Why ‘simple’ money saving tips can do more harm than good

“You just need a budget.” “Just spend less than you earn.”

These kinds of simple one-liners are dime a dozen in the personal finance world.

If saving money is so simple, then why does it feel so hard to achieve?Credit:Simon Letch

On one hand, they come with good intentions to simplify the seemingly complex. But on the other hand, such advice can be frustrating for those who struggle to implement it. If it’s so simple, then why does it feel so hard to achieve?

One part of the answer might rest in new research commissioned by ASIC and Beyond Blue on the relationship between mental health and financial well-being.

The research found that people experiencing mental health challenges are twice as likely to also be experiencing financial challenges as those who are not.

This makes sense because some mental health challenges can make it hard to do the very things often required to succeed financially – execute tasks, learn new skills, engage with service providers, get organised, think long-term, exercise self-discipline, and so on.

Oversimplification, where we pretend that good money management is all about simple savings hacks and user-friendly budgeting apps, can do more harm than good.

Importantly, the research did not limit “mental health challenges” to diagnosed mental health conditions, but included issues that may not meet the criteria for diagnosis. In short, you don’t have to have a “mental illness” to have “mental health challenges”.

Mental health challenges can manifest in many ways. It could be the control-oriented person who panics at the thought of “wasting” even $10 on a purchase. It could be the anxious mum who won’t invest because she’d lose sleep over every market movement. It could be the perfectionist who can’t keep to her impossibly strict budget, and cycles between restriction and overindulgence. It could even be the emotional spender, who uses spending as a way of self-soothing during times of stress.

If this makes “mental health challenges” sound more widespread than you originally thought, that’s because they are. The recent ABS National Study of Mental Health and Wellbeing found that more than two in five Australians experience a mental health issue in their lifetime.

With this affecting such a big portion of the population, is it any wonder why so many people struggle to execute simplistic financial tips like “cut back on coffees and avocado toast”?

This sort of oversimplification, where we pretend that good money management is all about simple savings hacks and user-friendly budgeting apps, can do more harm than good.

It can lead to feelings of frustration, guilt, despair and hopelessness as people question why they can’t seem to follow through on seemingly simple advice. They start to blame themselves and wonder if there’s something wrong with them and if there’s any point in trying.

ASIC’s research found that many people feel the topic is stigmatised, as the focus on personal responsibility can mean that “debts and perceived poor handling of finances are seen as personal failings”. The report stated that “this narrative can lead to shame, anticipated and perceived stigmatised responses from service providers, fear, denial and behaviours that make financial and mental health challenges worse”.

Perhaps the real failing is in the way we talk about personal finance.

While finance and psychology might seem like separate disciplines, can we really have a meaningful conversation about money without addressing the core drivers of human behaviour?

Having helped many adults in improving their financial lives, I’ve found that improving a person’s psychological and emotional relationship with money is integral to creating long-lasting change.

So, it’s time to start taking a more holistic approach to the topic of money. Finance and mental health aren’t mutually exclusive aspects of a person’s life. They’re interrelated and affect one another.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. Investors should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

Paridhi Jain is the founder of SkilledSmart, which helps adults learn to manage, save and invest their money through financial education courses and classes.

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