How are we affected by financial stress?

Researchers divided people with poor finances into two groups.

One group was asked to imagine that their car needed repairs at a garage. The other received no such instruction.

Then both groups were asked to solve the same tasks.

“The group that thought about the garage visit performed much worse than the other,” psychologist Ingvild Stjernen Tisløv says.

The researchers then tried the same with high-income individuals. They observed no significant effect. Those well-off, thinking about car repairs, did not perform noticeably worse.

Then the researchers asked them to think about a much more expensive expense – a water leak.

That’s when the financially well-off people showed the same decline in performance.

Finances and psyche

Ingvild Stjernen Tisløv is associated with a research project at OsloMet.

She based her research on interviews with 30 people, asking:

Why do people get into long-term financial troubles and how is it related to mental health?

And importantly: How can it be avoided?

Little responsibility

Tisløv notes that the strain of financial stress often hinders individuals from resolving their situation independently.

“However, there is still a significant burden placed on individuals to be able to resolve the situation,” she says.

Creditors and government agencies take little responsibility for contributing to realistic solutions.

“And in that way, financial problems can lead to a long-term and vicious circle,” Tisløv says.

We make poorer decisions

Stress around paying interest or rent can lead us to make poorer decisions.

The same is true when we constantly have to assess the most cost-effective option.

“Why is that?”

“We call it the ‘theory of scarcity’. Let's compare poor finances with lack of time. If you are have limited time, much of it will be spent pondering how to use it,” Tisløv says.

Attention and focus shift.

Fall in IQ

There is a greater chance you will follow your gut reaction when making a decision.

You don’t think things through well enough. If you’re a ‘yes-person’, you will agree to more tasks even when you are busy.

“Research has shown that having little money over time can lead to a drop in IQ of 13 points,” Tisløv says.

That’s equivalent to a night without sleep.

“You simply function much worse during periods of high financial stress,” she says.

Greater consequences with poor finances

Everyone can make poor decisions, like splurging during a sale.

“We are not as rational as we might like to think. But the consequence of making poor decisions is more serious if you don't have a financial buffer,” Tisløv says.

For example, by taking out loans we cannot afford.

Learned helplessness

“Payment problems also often lead to avoidance,” Tisløv says.

We avoid dealing with bills and warnings.

“When problems become so big that we can’t solve them ourselves, many tend to give up. That's called learned helplessness,” she says.

But this only exacerbates the problems.

“It’s important to ask for help as soon as possible. Assistance agencies also bear a responsibility to provide support. The healthcare sector, the Norwegian Labour and Welfare Administration (NAV), and the financial industry should take a more active role in breaking the negative correlation between payment problems and poor health,” she says.

What is important?

In difficult times, Tisløv recommends thinking about what is important to you.

“You should figure out what really matters and prioritise accordingly. It’s more manageable than just cutting expenses. If an annual trip to Denmark with friends is important, then perhaps that should be prioritised. But then cuts must be made in other areas,” she says.

Furthermore, think about what aspect of the trip is important: Is it just the social aspect or the journey itself?

“If it’s about being together, it’s okay to introduce other and more affordable activities,” she says.

Speak openly and find solutions together

Prices in stores have risen, mortgage rates are increasing, and the Norwegian currency is weak.

A report from OsloMet shows that 18 per cent of Norwegian households struggled financially in March 2023. In 2021, the proportion was seven per cent.

The psychologist praises starting conversations about money in both family and friend circles.

“It can help create a common understanding and find solutions. Even if you’re not struggling yourself, others might really appreciate it,” she says.

Talking about finances should become natural.

“Financial security is crucial for our ability to participate in almost all areas of society,” Tisløv says.

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Translated by Alette Bjordal Gjellesvik

Read the Norwegian version of this article on forskning.no