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Financial stress is a feeling many of us are, unfortunately, all too familiar with in today’s ever-changing economy. Whether you’re worrying about how to pay your bills, dealing with unexpected expenses, or managing debt, the weight of financial anxiety can feel overwhelming.
It’s not even just a matter of stress. These kinds of money worries can deeply impact your cognitive function. In fact, financial stress doesn’t just drain your energy—it can actually affect your brain’s ability to solve problems and plan effectively.
Understanding how financial pressure impacts your brain health and decision-making ability is the first step to overcoming money problems and mental health issues. Then you can take practical steps to improve your financial wellbeing and mental health.
Understanding how financial pressure impacts your brain health and decision-making ability is the first step to overcoming money problems and mental health issues.
Your brain’s executive center is essentially its control center, so it’s responsible for organizing, planning, and making decisions. This includes processes like memory, attention, problem-solving, and impulse control.
When your executive functions are compromised, tasks that require focus or long-term planning can become difficult. Think of the last time you had brain fog and anxiety at a time you needed to concentrate. Nothing gets done and everything feels impossible to accomplish.
When your brain is under stress—especially financial stress—your cognitive abilities are impaired, you get stuck on making any decisions, managing resources seems impossible, and mental clarity gets cloudy. It can be torturous when you’re just trying to get through the work day or mentally relax but you still have a million things to do.
Your executive center plays a huge role in how you navigate daily challenges and make thoughtful choices, so taking care of your brain under financial stress is critical.
In a nutshell, financial stress is the mental, emotional, and psychological strain caused by financial difficulties. This can come from a variety of factors, such as:
The constant worry about making ends meet or achieving your financial goals can become all-consuming, which only leads to a heightened state of anxiety. This type of stress triggers your body’s fight-or-flight response, which releases stress hormones like cortisol, ultimately affecting your brain’s ability to function efficiently.
When faced with money worries, the brain enters a heightened state of stress, which directly impacts cognitive function. According to research, financial scarcity can narrow your cognitive “bandwidth tax” and leave you with fewer mental resources to devote to everyday tasks.
This affects your ability to weigh the pros and cons of deciding what’s best for your financial situation, also known as “tunneling”. This means that, when your mind is consumed by financial worry, it can be harder to focus on other important things like your job, your relationships, and your physical health.
Stress-related decision-making mistakes happen when you’re worrying about money, bills, and debt. A 2018 study conducted by the American Academy of Neurology found stress hormones, like cortisol, interfere with memory and cognitive function, which can actually make your brain volume shrink. Money worries can exacerbate those conditions since money is a necessary part of survival today.
Financial pressure often leads to rash decisions, such as impulse spending or avoidance of critical financial tasks. Anxiety impairs self-control because you’re more likely to try and alleviate stress by choosing short-term relief that results in long-term financial instability.
For example, people experiencing financial anxiety may resort to high-interest loans or credit card debt, ultimately compounding their stress instead of alleviating it. Some of this can be necessary to alleviate the immediate burden, but it’s still important to gain financial literacy to improve the situation sooner rather than later.
Chronic stress alters brain structure, particularly in the prefrontal cortex, which is responsible for decision-making, impulse control, and managing complex tasks. The more stressed you are, the more difficult it becomes to take a step back and evaluate your financial situation rationally.
This can lead to a vicious cycle where stress-induced poor decisions, like overspending or delaying critical payments, further exacerbate financial strain. Over time, these repeated stress responses weaken your prefrontal cortex and make it even harder to break free from those reactive patterns.
Financial anxiety can directly interfere with your cognitive function by overwhelming your brain with constant worry. A Pew Research study found that people who experience significant financial anxiety have higher levels of cortisol that are often associated with several adverse health outcomes, such as:
Financial stress can also lead to increased activity in the amygdala, the brain region responsible for processing emotions like fear and anxiety. Chronic financial hardship has been associated with reduced amygdala volume, potentially impacting emotional regulation and increasing susceptibility to stress-related disorders.
Financial strain has been shown to reduce gray matter in areas of the brain responsible for memory and learning, especially when growing up in poverty. This increases the likelihood of errors and cognitive biases that impact future financial health and health outcomes.
Essentially, the brain’s executive function becomes compromised, affecting everything from day-to-day decisions to long-term financial planning.
Scientific evidence shows that stress also reduces neuroplasticity—your brain’s ability to adapt and change—but all hope is not lost. For example, chronic financial stress often makes it harder for the brain to form new habits, learn new skills, or adapt to changing financial circumstances. As a result, under financial pressure, you may struggle to develop healthier financial habits or better ways of managing your money.
