Study: Your Debt Is Making You Sick

Consumer debt is a growing, multi-faceted phenomenon in the U.S. But debt amounts to much more than an inability to honor one’s financial obligations. The lack of financial well-being may cause social, physical, and emotional stress.

“The cost of debt shouldn’t be measured by interest rates alone. There is a psychological cost to be paid as well.”

The 2019 CarefulCents Debt Stress Study explores the relationship between consumer debt and stress in the U.S., using findings from research studies published by economists, sociologists, psychologists and other leading financial education sources.

Key Findings

Student Loans and Stress

Paying for college has turned into a long-term burden for millions of Americans. The more educated you are, the more debt you have. The total bill as of November 2018 was $1.56 trillion, which was more than double what it was a decade earlier.

Of the 42.2 million people with federal student loans, 2.7 million owed at least $100,000. The Survey of Consumer Finances shows that 22.4% of families had student loan debt in 2016 compared to only 8.9% in 1989.

But the impact it has on stress may vary. 

  1. More educated household heads experience higher debt stress levels despite being less likely to hold credit card debt.
  2. Individuals with more education are also more likely to have greater control over their lives and, are therefore better able to shield themselves from insecurity and stress.
  3. And, while the debt is high, it represents a beneficial personal socioeconomic investment and, therefore might not contribute towards significant psychological stress.

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Age and Debt Stress
Debt can lead to a number of emotional and psychological issues, with researchers having since established a negative relationship between consumer debt and psychological well-being (especially in older adults).

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Increased marketing to young people ensures that they begin their adult life with credit cards. And, therefore, consumers are taught early on to use and rely on credit cards.

This had led researchers to begin exploring the possible effects of debt-holding on young adults.

But, contrary to the findings of the studies in older adults, these studies find that credit card debt increases mastery and self-esteem in persons under age 28.

Mastery refers to the measure in which a person sees themselves as having adequate power over their future.

This finding supports the hypothesis that young people experience debt as an investment in the future. However, these studies also find that the positive effects of debt appear to wane among the oldest young adults (aged 28 and older), suggesting stresses associated with debt may increase with age.

Sources of Consumer Debt

According to the United States Code, consumer debt is “debt incurred by an individual primarily for a personal, family, or household purpose”. By virtue of convenient access, the most prevalent form of consumer debt in American households is credit card debt.

This risky form of unsecured consumer debt can accumulate fast, especially when borrowers opt to make only the minimum payments on their monthly bills. According to most recent data from the Survey of Consumer Finances by the U.S. Federal Reserve, the mean credit card debt of U.S. households is approximately $5,700.

But the average credit card debt in the United States is increasing.

This is not due to a greater number of individuals spending. Instead, in recent years, more people have been more heavily indebted.

In the year 2000, over half of the households in America had credit card debt. By contrast, in 2001, that figure fell to 38%.

Ethnicity and Debt

Some studies report that in terms of race and ethnicity:

  • African-Americans are less debt-stressed
  • While Asians are more debt-stressed than Whites.
  • Other experts say that it is not race but lower socioeconomic status,
  • typically experienced by minorities, that leads to higher debt-related anxiety.
  • Middle-class seems to hold the most consumer debt, which could be explained by the middle-class holding more mortgage loans.

Low-income groups use debt in order to meet basic needs and to maintain lifestyles, whereas higher income groups use debt to improve their standard of living.

As the low-income group members struggle to meet their financial obligations–such as mortgages, rent, auto loans and leases, and credit card bills–which often exceed 30% of their income–and, as they don’t have enough cash and other assets to pay their bills for six months in the event of a layoff or other shock, they experience stress.

Pets and Debt

According to a Qualtrics survey commissioned by Lending Tree, based on an online survey of 760 pet owners, 42% of millennials are in debt for their pets. As per their study, “about 59% of pet owners worry about animal-related expenses, and cat owners (66%) are slightly more likely to stress than dog owners (60%).

Family Structure and Debt

Mills et al. examined the effects of economic strain on psychological well-being is related to married couples’ psychological well-being, with finances having been shown to be the most frequent source of arguments in marriages.

