditation, on the other hand, is a free, easy, and versatile practice that anyone can pick up wherever they are, and has been shown to enhance metacognitive awareness, including attentional capacities such as calmness, clarity, and concentration; reduce stress, rumination, and anxiety; and improve one’s working memory, emotion-regulation, and self-insight.

Those with financial stress may particularly benefit from the Enough Practice—a 12-minute meditation practice intended to help individuals focus on their breathing, shift their perspective, and remember that they are enough, regardless of their financial status. For those who are visual learners, looking for free, online guided meditations on YouTube may also prove to be beneficial for enhancing mental clarity.

Lastly, practicing mindfulness meditation can help people practice acceptance of their finances, helping them to look over their finances without judgment which will help them make wise and effective decisions towards improving them. It’s easy to feel self-conscious about one’s financial status, and it’s hard not to compare one’s monetary and material wealth to others. This makes reminding oneself that financial wellness isn’t a competition, and that the most important thing is that one’s needs are met crucial to helping individuals make smarter decisions with their money.

• Assess your financial starting point. Once one is in a clear and calm headspace can he or she then begin working toward improving their financial situation, starting with figuring out where they currently stand financially. Oftentimes, financial stress is the result of a sheer lack of understanding toward one’s situation, which creates a feedback loop in which a person continues to make unsound decisions that exacerbate or prolong their financial troubles. On the other hand, putting one’s financial situation into perspective can help them set positive, actionable goals, establish a realistic budget, and instill them with a greater sense of control over their finances.

Methods to better managing one’s money will vary depending on the person’s financial status. For example, someone with a low income and a lot of debt may not benefit from setting a goal to have a year’s salary saved by 30; in fact, setting that expectation can potentially sabotage any progress that’s made in that time, as failure to meet this savings goal could elicit feelings of despair and hopelessness. With this in mind, it’s important that people with financial stress are able to set realistic expectations for themselves, and this requires that they assess any and all responsibilities that may be causing them stress, including mortgages or rents, credit bills, and student loan debt, comparing them to their current income and cash flow, and establishing realistic savings and spending goals from there.

• Address the mess. The next item on the to-do list is organizing. Just as financial stress is a result of mental disorganization, the physical disorderliness of one’s financial documents can prove to be equally as distressing. In order to take a sizeable step toward reducing stress and improving one’s financial management, getting organized will be essential—and the first step to getting organized is conducting a proper cleanup. Before anyone can properly assess how much they need to have saved up and when, they will first need to locate and gather all financial documents, including but not limited to;

• Bills.
• Receipts.
• Tax returns.
• Insurance documents.
• Bank statements.
• Credit card statements.
• Auto documents.
• Subscription documents.
• Investment and retirement plan documents.
• Medical documents.
• Student loan documents.
• Leases, home loans, or property documents.

From there, one should make note of any and all due dates, listing them out either in order of priority or chronology—whichever is preferred. This will ensure that dues are paid on time, and are not missed or forgotten. Once due dates are recorded, there are different routes that people can follow from there. If following physical to-do lists and reviewing tangible documents is preferrable, individuals may organize a physical folder or file organizer to store all physical documents, and use a notebook to keep track of all upcoming and completed payments. But perhaps the best way to store financial documents—and to ensure timely payments—is by scanning and encrypting digital copies and converting to electronic billing. Not only does this reduce physical clutter, but it also gives the individuals the option to sign up for automated payments, and provides an overall speedier delivery of payments.

• Focus on what’s controllable. Once a list of essential payments, bills, and expenses is established, individuals can then start to look over their current spending habits and consider where they can potentially cut back on spending. This may include finding ways to cut costs on groceries, making utilities more efficient by fixing leaks and switching light bulbs, and cutting back on take out and food delivery.

While weekly, monthly, or yearly costs and accrued debt can seem insurmountable and unmanageable, prioritizing expenses that can be controlled can help individuals to regain a sense of control over their financial situation, develop reasonable plans to meeting important payments and savings goals, and improve both their financial and mental wellbeing.

• Establish (and stick to) a budget. While thinking up ways to cut back on spending can prove to be beneficial, it is not always sufficient. For those who may struggle with impulse control or financial myopia, the use of a budgeting calculator or template may be needed to guarantee long-term commitment to one’s savings, investment, or debt payoff goals. A simple and realistic template widely used by both budgeting beginners and seasoned experts is the 50/30/20 rule: a budgeting plan through which people aim to allocate 50 percent of their monthly after-tax income toward needs, 30 percent toward wants, and 20 percent toward savings and/or paying off debt. Budgeting plans such as these help people to ascertain what expenses they need and what they could do without; “Do I really need to be subscribed to six different streaming platforms?” “Do I really need to buy a cup of coffee every morning when I can make one at home?”

