Financial stress
in Families
Definition:
-
Introduction:-
We define financial stress as the unpleasant feeling that one is
unable to meet financial demands, afford the necessities of life, and have
sufficient funds to make ends meet. The feeling normally includes the emotions
of dread, anxiety, and fear, but may also include anger and frustration.
Whereas financial stress is a subjective feeling, which may or may not be based
on an objective assessment of one’s financial situation, we refer to the
objective circumstances that typically give rise to the feeling of financial
stress as
Economic hardship. Economic hardship may be due to such things
as the loss of a job, unexpected medical or legal expenses, chronic
overspending, investment losses, or gambling. The economic hardship may be
acute or chronic, anticipated or unanticipated, and it may be attributable to
uncontrollable forces (such as the regional economy) or controllable forces
(e.g., poor financial management).
Economic hardship is often defined in terms of family income below the
poverty line (often taking into account family size), a decrease in family
income of greater than 35% from one year to the next, a high debt-to-asset
ratio, or loss of job by principal breadwinner. We note that none of these
measures may be completely satisfactory to an accountant or auditor, but we
believe that they do capture economic hardship in a general way. A precise
analysis of one’s financial situation is of less interest to psychologists than
is one's perception of the financial situation because it is this
perception that produces the financial stress, which in turn is implicated in a
host of individual, familial, and social consequences. If one fails to realize
the dire predicament of one’s financial situation, then one will not feel
financial stress.
Most research on the effects of financial stress draws from samples
facing a particular type of economic hardship. For instance, some studies have
been published on the effect that the Great Depression had on families, others
have described the effect of mass job losses in company towns, and others have
described the effects of chronic poverty. One series of studies is based on
interviews conducted with people in rural Iowa (including farmers and other
community members) during the agricultural crisis in the late 1980s as interest
rates climbed and the value of their land plummeted by roughly 50%.
In contrast to their measure of economic hardship, financial pressure
or financial strain is frequently measured in terms of the degree to
which research participants report that they have had to postpone the
purchase of household necessities (e.g., health insurance, replace
broken furniture or equipment), have had to reduce their standard of
living, borrow to pay monthly bills, and/or are unable to pay their
monthly bills. It is this measure of financial pressure that is considered
to be the main stressor with which people are coping. As Herzberg (1990)
stated, “… economic stresses are perceived as quickly and intensely as having
to pay the next bill.” In fact, among research studies assessing both economic
hardship and financial pressure, it is the financial pressure measure that
is most strongly linked to outcomes such as depression, marital problems, and
the like. Interestingly, the link between economic hardship and financial pressure
is not particularly strong: some people without economic hardship (as defined
by income or debt) do feel financial pressure (e.g., lack of cash flow), and
some with economic hardship do not feel much financial pressure (e.g.,
students used to living on very little).
Even though our focus is on the effects of financial stress, it is
important to note that it is not possible to disentangle the effects of
financial stress from other stresses that accompany financial stress. For
instance, research conducted in the early 1930s in the United States and in
Europe indicates that loss of one’s job – even when it is due to international
economics – precipitates a host of other stressors. A study by Jahoda and
colleagues (1933) of unemployment in a on accompany town in Austria documented
that the unemployed decreased their participation in clubs and volunteer
activities (including use of the free library), abandoned efforts to budget,
increasingly quarreled with family members, and lost self-esteem. In fact, many
came to blame themselves for their situation. This study and others suggest
that those who lose their jobs not only lose income, they also lose an integral
source of life purpose, a central activity that structured their day, and a
network of coworkers who shared in a common goal. It is unclear the extent to
which these changes witnessed by Jahoda and her colleagues could be
attributable to the loss of income as opposed to the stress of losing status as
family provider, losing one’s occupational identity, losing a sense of purpose,
or shame
.Common responses to such
devastation include:-
·
anxiety
·
depression
·
post-traumatic stress
·
severe grief
·
alcohol or drug abuse
·
nightmares
·
panic
·
overwhelming levels of stress
·
confusion
·
feelings of detachment
·
feeling surreal
·
over- or under-eating
·
inability to sleep (or excess sleep)
·
diarrhea
·
nausea
·
upset stomach
·
And other physical and mental symptoms of stress and
depression
Families may become torn apart or separated. For example, children may
move in with extended family or friends, or marriages may be extremely stressed
and fall apart, and there may be underlying tension or feelings of despair.
