Causes of financial stress (2024)

FAQs

Causes of financial stress? ›

It may be that you have too much credit card debt, not enough income, or you overspend on unnecessary purchases when you feel stressed or anxious. Or perhaps, it's a combination of problems. Make a separate plan for each one.

It may be that you have too much credit card debt, not enough income, or you overspend on unnecessary purchases when you feel stressed or anxious. Or perhaps, it's a combination of problems. Make a separate plan for each one.

Rising debt, income volatility, or negative outcomes to financial choices can trigger an emotional response from people (Heckman, et al., 2014). This emotional response is financial stress.

This could be caused by a large disparity between cash payments and receivables, high interest payments, or a drop in working capital. Individuals who experience financial distress may find themselves in a situation where their debt servicing costs are much more than their monthly income.

One big culprit fueling financial anxiety is a familiar one — the high cost of living. More than half of respondents (54%) expect price pressures to increase this year, and only 9% said their household income was outpacing inflation.

Most Americans Are Still Struggling Post COVID-19

Contrarily, the wealthiest 20% of households still maintain cash savings at approximately 8% above pre-pandemic levels. Ultimately, with inflation taken into account, the majority of Americans are worse off financially compared with before the start of the pandemic.

According to a recent Ramsey Solutions study, 34% of survey respondents indicated that they were either facing financial struggles or were actively in crisis. That's a huge percentage of people -- more than one-third of all respondents -- who are not feeling good about their personal finances.

Financial trauma can lead to significant mental health consequences, including increased stress, anxiety, depression and feelings of shame, guilt or worthlessness.

How to stop being broke? ›

Financial risk is caused due to market movements and market movements can include a host of factors. Based on this, financial risk can be classified into various types such as Market Risk, Credit Risk, Liquidity Risk, Operational Risk, and Legal Risk.

Financial anxiety, or money anxiety, is a feeling of worry about your money situation. This can include your income, your job security, your debts, and your ability to afford necessities and non-essentials.

Living paycheck to paycheck by income

According to a recent PYMNTS report, as of November 2022, 76 percent of U.S. adults who make less than $50,000 are living paycheck to paycheck, compared to 65.9 percent of those making $50,000 to $100,000 and 47.1 percent making more than $100,000.

Use the 50/30/20 Rule: Allocate 50% of your income to needs, 30% to wants, and 20% to savings and debt repayment. Adjusting these percentages to fit your goals can help accelerate your savings. Save Your Raises and Bonuses: Resist the temptation to increase your spending with every raise or bonus.