In a study conducted by Dew (2007) the presence of credit card debt alone had a significant impact on the extent of marital conflict.

Those who were separated, divorced, widowed, or who had never married reported being less financially stable than married persons because they had much higher mortgage rates in comparison to household income. Being married with children is associated with less debt-related anxiety than being single with children.

Physiological Well-Being and Debt

The adverse effects of financial insecurity on emotional well-being spill over to cause physiological distress.

A study involving college students in the U.S. showed that a debt of, as little as $1000, was associated with nearly every risk indicator tested, including obesity, insufficient physical activity, excess television viewing, infrequent breakfast consumption, fast food consumption, unhealthy weight control, body dissatisfaction, binge drinking, substance use, and violence.

Note: as per the study, “university student lifestyles may be characterized by a variety of coexisting risk factors”.

Increasing economic insecurity also has been linked to increasing complaints of physical pain. Researchers have hypothesized that economic insecurity can lead people to feel a lack of control in their lives, which would, in turn, activate psychological processes associated with anxiety, fear, and stress.

Pain and Debt

These psychological processes have been shown to share similar neural mechanisms to those underlying pain.

A study of 33,720 U.S. households published in the January 2016 edition of Psychology Science found that those with higher levels of unemployment were more likely to purchase over-the-counter pain killers.

The research team discovered that simply thinking about the prospect of financial insecurity was enough to increase pain. People reported feeling almost twice as much physical pain after recalling a financially unstable time in their life compared to those who thought about a secure period.

Researchers observe that individuals exhibiting problems repaying their debt obligations also exhibit much worse psychological health.

It was found that those who struggle to pay off their debts and loans are more than twice as likely to experience a host of mental health problems, including depression and severe anxiety.

Economic insecurity has strong effects on symptoms of psychological distress, seeking help for psychological distress, and non-specific physiological illnesses. Several empirical studies have found that financial strains such as consumer debt are strong predictors of depression, mental disorders, and suicidal ideation and behavior.

Studies have also explored how the relationship between debt and psychological well-being evolves over time.

Does debt stress increase or decrease in the long run given unchanged indebtedness status? Researchers have observed that debt stress is lower as the length of time in credit card debt increases. Meanwhile, debt stress for short-term debtors is more than twice that of long-term debtors.

This might be explained by the principle of ‘habituation’. As the time in indebtedness increases, the debtor becomes more accepting of the situation and therefore less stressed about it.

Most Stressful Debt Type: Credit Cards

Credit cards can be convenient but the resulting debt could lead to financial stress. Credit card debt is especially stressful and may impact mental well-being for several reasons. Credit card debt can lead to financial stress of two kinds.

  1. In emotional terms, credit card debt can create friction between family members or married couples, and,
  2. in dollar terms, credit card debt can strain their financial ability.

While credit card debt by itself is not always a financial stressor, the negative effects of credit card debt are widespread and tend to grow as time goes on.

study of 1000 adults in Ohio that looked at consumer debt stress caused by credit cards had the following salient findings to report:

  1. Those who have credit card debt are younger, more likely to be married and more likely to have a job.
  2. In addition, they have lower education, but higher incomes.
  3. Those who are married with children are more likely to be in credit card debt than not; and those who are single and don’t have children are less likely to have credit card debt.
  4. Those who have credit card debt are more stressed about overall debt.
  5. There is a close association between income of the credit card users and their perception regarding the stress caused by credit card debt.

To conclude, multiple problems have been linked to debt, such as health deterioration.

Especially stress-related problems such as: headaches, insomnia, upset stomach, loss of appetite, anxiety and depression, increased marital stress sometimes leading to broken marriages, deterioration in parent-child relationships, and adverse effects on work performance and attendance.

Especially credit card debt, which can lead to all sorts of problems that have nothing to do with accounting and everything to do with psychology. In an era of increasingly easy access to credit, understanding the consequences of taking on unsecured consumer debt becomes very important.

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