Parents may interact with their children in tense or punitive ways with a short
temper; children may respond with negative behaviors and emotions, and teens
may face problems in school, negative peer groups, lost self-esteem, and
delinquency.
How do you know when to seek help?
If you or your loved one is experiencing any of these symptoms, it is
important to seek help. Stress may feel overwhelming. Depression, if left
unaddressed, could cripple one's ability to get out of bed, take a shower, put
on clothes and look for a new job. In the worst case, if left unaddressed,
depression can, in some cases, lead someone you love to committing suicide.
What options for help are available?
Medications are commonly used to treat anxiety, panic, depression, and
other symptoms one is experiencing. While medication is helpful in restoring
health and healing to one's physical body (the brain in particular), treatment
is most successful when coupled with psychotherapy or "talk" therapy.
Talk therapy (psychotherapy) occurs in a relaxed, straightforward, and
non-judging environment, in which you or your loved one will sit down with a
therapist and discuss the things that are bothering you in a safe and private
space. A therapist is skilled in helping to bring important issues to the
forefront, and in helping each voice and perspective be expressed, heard, and
understood.
Areas may include:
·
Financial health issues, such as instrumental and
psychoeducational interventions, to aid job searching and financial management
·
Mental health issues, such as stress, anxiety, confidence
and esteem loss, and depression, in adult and child family members
·
Behavior issues, academic issues, and issues of negative
activities and peers, in children and adolescents
·
Couple and marriage issues, reducing financial strain
effects on relationships
·
Parent-child relationship issues, parenting emotions and
practices, understanding negative and positive parenting practices and effects
·
Family issues, including family counseling to reduce
blame, to build resiliency, and activate family resources
·
Community issues, helping families to engage with
community resources and increase social support
How can an MFT help the client and family?
A marriage and family therapist (MFT) can help you or your loved one and
the family. MFTs are trained to understand the complex nature of problems,
especially problems resulting from external social factors, such as economic
hardship. They address problems that an individual may be experiencing, as well
as difficulties in couple and parent-child relationships. An MFT can help
alleviate symptoms like anxiety or depression through addressing the social or
familial circumstances that may be contributing. They can help you to ensure
that your children are buffered from the worst effects of financial strain in
effective and concrete ways.
MFTs believe in the power of healing that occurs when treating and
working with the whole family unit. Even though a particular family member may
be the one who seems to be suffering the most, generally all family members are
also affected in various ways. All perspectives and resources come together in
family therapy to create positive and helpful changes in a shared and
co-created vision.
MFTs can work with family relationships to restore trust, improve
communication, increase satisfaction, and foster healthy ways of relating.
Clinicians are knowledgeable about research findings about what protects
families from the adverse effects of financial strain.
1. Couple/marriage
therapy. Couples who treat
each other well in times of financial stress fare much better than those who
argue and blame each other for problems. While some amount of argument about
money is to be expected, how couples argue is important to relationship
quality. Couples therapy can help spouses/partners communicate safely and
effectively. Couples therapy can help couples work together to partner,
support, and care for each other through difficult times.
2. Family therapy and
parenting. Positive
parenting practices and good parental relationships substantially protect
children from the serious negative impacts of financial strain in families.
Family therapy focused on parenting and parent-child relationships can go a
long way in helping children. Clinicians may work with mothers and fathers to
reduce irritability and stress expressed toward children, and to reduce
negative parenting—aversive, punitive, arbitrary, coercive techniques (such as
threats, derogatory statements, slaps)—and to build positive
parenting—(reasoning and loss of privileges)— that is nurturing, affectionate,
and sensitive to children’s needs.
Research indicates that parents, as well as children, benefit when
parents feel more effective and capable, parent-child relationships improve,
and parenting feels less difficult and more satisfying. In turn, as parental
well-being improves, so does children’s.
Themes commonly addressed in therapy include grieving loss, confronting
denial or unrealistic expectations, symbolism and meaning of money, restoring
trust, emotion regulation and couples skill development, stress management,
money management, job search skills, parenting skills, and children’s
well-being.
