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Financial literacy, if defined in simple terms, refers to the ability to manage money.  It guides a person about how to make major financial decisions. The advantages that come with financial literacy include an increase in financial discipline and financial capability which can lead to major lifestyle changes like saving and investing regularly, managing debts effectively and fulfilling life goals efficiently. Additionally, financial literacy helps ensure financial well being and protects individuals from financial frauds.

Almost all of us are aware of the importance of financial literacy in our lives, how it leads to financial independence and control, and a better and satisfying life. But did you ever think that financial literacy could have a direct impact on your mental health? The relationship between financial literacy and mental health should have been apparent and obvious since the start as financial literacy directly alleviates stress and anxiety related to financial matters. And in a country like India, financial matters is maybe one of those things that we think about the most in our day to day lives. Since the start of the pandemic, women and Gen-Z have reported more financial anxiety than men.

Financial stress can affect performance and motivation at work, as well as physical and mental health leading to stress and further bring about a negative impact on performance at the workplace (Prawitz & Garman, 2009; Armour, 2007).

Does Financial Literacy Have a Direct Impact on Your Mental Health

The sources that can lead to financial stress are manifold. Lack of skills to manage your money, investments, paying debts and credit card bill, etc. all contribute to stress that can only be handled, if not resolved completely, with the help of financial literacy. Financial literacy does not mean that all our money related problems would be solved at once. Financial literacy would give you the knowledge and skills to manage your finances in an efficient manner and the confidence to tackle any financial problem or emergency that you might face. It prepares you for the future and when you are able to secure your future financially, a large amount of your stress is relived.

The impact of financial literacy on mental health is not one sided. It is a vicious cycle. Bad mental health leads to poor financial management and poor financial management or financial burden leads to poor mental health. Brown (2011) concluded in one of his researches that persons with depression and feelings of hopelessness held more debt and had less wealth at retirement. Brown advises providing such persons with financial education to protect against retirement insecurity.

The Vicious Cycle of Money & Mental Health Problems


A research also suggested that poor financial dissatisfaction can also lead to an increase in the motivation to become financially literate.  Financial stressors can be psychologically deleterious and create financial dissatisfaction (Holmes and Rahe 1967; Krause, Jay, and Liang 1991; Price, Choi, and Vinokur 2002; Warr and Jackson 1985). The anxiety and trauma engendered by financial dissatisfaction takes a detrimental psychological toll and may, over time, encourage individuals to become more financially literate so that they can improve their financial and psychological situations (Folkman and others 1986; Liem and Liem 1988; Ullah 1990; Walker 1996).


So, when it comes to financial literacy, it is not only for some people, it is for everyone, it should be for everyone! It is not just about a bright or secure future, it is about your current mental and physical health and what it will be like in the future. One step to make an effort and take your financial matters in your hand, or to atleast just learn about it finances even if you are not earning right now, can change your outlook towards a lot of things and challenges in your life. It can help boost self-confidence and self-esteem along with reducing stress and anxiety related to poor financial knowledge.

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