In order to reduce stress even further, people can consider making a game out of budgeting. Challenges such as the “no-spend challenge,” in which people try to avoid spending money on discretionary items for a day, week, two-weeks, to a month, not only help people strengthen their commitment to budgeting, but they also make it more fun to do.

• Reach out for support. “My finances are a private matter.” “I don’t want anyone to see that I’m in debt.” “Money isn’t something I talk about with family.” These are just some of the reasons cited by financially-stressed employees as to why they are reluctant to reach out for help with their finances, a new survey from PWC reveals.

Money is perhaps one of the most difficult things to talk about. According to findings from Wells Fargo, nearly half of all Americans consider personal finance to be the most challenging topic to discuss with others, more so than politics, religion, health, and death. Also in America, less than a quarter of parents disclose their annual income to their children, only about a third of couples can correctly identify their partner’s earnings, and findings from Time reveal that nearly half of couples do not discuss how they would manage their money before getting married.

Reasons abound as to why this stigma around money talk exists, as do the speculations as to what people are referring to when they say “money talk.” While both these reasons and definitions vary depending on the context, for the middle class, the “money talk” in question is asking for financial assistance, and the reason against it is protecting the middle-class identity. According to Caitlyn Zaloom, anthropologist at NYU and author of Indebted: How Families Make College Work at Any Cost, for the middle class, to be middle class means to not be financially dependent on families, friends, or the government, and “silence,” she says, “protects the idea that a middle-class family is independent and will be into the future, even if that’s not the case.”

But not talking about money comes with serious consequences to one’s health and wellbeing. First and foremost, this silence becomes a tool for oppression, as a lack of financial literacy enables servicers to mislead borrowers, and non-disclosure of financial information creates the opportunity for the gender pay gap to persist. But secondly, it can unnecessarily isolate people from their loved ones and peers, as those who are financially-stressed may withdraw from those around them in an effort to avoid costly social plans—including going out for food, drinks, planning vacations, shopping for gifts, or for new clothes for formal events.

But on the other hand, research shows that talking about money—including being honest about one’s financial situation—creates a mutually-beneficial opportunity in which all participants can learn from each other, support one another, and help each other make better financial decisions. For instance, one study found that speaking openly about finances served as a protective factor against impulse spending and high credit card debt, while findings from another study revealed a nearly four-fold increase in the number of deposits made by those who had the ability to publicly announce their savings goals to peers—showing no discrepancy between those who had the option to do so in-person versus those who did so via text.^2-3

Whether it’s to share savings, retirement, or budgeting resources with one another, discuss good deals, rewards or services that each other may benefit from, or to come up with cost-effective alternatives to social plans, reaching out to friends and family for support is an effective way to reduce stress and improve money management skills. Even for those who may feel uncomfortable about disclosing their financial situation to their peers, just speaking openly about their financial goals can help to hold them accountable and ensure that their goals are met.

• Set savings goals. So, what are some of the short- and long-term savings goals that financially-stressed people should strive to set? Financial experts insist that there are three principal savings goals that people with financial stress should aim to achieve. They are:

Setting up an emergency fund. Experts recommend that setting aside enough to cover at least three to six months’ worth of living expenses can help to reduce stress, namely by helping individuals avoid having to borrow money or tap into their retirement funds.

Saving for retirement. Financial experts also advise putting away at least 15 percent of one’s annual income toward retirement, whether through a traditional or Roth IRA, and strongly recommend taking advantage of employers’ 401(k) plans and contributing up to their matching rate if such plans offer employer-matching contributions.

Repaying any outstanding debts. It’s also recommended that individuals prioritize paying off any high-interest debt—that is, any outstanding debt with an interest rate of 8 percent or higher. For most people, this will mean striving to pay down credit card debt, as the average interest rate now sits above 20 percent for the first time ever recorded.

While it may be difficult to grasp the importance of these savings goals out of context, it’s helpful to remember some of the luxuries and other important expenses that these goals can help to make more affordable, including:

• Weddings.
• Vacations.
• A new house or apartment.
• Mortgages.
• Children’s education.
• Student loans.

• Work toward paying down debt. When it comes to repaying any outstanding debt, the general rule of thumb is that debts should be paid off as quickly as possible. By paying off debt sooner rather than later, individuals can save more by avoiding interest and grant themselves with more flexibility in their budget.

While there are a variety of strategies that people can explore when it comes to paying down debt quickly, the two most common strategies used are:

The debt snowball. A strategy in which people work toward paying off debt from smallest to largest, building momentum as they go. This is considered to be one if not the most effective method, as research indicates that people are motivated to pay off more debt faster as they watch their debt vanish from one account to the next.⁵

The debt avalanche. A method of targeting and paying off debts with the highest interest rates first. The theory driving this strategy is that the more one saves by avoiding interest, the more they will have to put toward more principal payments.

