World Mental Health Day 2021: Achieving financial wellness
Beware of debt because it starts with worry and ends with war (Umar ibn Al Khattab)
We need to talk about finances.
The FinTech revolution has paved the way for technology to solve age-old financial problems. From 24-hour challenger banks to high-tech digital verification products, the archaic frontiers of financial services continue to evolve to keep pace with the needs of 21st century consumers.
And yet age-old problems still prevail. Even more than if we dive into one of the ghosts of the old financial world: interest-based debt.
We live in a time when all of our lives and even our pursuits are tied to debt, be it the houses we live in, the cars we drive to, and increasingly the everyday necessities that we use to buy. This has been exacerbated by the surge in “buy now, pay later” and other subscription models recently dominated the headlines. The promise of interest-free payment plans has resulted in a generation of consumers adopting unsustainable buying behavior and relying on largely unregulated financial products.
Money worries and mental health
This has a huge impact on mental wellbeing that cannot be ignored. Current research from the Monetary Policy and Mental Health Institute points out that consumers with mental health problems are more likely to take advantage of retailer loans. Further data from the UK Citizens Advice Bureau suggests that buyers late fees of £ 39 million last year. Of those referred to a debt collection agency for missed payments, 96% experienced negative consequences, including sleepless nights; borrow money to pay off their debts and suffer from the rapid deterioration in their mental health.
The effects of this financial pipeline are detrimental to attempts to build a financially inclusive society. Financial well-being and quality of life are often associated with security and an understanding of finances. Elementary education in the various financial products available to consumers is vital to ensure that consumers’ mental health goes beyond the profit margins that can be lucrative for financial services companies and the new wave of FinTech innovators.
The debt cycle
Many consumers are increasingly trapped in a debt cycle that affects their daily lives and exacerbates them by the aftermath of bad credit decisions. One recently International Adult Financial Literacy Survey points out that financial literacy in OECD countries is lower than normally expected. This has a huge impact on the working population as more employers realize that having a lack of adequate financial protection Stress in the workplace.
Young people are also disproportionately affected by this crisis, as the latest financial products anchor the stresses and strains of a generation ill-equipped to deal with interruptions in their monthly salary packages.
As we celebrate World Mental Health Day this year, we need to raise awareness of the need for financial literacy and the role FIs must play in helping clients make informed decisions about their finances. This includes having an awkward conversation about credit and creating space within the FinTech space to unlearn some of the more exploitative tactics of the old finance world.
Financial literacy is important
Education and mediation should be central (for financial institutions and policymakers alike) to ensure that the next generation is not trapped in an unhealthy relationship with the financial world and prioritizing their mental well-being on these not-so-average purchases. A lack of understanding of the mainstream financial system leads to a debt cycle that leaves millions around the world and further solidifies with many inequalities and spiritual decline.
There are some signs that the dialogue is shifting – there are programs and tools like RedStart and MoneyHelper who opened the door to the next generation to take a critical look at financial literacy. Still, more steps need to be taken to change the system for the better. Total debt exceeds total wealth worldwide – what tells you that you cannot break the debt cycle completely and that society most in need of grace and kindness is those that are hardest hit.
Ambition should not mean that victims of debt cycles should be grossly excluded from the formal financial system. Instead, the financial industry as a whole should have an embedded approach to literacy to build positive social and mental impacts on the society it serves. This not only guarantees that new innovations represent brilliant technical solutions for the consumer – but also long-term mental well-being.
About the author: Umer Suleman is the UK General Manager of the ethical finance platform Wahed. He has more than 10 years of experience and a qualified Governance Risk & Compliance Professional with a global mandate.