Whether balancing the household budget is becoming more of a juggling act, or you currently live in what could be described as a comfortable situation, it’s likely everyone will experience some level of financial stress during their lifetime. It costs the UK economy an estimated £121bn each year in lost productivity, and research by the Mental Health Foundation found not having enough money was the primary cause of stress for more than one in five (22%) people.
Joe Gladstone, an assistant professor of consumer behaviour at the UCL School of Management, says: “It’s not surprising that money stresses us out because there was no evolutionary pressure on us to ever get good at managing these kind of resources [unlike food].” The good news is, change is possible. Here are seven ways to relieve financial stress.
Keep track of the numbers
For independent financial adviser Helen Howcroft, the first step is tracking all monthly incomings and outgoings, whether that’s via an app, spreadsheet or using pen and paper. Technology such as Apple Pay and contactless payments, plus regular direct debits for services such as Netflix and Spotify, make it easy for seemingly inconsequential purchases to add up, but it’s easier to spot where you can cut back once it’s laid out in front of you. Focusing on the numbers (interest, charges and promotional rates) can also help when it comes to making decisions about switching utility providers, bank accounts or Isas. “Unless you’re committed to changing every 12 months, you might find you end up paying more over a longer period of time,” says Howcroft.
Set a savings goal
Howcroft recommends setting a savings goal and then breaking it down into manageable chunks to be paid into a separate bank account. Nick Hill, money expert from the Single Financial Guidance Body (SFGB – previously the Money Advice Service and set to be renamed the Money and Pensions Service from 6 April 2019) agrees setting a goal – such as a holiday, wedding or house deposit – increases the likelihood of success and how much you can save: “It’s about making it very real and thinking about how you want to use [the money]”. He adds that if you are hit with an unexpected bill, having that buffer in place greatly alleviates any potential stress: “Getting those basics in place means when life events happen [such as income loss, bereavement], those income shocks are much easier to handle.”
Automate where possible
While Gladstone recommends using cash to pay for “splurge” items – “we know paying with cash is more painful than paying by card and we can use that pain of paying to change our decisions” – he also believes automating payments to savings accounts encourages better habits. “Every time we give ourselves the opportunity to make one of those decisions [about putting money aside, for example], we also give ourselves the opportunity to fail at that decision.”
Deal with debt
Not all financial stress is caused by debt, but with Britain’s household debt reaching a new peak in 2018 – to £15,385 on average – it is a real concern for four in 10 British adults. Howcroft says it’s important to stop using quick fixes such as credit cards and examine what charges and interest rates are being applied, before deciding which to pay off first. There’s also free help available from charities such as StepChange and SFGB for those that need it. “Work out how much money you can afford [to pay back], and then stick to the plan,” she adds.
For others who feel overwhelmed and aren’t ready to start tackling debt issues, charities such as Mind and Samaritans UK can provide support for the emotional strain, Hill says. “We know people can struggle with debt for over a year before they seek help.”
Look after your future self
Pension concerns are one of the most common worries Howcroft is contacted about. “My advice is never leave it too late,” she says. “The sooner you start [saving], the better. The numbers are big because we live for so long in retirement now.” It can also help to imagine ourselves in our old age, Gladstone adds. A 2011 study, in which participants were presented with age-processed images of their future selves, found that people who were able to interact with renderings of themselves later on in life exhibited a greater tendency to put money aside for the future.
Check providers have FSCS protection
Many people will be aware of the protection granted by the Financial Services Compensation Scheme (FSCS) if a bank fails. This was gradually increased to cover £85,000 in deposits after the financial crisis in 2008. But FSCS compensation also covers building societies and credit unions, investments, debt management, mortgage advice and insurance policies. Since its inception in 2001, the organisation has paid out more than £26bn – including £405m in 2017/18 alone. “We are pretty unique,” says Alex Kuczynski, FSCS chief corporate affairs officer. “The scope of protection we offer in the UK is not really replicated anywhere around the world.”
But there are exceptions, including payday loans and peer-to-peer lending: “It’s really important that people understand the firm they’re dealing with is authorised and its customers are therefore subject to FSCS protection … [and] the level of that protection,” adds Kuczynski.
Talk about it
“One of the lessons from behavioural science is if we want to make a change in life, a really important step is to make a real commitment other people know about. The more public [it is], the better,” says Gladstone. Unfortunately, money is often seen as a taboo subject, which creates a barrier to change.
This is something the SFGB has tried to tackle through initiatives such as Talk Money Week and suggesting conversation starters with friends and family. An estimated £96bn in debt is hidden from friends and family in the UK. “Opening up to people you trust about money worries can be a first big step for some people,” adds Hill. “Starting that conversation can make a big difference.”