Mental Toll of Debt Stress
‘Way Forward: Quantifying the mental toll of debt stress’ report explores the first-hand experiences of Australians who are in financial hardship and committed to a debt repayment plan with Way Forward.
The insights were gathered from recent semi-structured interviews and an anonymous survey completed by Way Forward clients nationwide. By investigating the lived experience of Way Forward clients, we found a high correlation between those experiencing financial hardship and poor mental health.
KEY RESEARCH FINDINGS
|There is a correlation between financial wellbeing and mental wellbeing||Those who frequently worry about finances see a more significant impact on their mental health. 86% of individuals who worry about money all the time see this impact their mental health at least weekly.|
|Clients only share a small portion of their hardship situation with their lenders||Client interviews revealed they were generally reluctant to reveal their whole socio-economic hardship situation due to embarrassment or for fear of the information disadvantaging them at a future point.|
|The level of savings a client holds is a key contributor towards the likelihood of financial worry||The less savings an individual has, the more frequently they worry about finances, which subsequently contributes to poor mental health.|
|Whilst Way Forward clients still worry about money, they have seen a dramatic improvement in both their financial situation and mental wellbeing and are optimistic about the future||All clients who responded to the relevant survey question saw an improvement to their financial situation and mental wellbeing. They also indicated they feel more informed, in control and confident about their financial situation in the next 3 to 6 months.|
|The way in which a bank approaches their relationship with their hardship clients has a large impact on a client’s experience and whether they would advocate the lender’s services||On average, the standout lender with the most positive responses is approaching clients in financial hardship with a focus on understanding and support. On the other end of the spectrum sits lenders who often prioritise recoveries over client experience and engagement.|
DELVING DEEPER INTO THE FINDINGS
Money equals worry to most in financial hardship
Most respondents (76 percent) worry about money all the time or regularly and from these respondents, 86 percent feel the impacts on their mental health at least weekly. From those who constantly worry about finances, 42 percent responded their finances impact their mental health daily.
Despite high levels of worry and stress, most clients (83-90 percent) are confident they can meet their financial obligations and gain control of their finances now they have a realistic repayment plan in place. However, 61 percent didn’t know what they would do if their income suddenly reduced by a third.
This suggests the confidence a realistic debt repayment plan and budget can provide to someone in financial hardship, despite extremely challenging financial circumstances.
Savings protect from debt stress
The data shows that having a financial buffer can provide reprieve in an otherwise stressful situation.
Over 65 percent of respondents had less than $1,000 savings in the bank – an issue especially prominent among women. The lack of savings has a negative impact on mental health, as nearly all (95%) respondents with under $1,000 of savings either worry about money all the time or regularly.
Only 29 percent of those with over $5,000 in savings regularly worry over finances – suggesting that savings create an efficient barrier against stress over finances.
More income doesn’t stop money worry
The data revealed people earning below $35,000 and between $150-$250,000 per year experienced the highest levels of stress about money. This indicates all Australians tend to worry about money and the amount of worry does not reduce as your income increases.
CONCLUSIONS AND RECOMMENDATIONS
Need for holistic approach and non-partisan voices
At Way Forward, we encourage a move towards a holistic approach to supporting people with multiple creditor debts. In practical terms, this means a collaborative cross-lender approach where lenders work with organisations like Way Forward and financial counsellors to shift away from competing for debt management of an individual’s debt.
We understand that our clients are still highly reluctant to tell their story to creditors for fear of penalty. It’s important creditors recognise this reluctance as a natural reaction and therefore, opt for a neutral, non-partisan voice to represent clients. By doing this, creditors are more likely to glean the complete story about a person’s financial situation.
Realistic repayment plans relieve debt stress
Having a manageable plan to get out of debt can provide the hope to press forward despite the challenges of worry and impact on mental health.
There are many ways financial institutions can support clients in financial hardship and importantly, educate customers around better management of their finances to avoid problem debt in the first place.
Rethinking client relationships during the pandemic
Underpinning the results are the interactions people have with their lenders when they are in financial hardship and how their perceptions are influenced during this stressful time.
However, creating an organisational culture that recognises the impact of financial hardship on people’s lives, families and their mental health is imperative across Australia’s financial sector.
Further, a commitment to continuous improvement of industry best practice is especially critical as COVID-19 continues to create stress and uncertainty among everyday Australians.
Whilst financial institutions supporting people impacted by COVID-19 should be acknowledged, the granting of payment moratoriums cannot be the only support being offered.
A particular worry is the support for secured debt, but less so for unsecured debt – leaving many Australians struggling with complex, bad debt.
Download the full report to read Way Forward’s ‘Six New Standards for Hardship Teams’ for financial institutions to better support and empower people in hardship.
Help is out there
By releasing this report, we want Australians struggling with debt to realise they are not alone. It’s natural to feel stress and anxiety over money in those circumstances. Remember, help is out there and having a realistic repayment plan to end the cycle of debt can make all the difference in reducing anxiety that comes with debt stress.
Our team of well-trained financial hardship advocates offers free support so more Australians can find their way forward towards financial freedom.
Get in touch with Way Forward on our website or give us a call on 1300 045 502. Our office hours are 9:00AM-7:00PM AEST Monday to Friday.
For other services such as mental health support, please visit our page listing support services available in Australia.
Download the report for additional insights, data and recommendations for the industry, legislators and hardship teams of financial institutions.
Way Forward conducted 23 semi-structured client interviews between May 2020-May 2021. Way Forward also created a survey to explore the circumstances that led to financial issues, strategies implemented with Way Forward and the success of those strategies. The survey was emailed to 292 existing clients in November 2020, resulting in 63 responses over a two-month period. Way Forward then engaged an actuarial consultant to objectively analyse the survey data to understand the issues, trends and outcomes to build the report.