Research of the Week: Is Financial Anxiety Keeping You Up at Night?

Financial stress leads to depression, missed opportunities and fights with your loved ones. But there are things you can do to minimize financial anxiety.

Each week, Consolidated Credit searches for financial research that can help you deal with your debt and budget. This week…

The interesting study

Each year, Northwestern Mutual releases their annual Planning and Progress Study. It covers a variety of topics, from how families are faring with debt, to how confident they feel about the future. We recently covered Millennials and Debt, which revealed that Millennials now owe just as much to credit card companies as they do to mortgage lenders.

This week, we’re covering the Money and Emotions side of things. Namely, on how much financial stress impacts that average person’s life.

The big result

Minimizing financial anxiety has a big impact on your home lifeAccording to the survey results, 87% of Americans believe that financial security is critical to overall emotional well-being. In other words, when your money isn’t right, the stress bleeds over into other aspects of your life. It’s hard to be happy if you’re worried about over-drafting your checking account before your next paycheck.

The fascinating details

Interestingly enough, insecurity, fear, and anxiety aren’t the only emotions we feel because of our finances. At least some of the time, we feel pretty good about where we are:

  • 68% of Americans feel happy about their financial outlook at least some of the time
  • But…
    • 48% of us feel afraid at least some of the time
    • 54% feel financial anxiety at least sometimes
    • 52% feel insecure at least some of the time

So basically, this supports the idea that Americans are on a yo-yo diet of financial stability. We work to get ahead, so we feel good. Then we get set back – usually by an unexpected expense – and then we’re right back to being financially stressed.

In fact, financial stress is the leading source of stress in people’s lives right now:

  • 44% say money is their dominant source of stress
  • Only 25% said it came from relationships
  • And a mere 18% said it was job-related stresses

So, what financial issues are stressing Americans the most? Unexpected expenses, particularly those that relate to healthcare.

Source of Financial StressPercentage with High StressPercentage with Moderate Stress
Rising cost of healthcare25%34%
Unplanned financial emergencies22%33%
Unplanned health emergencies21%32%
Level of savings19%29%
Income18%30%
Outliving retirement savings18%28%
Inability to afford healthcare17%27%
Retirement planning12%29%
Level of debt15%25%
Losing your job12%16%
Poor credit13%14%

 

What you can do

Financial anxiety is most couple's biggest source of stress“Most of people’s biggest sources of financial anxiety are all interrelated,” says Gary Herman, President of Consolidated Credit. “Healthcare is a huge uncertainty in our country right now. So, even if you have health insurance, it can still be a significant source of stress. Then you also have a situation where families are struggling to save. No money in savings, means unplanned health emergencies will wind up on high interest rate credit cards. That, in turn, leaves you less money to save. It’s a vicious cycle.”

Herman says to break the cycle that most people need to get real with their finances. This means sitting down to do a serious assessment of where you are and where you need to be.

“Just having a plan in place goes a long way to minimize financial anxiety,” Herman argues. “Even if you’re not where you need to be yet, knowing that you have a plan for how to get to Point B can give you peace of mind. So, you need to take a good, long look at your finances (and your physical health) to figure out smart ways to reduce financial stress.

#1: Review your insurance coverage, so you can  identify potential pitfalls

“Fear of the unknown plays a big role in financial anxiety caused by healthcare challenges,” Herman explains. “You may have this fear in the back of your mind that you’re going to need a procedure that won’t be covered by your current insurance. Even if you have good coverage, this fear can still be present, because our healthcare system is so uncertain.”

This means that you should review your policies to see exactly what’s covered and what isn’t. Will you be covered for a trip to the ER? What if you need an ambulance? Are things like MRIs covered if you need one?

The more you know about what’s covered, the less you’ll fear the uncertain future. In addition, it gives you an opportunity to identify potential expensive pitfalls ahead of time. That way, you can plan effectively to avoid them.

#2: Consider gap insurance coverage

“There are many gap insurance coverage options available in our healthcare system today,” Herman continues. “Many employers offer gap coverage, which covers things like MRIs and other out-of-pocket costs that wouldn’t be covered with standard insurance. These options literally fill the gap, when something bad happens.”

If your employer doesn’t offer gap insurance, there are private options as well, such as Aflac. These gap insurance policies may even cover regular expenses for a period of time if you are unable to work.

“Gap insurance may be an extra cost, but it can be extremely useful for avoiding out-of-pocket costs,” Herman says. “If you can find ways to cut back in your budget so you can cover the additional cost, it can give you a lot of peace of mind.”

#3: Prioritize savings

“I think one of the biggest problems that Americans face today is that most households just aren’t saving,” Herman continues. “If you don’t have any financial safety net to catch you in case something big happens, that will be a significant source of financial stress. Again, it’s the fear of the unknown and not being prepared for what could come.”

Herman argues that many families aren’t prioritizing savings because they’re too focused on paying off debt. If you have a balanced budget, you should be able to do both things at the same time. If you can’t, it’s probably because you’re spending too much money on debt payments each month.

“Stop struggling with traditional monthly payments – particularly minimum credit card payments – that get you nowhere fast,” Herman says. “Solutions like debt consolidation can make it faster, easier and more cost-effective each month to repay your debt. These solutions often reduce your total monthly payments, which would free up money now, so you can save. You don’t have to be debt free to start saving. With the right strategy, you can do both.”

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