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The rising mental health cost of debt-based finance – and how fintech can help

mental health debt

There are two common misconceptions around debt. First, that interest-based debt is something that necessarily exists for everyone. Second, that any debt problem is just a financial one. Both of these are dangerous assumptions.

Being in debt is normalised by governments’ trillion-dollar debt burdens and the rise of ‘have it now’ products and services. Mortgages, credit cards, car payments and more recently buy-now-pay-later all feed into the idea that interest-based debt is normal. This leads to the second dangerous assumption that to be in debt is only a financial problem, one that can be compartmentalised and buried away.

The truth is, being in debt brings with it a huge mental burden that can become so heavy it is fatal.  November is Men’s Mental Health Awareness Month. We are taking this as an opportunity to highlight the pressure that being in debt can have on someone’s mental wellbeing and how men are a group who are at a greater risk than others.

The pressure to ‘man up’

Financial wellbeing is a particular problem for men. Research by Yolt found that nearly 2.3 million men have had panic attacks as a direct result of financial worries – that’s nearly 10% of the male population. Meanwhile, 14% struggle to sleep for worry over money. Just as concerning is the 12% who said they ignored their financial concerns as it caused them to feel anxious or depressed.

Many men still feel the pressures of traditional gender stereotypes. Some 31% of men are more likely to feel pressure to be the main earner in families, compared to 19% of women according to a survey by the HuffPost.

It wouldn’t be surprising to find that the fallout from the pandemic – unemployment, economic uncertainty – will cause these numbers to grow. Priory cited research that found “a quarter of men regarded losing their job as making them feel ‘less of a person’ compared to 17% of women”.

As well as causing feelings of self-loathing, unemployment can be deadly. The BMJ published research on the 2008-10 recession showing that every 10% increase in the number of unemployed men was significantly associated with a 1.4% increase in male suicides. Since the mid-1990s men have made up three-quarters of all suicides.

A recent survey found that 62% of men have suffered from stress, anxiety, feelings of anger, sleep issues and depression during the Covid lockdowns. Further research tells us that 93% of those with mental health issues are more likely to spend more money when they are unwell than when they are well.  Almost half of those in problem debt also have a mental health problem, whilst those with mental health problems are more likely to face financial hardship.

The hidden cost of buy now pay later

The ‘provider’ instinct felt by many men can be quickly met by the buy-now-pay-later services that bombard us every time we make a purchase online, no matter our financial or mental status. Other forms of retail credit are proving just as problematic.

Research by the Money and Mental Health Policy Institute finds that “people with mental health problems are more likely to use credit offered by retailers: four in ten people with a mental health problem have used this sort of credit”.

Once they’ve taken up this credit, people with mental health problems “are twice as likely to have fallen behind on payments for products bought using credit from a retailer (16% compared to 7% for people without mental health problems)”.

The UK’s Citizen’s Advice Bureau reports shoppers were charged £39m in late fees in the past year. 96% of those who were referred to a debt collector suffered immensely. Effects included sleepless nights, borrowing money to repay their debt and suffering from the rapid deterioration of their mental health.

We are producing a generation of people reliant on debt-based payments, with little idea of the terms attached to them – never mind the poor regulation surrounding them.

Financial and mental wellbeing are inextricably linked. Given the economic cost of poor mental health, financial institutions must begin to see the value in offering products better suited to their customers rather than focusing on interest-based debt products.

Fintech’s role in tackling mental health-related debt

The numbers speak for themselves: financial institutions have a major responsibility to support their customers’ financial wellbeing. This can be achieved through product offerings, customer service and financial literacy tools. Fintechs are uniquely placed to challenge the status quo and lessen the debt-related mental health burden.

They can build tools quickly that both educate and assist customers so that they are more in control of their finances. It is important that people feel empowered by money rather than intimidated and panicked. Fintechs can also better connect with other providers through APIs that can help people who are going through financial issues. This can ensure the whole process of moving out of debt is managed in a measured way.

Already we see fintechs reducing some of the stress surrounding financial activity by providing independence and ease of use. That ranges from opening bank accounts to remitting money through to savings.

They have made many services seamless, intuitive and approachable.  If carefully managed we can build more products that are more profitable than the current debt-based model, because they support and allow people to enjoy, rather than fear, their financial status.

In partnership with UKTN, social impact media firm Ecology Media is running a special editorial series called A Better View, which explores the ethical and diversity challenges that exist in the world of innovation – and the ways we can fix them.

This piece was written by Umer Suleman, UK general manager for Wahed, an ethical investment platform.