Making thoughtful decisions when you’re under financial stress isn’t easy, but it’s not impossible. To help you make better financial decisions, start by breaking down larger financial goals into smaller, more manageable steps. This can reduce the overwhelming feeling that often follows financial pressures—no matter the size.
Additionally, mindfulness practices like meditation or breathing exercises can help calm the mind, enabling clearer thinking and better decision-making before you dive into your budget. Taking breaks and stepping away from whatever is causing you financial worry can also help reduce your stress levels to improve your ability to make sound choices.
While it’s nearly impossible to eliminate financial stress completely, there are coping strategies that can reduce the severity of its impact on your brain health and mental well-being. Here are some tips that may help:
Creating a realistic budget and sticking to it can help alleviate financial anxiety by offering clarity and control over your finances.
If you can swing it, financial advisors and counselors can offer practical advice and guidance to reduce anxiety and improve future decisions.
Regular activity can alleviate physical symptoms, reduce stress, improve cognitive blood flow, and maintain mental clarity during financial challenges.
Focus on ways to start building an emergency fund to reduce the fear of unexpected expenses and alleviate financial burdens.
Practicing stress management can improve emotional regulation and strengthen resilience, which can keep you calm and help you focus on what you can do right now.
The relationship between financial stress and brain health is complex but undeniable. Money worries can diminish mental clarity, impair decision-making, and affect overall brain function.
However, by implementing stress-reduction strategies, seeking professional advice, and focusing on improving financial health and literacy, it is possible to regain control and reduce the cognitive impacts of financial pressure.
Remember, managing your financial health not only improves your bank account but also strengthens your mind, enabling you to make clearer, more thoughtful decisions, both financially and in other aspects of life.
Ryu S, Fan L. The Relationship Between Financial Worries and Psychological Distress Among U.S. Adults. J Fam Econ Issues. 2023;44(1):16-33. doi: 10.1007/s10834-022-09820-9. Epub 2022 Feb 1. PMID: 35125855; PMCID: PMC8806009.
Kitces, M. (n.d.). Scarcity: How this rather innocuous-sounding economics concept actually impacts decision-making. www.kitces.com/blog/scarcity-how-this-rather-innocuous-sounding-economics-concept-actually-impacts-decision-making/
University of Texas Health Science Center at San Antonio. (n.d.). Study: Stress can impair memory, reduce brain size in middle age. Retrieved from https://news.uthscsa.edu/study-stress-can-impair-memory-reduce-brain-size-in-middle-age/
ScienceDirect. (2015). Neuroscience of stress: Effects on brain function, structure, and connectivity. Retrieved from https://www.sciencedirect.com/science/article/pii/S0896627315006273
Datta D, Arnsten AFT. Loss of Prefrontal Cortical Higher Cognition with Uncontrollable Stress: Molecular Mechanisms, Changes with Age, and Relevance to Treatment. Brain Sci. 2019 May 17;9(5):113. doi: 10.3390/brainsci9050113. PMID: 31108855; PMCID: PMC6562841.
Pew Research Center. (2021). Many Americans continue to experience mental health difficulties as pandemic enters second year. www.pewresearch.org/short-reads/2021/03/16/many-americans-continue-to-experience-mental-health-difficulties-as-pandemic-enters-second-year/
Butterworth P, Cherbuin N, Sachdev P, Anstey KJ. The association between financial hardship and amygdala and hippocampal volumes: results from the PATH through life project. Soc Cogn Affect Neurosci. 2012 Jun;7(5):548-56. doi: 10.1093/scan/nsr027. Epub 2011 May 6. PMID: 21551226; PMCID: PMC3375885.
Blair C, Raver CC. Poverty, Stress, and Brain Development: New Directions for Prevention and Intervention. Acad Pediatr. 2016 Apr;16(3 Suppl):S30-6. doi: 10.1016/j.acap.2016.01.010. PMID: 27044699; PMCID: PMC5765853.
Psychology Today. (2024, July). Loud budgeting can reduce financial stress and anxiety. www.psychologytoday.com/us/blog/mental-wealth/202407/loud-budgeting-can-reduce-financial-stress-and-anxiety
Fortune. (2024, March). Financial stress can lead to mental health and physical illness. https://fortune.com/well/article/financial-stress-mental-health-physical-illness/
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