The five behaviours that affect your financial and mental health

The causal relationship between financial health and mental health is well established. Research published in the National Library of Medicine found that people with depression and anxiety were three times more likely to be in debt. At the same time, even a slight decline in mental health has been found to increase financial stress through a variety of reasons, including impaired and poor decision-making and quick-fix feel-good spending.

Whichever way you look at it, bad mental health can cause financial stress, and bad financial management can cause poor mental health.

One piece of good news is that by improving the one, you can markedly improve the other, or at least stem decline. And making simple but crucial incremental financial choices is achievable and can lead to better mental health.

Akash Dowra, head of client insights at Discovery Bank, says: “Many people misunderstand just how important behaviour changes are that can lead to big financial improvements.

“In identifying the five behaviours that have a huge impact on financial health and, as a result, on mental health, Discovery Bank found that spending less than you earn, saving regularly, insuring for adverse events, paying off your property and investing for the long term, are the key areas for individuals to focus on.” 

Financial wellbeing — just within your group of friends — varies widely

Discovery research shows how individuals of similar socioeconomic status can be in materially different financial health.

Individuals with higher personal incomes have higher average financial health scores — 57.0 vs 53.8 for individuals with lower personal incomes.

However, within that average range are wide disparities. For example, 35.9% of individuals with a personal annual income of R500,000 and R1m, have missed repayments on unsecured credit facilities (typically overdrafts and credit cards) over a 12-month period. And 9.1% of those have missed three or more consecutive payments.

When Discovery spoke to individuals earning more than R1m per year, 10.4% of them had a financial health score associated with “experiencing material financial hardships and having difficulty making ends meet”.

Avoid over-optimism

Richard Feynman, a US theoretical physicist known for his work in quantum mechanics, said: “You must not fool yourself and you are the easiest person to fool.”

Discovery’s research highlights that one in 10 individuals surveyed are of poor financial health. However, 64% of them are over-optimistic about their position, answering that their financial health is good, very good or excellent.

Lack of awareness and optimism bias is a troubling combination and can be a key stumbling block to making the right choices that will lead to better financial outcomes.

A few simple changes can have a big impact

Simple behaviours that can be changed immediately are things such as saving at the beginning of the month rather than at the end and budgeting vs not budgeting.

Individuals saving at the beginning of the month are twice as likely to build up a sustainable savings buffer.

Similarly, budgeting regularly means being part of the group that has money left over at the end of the month.

A personalised plan

Dowra says, “Knowing where to start and which behaviours to change first provides powerful insight into how to ensure sustained success, which is why Discovery Bank launched its behavioural change programme Vitality Money. It provides an honest, trackable assessment of your finances in real time and gives you useful behavioural nudges to prompt you to improve your finances.” 

It uses technology and data in a remarkable way to help you make more sound financial decisions, view your individual financial profile, and understand your true financial health.

It starts with an honest assessment of your financial health, completely free and available to everyone through the Vitality Money Assessment.

In the book Nudge: Improving Decisions about Health, Wealth, and Happiness by University of Chicago professor Richard Thaler and Harvard Law School professor Cass Sunstein, they talk about creating policies that help people make better choices by giving individuals options to choose from. The most optimal choices are also the ones that are best for individuals.

Similarly, an article from McKinsey & Company global expands on this point saying companies can do this to best effect using technology and analytics to tailor choices to specific audiences and create “a true win-win where the most desirable option overall is also the most desirable option for that specific individual”.  

Discovery Bank’s Vitality Money app combines these philosophies into a powerful tool that is personalised and customised to your finances.

Much like the difference between motivating yourself at the gym and having a personal trainer with a personalised plan keeping tabs on your improvements, Vitality Money is a powerful tool that tracks the choices you make and then shows you exactly where to make incremental improvements to get more benefits and rewards. The more rewards you get, the healthier your financial situation.

Armed with the behavioural-change programme that is Vitality Money, individuals and families are getting set up to achieve healthy financial behaviour, reap the rewards they deserve, and as a result benefit from better mental health too.

This article was paid for by Discovery Bank.