Causes
of Financial stress
The best way to avoid a financial crisis is to spend less than you earn.
You'll be better prepared for unexpected expenses or life-changing events that
might dramatically reduce your income or increase your expenses.
It also enables you to have the freedom to make personal choices about
your job, where you live, and in many other areas of your life.
Recognizing the causes of financial crisis will help you know what to
avoid. Below is a list of major circumstances that could put you deeply in
debt. When one or more of these happens, it can be overwhelming. If you plan
for the unexpected, you will be in a much better financial situation.
If you currently have more debt than you can handle, use the tools
under Assess
Your Debt and Pay off
Your Debt to understand
your financial situation and how to create your own plan for getting out of
debt.
Living and Spending Beyond Your Means:-
When you don't keep track of what you spend, it is easy to have your
expenses exceed your income - sometimes by a lot. After a few years, even a
small, month-to-month negative cash flow will lead to financial crisis, and you
will need to make important changes to tackle it.
Saving regularly, even a little at a time, will give you a cushion you
can rely on when something unexpected happens. This means thinking about saving
before a big splurge, such as buying the newest plasma television, or finding
ways to save on the little things you spend money on every day. Your savings
will give you more flexibility in life choices and a financial cushion that you
may need if something goes wrong.
Loss of a Job:-
With changes in the structure of the economy and New Zealand business,
many New Zealanders will experience job loss during their lifetimes.
Unemployment is stressful, and accumulating debt as a result can compound that
stress.
Most financial experts advise having at least three months of your
take-home pay saved and available. It's a good goal to work toward.
Depending on the job market and the overall health of the economy, a job
search can easily take three to six months - or more. If you lose your job,
apply for unemployment right away and make sure you receive the benefits
available to you. If you know in advance that your company may be downsizing or
closing, limit your expenses and curtail your spending.
Don't pay your bills late or incur other fees. If you can't pay all of
your bills in full, call your creditors before you get behind, explain your
situation, and ask for a payment plan that enables you to pay what you can
while out of work without incurring penalty fees.
If you must take a job that pays less than your previous job, adjust
your spending to your reduced income. Create a realistic plan for paying off
any debt incurred during your unemployment.
Divorce: -
Often a divorce means expenses increase, while household income
declines. Divorce itself is an expensive process. Between legal fees, moving
costs and countless other expenses, it simply adds up. In addition, you may be
responsible for debt that your spouse accumulated, such as taxes, car payments,
or other instances where you may have had joint obligations.
To ensure you are in the best position if divorce occurs, have your own
credit card and be responsible about paying it on time and keeping your balance
down. Don't incur all of your joint expenses under your name, and ensure that
your joint assets are under both your names.
Divorce is a stressful time, and you may feel like splurging on
yourself. To keep those understandable impulses in check, look at where you
want to be financially in a year. Having lower debt or higher savings will give
you confidence and security.
Unexpected
Health or Medical Expenses:-
When a health or medical crisis hits you or your family, it can be
devastating both financially and emotionally. If you are unable to work, lost
income can spell financial distress. Even if you have health insurance, the
co-payments add up quickly. Identify where you can cut non-essentials and
ensure you don't make any large purchases.
Track your medical and health expenses carefully. Accounting errors - by
both medical providers and insurers - are not uncommon and can add
unnecessarily to your costs. Also, explore all your payment options.
Review your bills carefully to ensure they accurately reflect the
services you received.
If you have health insurance, check each benefit statement to be sure
you are receiving coverage for all the services your plan provides.
If you don't have health insurance, talk to your hospital or health care
provider about programs that offer free or discounted care. Most hospitals or
medical institutions offer these programs.
If you are unable to pay your medical bills on the payment terms
offered, talk to your health care provider, hospital, or doctor about a payment
plan.
If you are unable to pay other regular bills in full, let your creditors
know your situation as soon as possible, and ask to work out realistic payment
plans so you don't end up incurring additional costs such as late penalties or
collection fees.
Unexpected Home or Car Expenses:-
When your transmission fails, your hot water heater breaks, or water
starts pouring in through your roof, it means a large expense that can put your
finances in a nose-dive.
