Why Not Saving is Bad for Your Health

MARCH 16, 2016
Joseph Chiweshe, MD
Personal Finance, Stress, MoneyThe association of stress as a risk factor for negative health has been repeatedly documented over the years. One area that continually causes stress for many is dealing with their finances.

Undoubtedly, a lot of stressors in our busy lives are difficult to predict, let alone control, and with tax season upon us, we are forced to take a closer look at the financial composition of our previous year.

Hopefully, one of the resolutions you made for yourself this year was to save a little more, and if not, it’s definitely not too late to start.

Having a healthy approach to financial management and saving can result in better health by minimizing this stressor.

A look at data from the Financial Industry Regulatory Authority’s National Financial Capability Survey showed that there is a strong and highly correlated association between the ability to meet day-to-day needs and our financial satisfaction.

This study's generalizability in terms of what we regard as satisfaction will vary, as we all have different levels of satisfaction given our subjective and personal attitudes towards financial stress and its magnitude.

A lot of these perceptions that influence financial satisfaction are driven not by wealth in and of itself, but more so by our reference groups, prior levels of income, and what we hope to attain in the future with higher levels of compensation.

However, we can generally agree that one's wellbeing is fortified by a healthy financial environment that is rooted in savings and a secure retirement.

The working definition for financial wellbeing in many of these studies is not quantified by income, “but by the happiness and life satisfaction that income and wealth provide.”

Households today are dealing with increasing financial stress as educational debt continues to grow, and families are working to save for a multitude of goals from future college plans and retirement, to  opportunities to take a vacation from the grind every now and then.

The issue for many is that the current financial stress revealed by these surveys shows that households with deficits are likely to lack motivation in addressing these issues, which then compound the deficits as they are now more likely to grow.

In turn, as the deficits grow, stress increases and mental peace decreases.

This is observed in day-to-day activities, as many work to cover their immediate pressures. These actions tend to be justifiable but the issue remains that the needle is never moved past this cycle. The long-term saving deficits are much more obscure and less likely to materialize.

Sass et al, in their work propose the following:
  • Raise families’ awareness of distant financial deficits
  • Compensate for their ongoing lack of awareness
The financial indicators commonly regarded as immediate are self-perceived difficulty in covering expenses, unemployment, current debt burden, and the ability to access $2,000. The items regarded as distant concerns were insurance (medical and life), retirement, saving for college, housing, and student loans.

How do we increase awareness and compensate for a lack of awareness?

1. Broadcasting simple rules of thumb and providing ready access to quick financial check-ups
2. Creating structures that make it easy and automatic to address such deficits.

Simple rules of thumb are timely in their message. We must strive to always spend less than we make. It is not a matter of being a high-income earner or not, it is more about how much you are keeping at the end of the day and much of this is dictated by choice.

It is important to also avoid debt wherever possible, especially consumer debt that comes with high interest rates. In life there will always be unexpected events, thus another rule of thumb is to maintain an emergency fund.

When you spend less, invest a portion of the difference you save in a simple low-fee investment vehicle for the long run. In terms of investments here are the most common mistakes to avoid.

Other studies support the use of simple and easy-to-read financial aids for ease of consumption and implementation.

The use of automatic investments plans has been shown to significantly increase savings rates over time, because as individuals learn to live without the small initial portion that can be gradually increased with raises they never get the opportunity to “miss it.”

The use of automatic enrollment plans by employers can be in the form of a basic automatic enrollment wherein employees are automatically placed into the plan, but always retain the option to opt out.

The next common option is the eligible automatic enrollment contribution arrangement, where in a default percentage is uniformly applied to employees after notice has been extended.

The third option is the qualified automatic contribution arrangement, ysing a schedule of minimum percentages generally beginning at 3% and increasing over time. Under this arrangement individuals must be vested 100% in the employer's matching or set contribution within a set amount of time, generally no more than two years.

As you work to towards a healthier year, take time to safeguard against financial stress and save for the future.
 

Sources:
Mayo Clinic
American heart Association
JPF



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