• Explore professional help options. Determining ways to save and identifying strategies for paying off debt can be difficult to do alone—especially for those struggling with financial stress due at least in part to financial illiteracy. While conducting research, talking with friends and family, and finding plans, tools, and other resources online can be beneficial to reducing stress, many will still likely need to consider soliciting the help of a professional in order to successfully cope.

Two key professionals that individuals have the choice between are financial advisors and financial wellness coaches; their chief difference being that advisors are equipped to make decisions on behalf of their client, while coaches are meant to help individuals improve their financial literacy and enhance their own money management skills. The benefit of investing in financial coaching is that it can improve individuals’ sense of autonomy and teach them how to be self-sufficient. A financial coach seeks to work collaboratively with clients to establish and discuss both short- and long-term goals, create plans, to-do lists, or agendas to help clients keep track of such goals, and unpack any unconscious beliefs that may be affecting how they choose to spend money, talk about money, or view money.

Financial advisors, on the other hand, are much more hands-on with their clients’ money. The benefits of investing in financial advising include that advisors can help their clients to develop a comprehensive budgeting plan to stick to that addresses all major financial concerns including retirement, college planning, and insurance; provide advice during emergencies; create and manage investment accounts; and locate specific products or vehicles that can benefit clients’ financial situation. Whether one needs help with creating an entire retirement savings plan or emergency fund, or would just like expert advice on important investment decisions, seeking the help of a financial advisor is a great way to ensure that one stays on track with their goals, that one is prepared for any unforeseen circumstances, and that one remains confident in both their financial situation and in their control over it. In fact, over 80 percent of those who worked with a financial advisor at some point over these past few years said that doing so gave them a greater sense of financial comfort during the COVID-19 pandemic.

There are also plenty of free professional resources that people can access that are dedicated specifically toward reducing financial stress. For instance, the Financial Planning Association (FPA) offers pro bono financial planning advice to help those in at-risk and underserved communities, including low-income individuals and/or families, military personnel or veterans, and those affected by natural disasters, determine how they can set out on a better path forward. The Coordinated Assistance Network (CAN), another helpful and free-to-use resource, connects applicants to various local and national nonprofit organizations that are aligned to the individual’s specific financial needs.

• Have patience, and be kind to yourself. Growing out of bad habits and forming better ones is always a challenge—and seeing them written out in an extensive list as they are here can make the process seem all the more daunting. This can often prove challenging for people who expect to see immediate results or who may set unrealistic expectations for themselves, making the practices of self-reflection and compassionate self-talk crucial to ensure that people follow through on their behavioral and financial goals.

Mistakes happen—and they will happen as people work toward improving their money management skills. It’s important to keep in mind that it takes an average of more than two months—66 days, to be exact—for a new behavior to become a habit, and there is bound to be moments where a person either converts back to old spending habits or misses an opportunity or two to perform the new behavior. Luckily, research shows that the occasional mistake has virtually little to no impact on the habit formation process, so there is little reason to fear or give up after just one bad day of spending.⁴

Furthermore, just as mistakes are not to be feared, successes are to be celebrated—no matter how trivial they may seem. Was a debt finally paid off? Have you stuck to the habit of preparing your coffee and lunches at home? Have you consistently been using coupons, keeping an eye out for good deals, or buying used? These are all small feats worth celebrating. But while it may be tempting to celebrate by spending more money, this can prove to be antithetical to savings goals. Therefore, it’s important to think of ways to celebrate without spending money. Maybe that’s by treating oneself to a relaxing night in, putting on a favorite movie or show, making a favorite comfort meal, or planning a fun and free hangout with friends.

Lastly, it cannot be understated how imperative it is to make time for personal care when it comes to developing sustainable financial behaviors and reducing financial stress. While it’s good to spend wisely, it’s important to not completely deprive oneself, either. A robust diet and exercise regimen are key needs for maintaining physical and mental wellbeing, and they should not be undercut or omitted from budgeting plans. In fact, spending some extra money on working out and eating well—among other methods of self-improvement and self-care including going back to school, going on vacation, and giving gifts to loved ones—has been shown to enhance overall wellbeing and increase happiness, even among those who may be struggling financially.

Ultimately, while financial stress can often feel isolating, the truth is that it’s a very common experience, and thankfully there are plenty of ways through which people can attempt to overcome this stress and improve their financial situation over time. While it’s easy to get discouraged if one’s situation doesn’t improve right away, by following these steps consistently, individuals may rest reassured that they are on the path to financial wellness, that their current situation is only temporary, and that things will soon get better.