Identify where you can cut other expenses to free up money to pay for
your emergency. If you must go into debt to pay for the unexpected, explore all
your financing options and work out a payment plan.
Bad
Money Advice or Fraud:-
Buying a mortgage from a lender who didn’t disclose all fees and costs.
Being bullied into an unwise investment. Leasing a car when purchasing makes
more sense for you. All of these can leave you with financial troubles. If this
happens, cut other costs to make up for the lost resources or added expenses.
If you believe you were the victim of illegal or fraudulent business
practices, first try resolving it by contacting the head of the company or the
consumer complaint department. Put your complaint or problem in writing, and
keep good records, including copies of all correspondence.
If that doesn't resolve your problem, contact a local or state
government official with oversight responsibility. This may be your state
Attorney General, a division of consumer affairs, or a state or county
licensing and oversight board for a particular industry. Local non-profit
consumer groups may be able to provide guidance specific to your situation.
Private
arrangements with your creditors:-
Your lawyer, budget advisor (or other professional) may be able to help
you to make private arrangements with your creditors. Although these
arrangements are binding legal contracts, you do not need to involve the
courts. For example, such an arrangement might allow you to repay part of your
debt in full settlement of the amount you owe. It is important to
Remember that these are privately negotiated agreements and will be
legally binding on you. Negotiating a debt reduction settlement may be an
alternative to filing for bankruptcy, applying for a summary installment order
or negotiating a proposal. However, watch out for agencies that promise to
reduce your debt by very large amounts or promise much lower repayments. Many
of these are not reputable and unlikely to deliver. Remember, as with debt
consolidation loans, if it sounds too good to be true it probably is.
8 Ways to Help Family
Members in Financial Trouble: -
What do you do when a family member becomes unemployed? Or suffers an
unexpected injury and can't work or has insufficient insurance to cover
mounting medical bills? How do you respond when you learn a loved one can't pay
their bills? Let's take a look at a few options you can consider to help your
family members in trouble - without hurting yourself financially.
1. Give a cash gift.
If your loved one is having a short-term cash flow problem, you may want to give an
outright financial gift. Decide how much you can afford to give, without
putting yourself in financial jeopardy, and then either give the maximum amount
you can afford all at once (and let your loved one know that's the case) or
perhaps give smaller gifts on a periodic or regular basis until the situation
is resolved. Make sure it's clearly understood that the money is a gift, not a
loan to be repaid, so you don't create an awkward situation for the gift
recipient. If you're considering giving them a substantial sum of money, you'll
need to keep an eye on the annual gift
exclusion set each year
by the Internal
Revenue Service (IRS).
·
Make a personal loan.
Your family member may approach you and ask
for a short-term loan. Talk frankly, clearly write out the terms of the loan on paper, and
have both parties sign it. This helps both parties be clear on the financial
arrangement they're entering into. Some loan details you'll want to include are:
The amount of the loan
·
whether the loan will be one lump-sum
payment, or if it will be
divided and paid out in installments upon meeting certain conditions (i.e.
securing another job, paying down existing debt, etc.)
·
The interest rate you will charge for making the loan and
how it will be calculated (i.e. compound or simple
interest)
·
payment due dates (including the date of full repayment or final installment due)
·
a recourse if he or she doesn't make loan payments
on time or in full (i.e. increasing interest charges, ceasing any further loan
payments, taking legal action, etc.)
If you are going to lend more than $10,000 and/or you're going to charge
an interest rate that is substantially different than the going rate for most
borrowers, you may want to talk to a tax professional. There can be unique tax
implications for low interest loans among family members.
If you're worried about potentially straining your relationship by
having to administer the loan (i.e. collect payments or call when the payment
is late), consider using a service, such as Prosper.com or VirginMoney.com. These companies can draw up the contracts
and even collect automatic payments from your loved one's bank account.
3. Co-sign on a bank
loan.
Your loved one may be interested in obtaining a loan or line
of credit (LOC) to
help with short-term financial needs but what if his or her credit requires
getting a co-signer? Would you be willing to co-sign on a bank or credit union loan or LOC?
