New research shows that regularly saving money and paying off debt isn’t just good for your wallet—it’s a powerful way to boost mental health and resilience, no matter your income.
Finance experts at the University of South Australia have found that maintaining consistent savings and paying off credit card debt on time can play a significant role in enhancing mental health.
New research from UniSA highlights a strong connection between healthy financial practices and better mental wellbeing, which may also contribute to greater productivity and improved employment outcomes. This positive link was observed across all levels of income and social status.
The study analyzed data from the Household, Income and Labour Dynamics in Australia (HILDA) survey. This long-term database includes information on the economic status, mental and physical health, job patterns, family life, and personal experiences of more than 17,000 Australians aged 15 and older, collected between 2001 and 2021.
Researchers discovered that individuals who followed consistent financial routines, specifically saving money regularly and paying off credit cards promptly, reported not only better mental health, but also higher levels of energy, stronger social connections, and overall life satisfaction.
Exploring Positive Financial Habits
Professor of Applied Economics and member of UniSA’s Center for Markets, Values and Inclusion Rajabrata Banerjee says while the link between financial behaviors and mental health is already known, research into patterns of consistent behavior and the impact on mental health was lacking.
“We already know that having high debt and low savings has a negative impact on mental health, but we wanted to learn more about the positive financial behaviors – such as how regularly someone saves or pay off their debt – that may reduce financial strain and cause less worry about money and better mental health,” he says.
“Considering Australians are already facing cost-of-living pressures, and the ongoing mental health crisis since the COVID-19 pandemic, we wanted to investigate what part positive financial behaviors can play in significantly altering mental health.
“We found that people who are saving and regularly putting money aside have the best mental health. Those who don’t save at all had the worst mental health. In terms of paying off credit card debt, the same principle applies.”
Cost-of-Living Pressures and Mental Strain
To examine the effect of cost-of-living pressures, the study also investigated whether financial burden was a factor that influenced regular savings and debt behaviors. Financial burden was measured by the cost of utilities like electricity, gas and water, adjusted based on how close someone is to retirement.
“The study found that sharp increases in utility prices placed a greater financial burden on younger people, who typically have low savings and high debt. This burden further strains their finances and negatively impacts their savings and debit behaviors and mental health,” Prof Banerjee says.
“The study also found that the positive impact of savings behavior on mental health was stronger for men than women, indicating that, in Australia, financial management is still dominated by men, therefore resulting in a greater impact for that group.”
However, the study found that stable financial behaviors led to good mental health irrespective of whether an individual is from a higher or lower socioeconomic background, signifying that even saving a small amount when expenses are high, can lead to better mental health.
Prof Banerjee says financial hardship can be a profoundly disheartening experience that can have a detrimental effect on someone’s mental health as well as their long-term economic interests.
“When individuals are financially strained, they often can’t save as much or invest, so they miss out on growth and meeting those goals they might have set for the future. People can also become reliant on borrowing to meet their basic needs, and this can lead to high interest payments and continuous debt cycles,” he says.
“That’s why healthy financial behavior is important to build stability and long-term security, allowing goal achievement, independence and access to opportunities, as well as reduced stress and good mental health.”
Reference: “Understanding the Effect of Financial Behaviour on Mental Health: Evidence From Australia” by Dessie Tarko Ambaw, Rajabrata Banerjee, Kurt Lushington and Braam Lowies, 21 May 2025, Stress and Health.
DOI: 10.1002/smi.70050
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