How Your Sadness Can Lead to Deepening Debt

We may not see the connection between our mental health and our wallets, but a new study suggests that sad people make poorer financial decisions compared to their happier counterparts.

The reason, according to Jennifer Lerner of the Harvard Kennedy School of Government and colleagues Ye Li and Elke Weber of Columbia University who published their study in the Psychological Science journal last year, is that sad people exhibit what's known as "present bias," meaning they tend to value the present over the future, choosing immediate gratification and ignoring the greater gains associated with waiting. The researchers say their findings could help us better understand how people get into trouble with credit card debt and to craft better public policy down the road. In the meantime, those who work closely with people in debt say the findings aren't all that surprising.

"If someone is depressed or even just sad, their brain isn't getting enough of what it needs to make a good decision," says Amy Jo Lauber, a fee-only financial planner in Buffalo, N.Y. "And to compound matters, they may become even further discouraged or depressed because they're not able to make a decision."

For Lauber, it's not uncommon to see clients with a touch of the blues, especially during the cold and dark winter months. Usually, getting the client to discuss the matter does the trick. But if it's a more serious problem, Lauber says she has referred clients to mental health professionals, asking them to take care of their head before they tackle their finances.

Shopping Addiction

Of course, financial planners aren't in a position to diagnose or treat a mental health issue, but Lauber says common red flags include frequent changes to an investment portfolio, bill avoidance and excessive shopping.

"Oniomania, or a shopping addiction, is not uncommon," says Dr. Elizabeth Waterman, a psychologist with Morningside Recovery Center in Newport Beach, Calif. "What we sometimes call 'retail therapy' can give us a little boost, but for some people, it becomes very easy to overspend and spiral downward."

That downward spiral is especially worrisome because as the debt mounts, a person's mental health can worsen and become serious depression, Waterman says. But catching the problem early doesn't always take a mental health professional.

"A financial planner can see patterns over time, so if the credit card bills are going up and there isn't a good reason why, that's cause for concern," says Waterman, who adds that just using online banking tools that help track spending and generate reports could help some people spot trouble before it sinks them.

But when the debt becomes too much to take, it almost always has a negative effect on a person's mental health, says Kimberly Sdeo, an attorney in Princeton, N.J., who often deals with consumer debt issues and bankruptcy.

"If a client is filing bankruptcy, there is almost always a mental health issue, no matter what caused the bankruptcy," Sdeo says.

Sdeo says she encourages her clients who need it to seek out help, even if they think bankruptcy prohibits them from taking on additional expenses.

"If there's a medical or mental health need, a bankruptcy court is most likely going to accept that the debtor needs to spend money on that issue," Sdeo says.

Get Help

Whether you're facing serious depression or a more mild mental health problem, health professionals say it's important to seek help.

"Oftentimes, a visit to a therapist can do a lot for people," Waterman says. "Sometimes, they just need to talk, or it could be more serious and require medication. But in either case, just identifying the problem and starting treatment can make big improvements and allow the person to take care of their financial problems."

In many cases, mental health visits are covered by insurance. Lauber says if you work for a large company, ask about any employee assistance programs, which may be able to refer you to a free counselor or social worker. Sometimes people may need more than just the few hours of counseling that come with employee assistance programs, but they can be a very good, cost-effective place to start. If you don't have a job with an employee assistance program or health insurance, you can always check with therapists in your area to see about their hourly rates.

"Usually, you can find help at an affordable cost, and you can always ask about bartering services or inquire about a referral to a free provider if money is an issue," Lauber says. "But when you think about it, there really isn't anything better to spend your money on because without taking care of the mental health issue, you won't be able to do much about your finances."