Before simply saying "yes" and essentially lending a family
member your good
credit, it's important to
realize that there are legal and financial implications to co-signing on a
loan. The most critical thing to understand is that you are legally binding
yourself to repay the loan if the other borrower fails to do so. The lender can
take legal action against you and require that you pay the full amount, even if
you had an agreement between you and your family member that you would not have
to make payments. This delinquent loan will also now affect your personal
credit. So if your sister/brother/uncle fails to make payments on the loan on
time and in full the lender can report the negative account
activity to the credit
bureaus to file on
your credit report which, in turn, can lower your credit score. Co-signing a
loan is serious business. The fact that your family members need a loan
co-signer means that the lender considers them too great of a risk for the bank
to take alone. If the bank isn't sure they'll repay the loan, what guarantees
do
You have that they will? It may also mean that you could have more
difficulty getting a loan for yourself down the road, since you are technically
taking on this loan and its payment as well.
Before co-signing for a loan, make sure you:
·
Meet with the lender in person (if possible) and be sure
that you understand all the terms of the loan.
·
Get copies of all documents related to the loan including
the repayment schedule.
·
Ask the lender to notify you in writing if your family
member misses a payment or makes a late payment. Finding out about potential
repayment problems sooner rather than later can help you take quick action and
protect your own credit score.
4. Create a budget and help
create a bill-paying system.
Often, people in a financial
crisis simply aren't
aware where their money is going. If you have experience using a budget to
manage your own money, you may be able to help your family in creating and
using a budget as well. To break the ice you may want to offer to show them
your budget and your bill-paying system and explain to them how it helps you
make financial decisions. As you work together to help them get a handle on
their financial situation, the process will point out places where they can cut
back on expenses or try to increase their income to better meet their financial
obligations.
5. Provide employment.
If you're not comfortable making a loan or giving a cash gift, consider hiring
your family member to assist with needed tasks at an agreed-upon rate. This
side job may go a long way towards helping them earn the money they need to pay
their bills, and help you finish up any jobs that you've been putting off.
Treat the arrangement like you would any other employee - spell out clearly the
work that needs to be done, the deadlines and the rate of pay. Be sure to
include a provision about how you'll deal with poor or incomplete work.
6. Give non-cash financial
assistance.
If you're uncomfortable or unwilling to give your family member cash, consider
giving non-cash financial assistance, such as gift
cards or gift
certificates. You'll have more control over what your money will be used for
and you can easily buy gift cards in varying amounts at most stores.
7. Prepay bills.
You may want to consider prepaying one or more regular bills your loved one
receives (i.e. rent/mortgage, utility bills, insurance
premiums, etc.) to help
them during their current financial crunch. Offering to do something, such as
paying their car payment may help them avoid a short-term crisis and give them
the little extra time they need to work out of their situation.
8. Help them find
professional assistance and local resources.
You simply may not wish or be able to provide your family member with financial
assistance or hands-on help. But you can still play a key role by helping them
find local professionals that can steer them in the right direction, such as:
·
Career counselor and employment agencies
·
Welfare agencies and similar services
·
Credit and debt counselors
·
Lenders who can provide short-term solutions
Resource
·
Bartley,M.
(1994).Unemployment and ill health: Understanding the relationship.
Journal of Epidemiology and Community
Health, 48, 333-337
·
Brenner, M. H.
(1973). Mental illness and the economy. Cambridge, MA: Harvard
University Press.
·
Buss, T., &
Redburn, F. S. (1983). Mass unemployment: Plant closings and
Community mental health. Beverly
Hills, CA: Sage.
·
Clark-Lempers,
D., Lempers, J. D., & Netusil, A. J. (1990). Family financial stress,
parental support, and young adolescents' academic achievement and depressive
symptoms. Journal of Early Adolescence, 10(1), 21-36.
·
Conger, R.,
Conger, K., Elder, G., Lorenz, F., Simons, R., & Whitbeck, L.
1993a). Family economic status and adjustment of
early adolescent girls.
Developmental Psychology, 29,
206-219.
·
Conger, R.D,
Conger, K.J., Elder, G.H., Jr., Lorenz, F.O., Simons, R.L., &
Whit
beck, L.B. (1992). A family process model of economic hardship
