Financial stress actually changes how your brain works. Learn how financial stress affects the brain, and why this matters.
One of my passions in running a financial coaching business is helping people relieve their anxiety.
I know financial anxiety in a big, personal way, but I also know that clouds-parting, weight-lifting, ahhhhhh feeling that comes with getting on firmer financial footing.
You don’t need to be a millionaire to achieve this. For me, it was the feeling of having a fully-funded emergency fund in the bank. Knowing that I could lose my income for a whole year and still be okay? Ahhhhhh.
But it turns out that feeling anxiety and worry about your finances, while certainly common, isn’t an isolated issue. It turns out that it actually impairs your cognitive function as well.
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What the research reveals about financial stress and the brain
You don’t actually have to work too hard to find some dispiriting scientific results.
In the journal Science, from back in 2013, there is a paper entitled “Poverty Impedes Cognitive Function“:
Lacking money or time can lead one to make poorer decisions, possibly because poverty imposes a cognitive load that saps attention and reduces effort.
The paper’s authors surmised that “poverty-related concerns consume mental resources, leaving less for other tasks” and that this can “further perpetuate poverty”. The Guardian, in writing about this study, pointed to how being preoccupied with money problems was equivalent to a loss of 13 IQ points.
Another study, called “How poverty affects people’s decision-making processes” from the Joseph Rowntree Foundation, has a ton of good information. It specifically notes that “the poorer one’s socioeconomic background, the worse one is likely to perform on measures of selective attention and inhibitory control, both of which are important for focusing on a goal”:
The fact that those in poverty tend to focus on current (over future) rewards can lead to decisions that are damaging in the long term. It also appears to be heightened by the anxiety caused by thinking about social comparison and the stigma associated with social class.
There are a ton of studies like this. So much, that in 2024 there was actually a meta-analysis (a study of studies) done on them to aggregate results. This paper, in the Journal of Economic Psychology, is called “Financial scarcity and cognitive performance: A meta-analysis” Regarding financial scarcity’s effect on cognition:
[L]ifetime and adulthood scarcity have a larger effect [on cognition] than childhood scarcity, and more extreme levels of scarcity lead to higher cognitive dysfunction.
Empathy for those with money stress
If there is one thing to be taken away from these studies, it is perhaps to spare a thought for those who have been born into (or fallen into) unfortunate circumstances.
I know I shouldn’t need to repeat it, but if you’re “poor” (defined however you want it), it’s not because of some moral failing on your behalf. There are societal structures that put you there, not least of which is income inequality and the lack of a social safety net. Sure, you usually have a hand in it, but it’s wrong to say that it’s someone’s “fault”.
While we see that poor decision making can lead to financial problems, these studies also show that financial problems can lead to poor decision making! Now if you ask me, that’s just not fair, but there you have it.
It’s time to take control
Nothing in any article I’ve linked to, or indeed any article at all, states that those in dire financial circumstances are stuck there always.
Getting out of a hole isn’t easy, and some people think that you can dig your way out of one.
The point I wish to make is that it’s worth pushing yourself out of complacency.
“Everyone’s stressed about money.” “It’s just life.” “I’m not good with money, so I can’t ever get ahead.” These beliefs around money are just that, they aren’t statements of fact.
Even if you believe the above wholeheartedly, you’ve got a reason to try to manage your financial challenges and move toward a better financial path. Because doing so will make you able to make better decisions. It will, in effect, make you smarter.
Don’t look at me; look at the science. That’s what it says.
But if you’re willing to make some changes in your financial life—tracking your spending, making a plan, stopping using buy now pay later services, to name a few—you can start to dig out of your hole and have some actual breathing room. You too can eventually feel the clouds parting. Ahhhhhh.
