In recent years we have seen ever more investigation of the links between financial stress and physical health. Many commentators have referred to the cyclical nature of this: Poor health causes financial stress, while financial stress can also cause poor health.
The American Psychological Association’s annual Stress in America Report, revealed financial concerns to be one of the top sources of stress. Stress has of course, well-documented implications for an individual’s overall health. According to Purdue University,
“High levels of financial stress manifest through physical symptoms like sleep loss, anxiety, headaches/migraines, compromised immune systems, digestive issues, high blood pressure, muscle tension, heart arrhythmia, depression and a feeling of being overwhelmed.”
In Financial Stress and its Physical Effects on Individuals and Communities, a paper promulgated by the Federal Reserve Bank of San Francisco, Laura Choi links financial and physical health, saying:
“…money is more than just cash and coins…. money provides feelings of security, power, independence, and freedom. And the threat of ongoing debt or insufficient income can result in feelings of loss of control, anxiety, and other mental and emotional distress. In addition, chronic financial stress has been linked to a cycle of increased workplace absenteeism, diminished workplace performance, and depression …”
Ms. Choi concludes that, alongside job training, education, affordable housing and the capital to support these initiatives, the availability of credit is one of the major influences that need focus.
Debt and Financial Stress
A major source of financial stress is, of course, debt, particularly debt which borrowers see no way of paying down. This is particularly common with payday and title-type loans, which require the principal of the loan, plus interest and fees, to be repaid in one go – a balloon payment. Many borrowers find they cannot afford to do this when their loan payment comes due. Borrowers are left with little option but to refinance their loans, incurring additional fees and interest. This is what many call “the cycle of debt” and is major driver of new laws to limit access to non-prime credit.
Financial Exclusion and a Lack of Control
This lack of control over an individual’s financial situation can have major consequences for overall health. So too can the lack of control forced on consumers by states that strictly limit access to non-bank credit in the name of consumer protection. Having no options to smooth family finances over time, makes consolidating debts, paying for things such as car or home repairs which can be expected to provide value long after the loans have been paid off, and managing crunch times for finances, such as the back-to-school period, a major challenge for individuals and families that in other states, would have an enhanced and appropriate financial capability.
This need for capability is reflected in the findings of research from the United Kingdom, with the Money and Mental Health Policy Institute regularly commenting on the need for government policies that reject financial exclusion and promote financial inclusion, to benefit mental health outcomes.
A Role for Installment Lenders
We believe preserving access to installment loans in states that want to crack down on less safe forms of credit, can ensure proper availability of financial capability and avoid the exclusion and subsequent misery we are seeing in states like Illinois.
Installment loans avoid the cycle of debt, by being repaid in regular installments of principal and interest, giving the borrower a clear route – and end date – for paying down their loan and ensuring that diligent repayment is reported to credit bureaus, allowing financial mobility over time.
Installment loans are a safe form of credit that allow those without access to bank credit to manage their finances as if they did. They can and should play a part in reducing financial uncertainty and increasing financial capability for those that need it. The mental and physical health benefits of this could be significant. ENDS