Navigating the Cost of Living Crisis and Financial Stress
The current financial landscape
Whether it’s the weekly food shop, rent or mortgage payments, monthly budgeting, setting a savings target or paying off debt, being able to manage our finances (or struggling in doing so) can have serious impacts on our health and wellbeing. And this rings even truer during a cost of living crisis…
The UK’s so-called ‘Cost of Living Crisis’ is said to have begun in late 2021, the point at which the prices of many essential goods started to increase faster than household incomes. The result: a fall in real incomes. So how do we measure the rising costs of living?
Inflation and Interest Rates
The headline measure of inflation is Consumer Price Index (CPI), which currently sits at 6.8% in the year to July 2023. Albeit lower than the 10%+ reached a few months ago, this is still well above the Bank of England’s target of 2%. Soaring energy and food bills have helped to drive this rate increase, with price rises for olive oil and eggs of 41.5% and 26.7% respectively, for example. The ongoing war in Ukraine has also pressurised global prices of oil, gas and most recently grain.
To cope with rising inflation, the Bank have put up interest rates to 5.25% (as recently as January 2022 they were at only 0.25%), a 14th consecutive increase. As a consequence, many UK homeowners have seen sharp increases in their monthly mortgage payments. According to BBC’s mortgage-inflation rates calculator, the average UK mortgage has seen a +£400 monthly change between January 2022 (0.25%) and July 2023 (5.25%) as a result of the increased interest rates. And, despite increases in wages, real pay is still falling behind inflation rates (-0.6%).
Increased financial stress
It’s no surprise to hear then that many more UK adults are struggling to make ends meet since the onset of the cost of living crisis and are suffering the mental health consequences of such turmoil. The Financial Conduct Authority report a 3% increase (4.2 million/8% to 5.6 million/11%) in missed payments on domestic bills and credit commitments between May 2022 and January 2023. They also found that 54% of UK adults (28.4 million) report feeling more anxious or stressed due to the rising costs of living. We found similar patterns in our own data: of 10,000+ users of the 87% platform, 1 in 3 report feeling regularly stressed about their finances, with rates higher for younger workers: 39% of 18-25 year olds often struggle to make ends meet compared to 21% of people aged 55+. This is no surprise when we look, for example, at the history of UK house price affordability over the past 40 years. While their grandparents would only need 3 times the average salary to buy a house in 1983, aspiring homeowners in 2023 now need almost 9 times the average salary to do so.
Financial stress is real then, and it’s even more rife in the younger generations. Following social trend abbreviations such as ‘Genny Lex’ (General Election), ‘Platty Joobs’ (Platinum Jubilee) and ‘Nervy B’ (nervous breakdown), the term ‘Cozzie Livs’ has recently been coined, largely to avoid the mouthful of saying ‘cost of living crisis’ but arguably also in part due to an increasing trend to humourise (often negatively perceived) current affairs. In a culture that is increasingly breaking the stigma around mental health, financial stress and wellbeing is one area where we’re yet to break the shackles of the surrounding taboo. And so comes this latest humorous abbreviation, an attempt to laugh off our financial worries due to a lack of awareness and support. It’s time then that we do more to break down the stigma around financial stress and increase awareness around tips and strategies to navigate the cost of living crisis and to reduce our financial stress.
How individuals can better manage financial stress
1) Practical steps
Do a budget check-up.
Regain feelings of control by taking charge of your incomings and outgoings. List everything down in a spreadsheet or notebook to gain full visibility, particularly in an era of contactless cards (and even watches!) in which it’s so easy to lose sight of expenditure. Try to uncover where your spending weaknesses lie and/or find innovative ways to increase short-term income: could you shop at a cheaper supermarket? Could you swap takeaways for home-cooked meals? Are there any memberships you could do without or swap for a cheaper/free alternative? Do you have old clothes, DVDs, furniture that you could sell on Vinted, eBay or Facebook Marketplace?
Educate and include your children.
You can use times of financial stress as a real opportunity to educate your children on finances and choices so that they have important life skills ahead of adulthood. Make a game of finding fun things to do that are free - this might even result in more quality 1:1 time with them.
Understand debt management and the debt cycle.
Even if debt is really growing, there are still steps you can take to reduce your payment demands:
Get in touch with your landlord, credit card company, mortgage provider, utility company, local council - they may be able to help you put in place delayed or reduced reduced payment plans
Debt management organisations or charities, such as StepChange or Citizen’s Advice will help you to understand your rights and what steps you can take
Look into how interest works, pay attention to interest rates and pay off the highest interest-charging debt first
2) Wellbeing and self-care tips
As we discussed in a recent article, stress at the physiological level is emotional arousal, the perception of threat by our limbic system. And financial stress is no different - during periods of heightened financial stress, we have the same chemical hormones, cortisol and adrenaline, running through our bloodstream as we would if we were stressed about our marriage or a job interview.
Techniques to reduce our general stress levels are still appropriate then too, it’s just we’re at the advantage of already identifying our stressor - in this case: financial worries. As well as the practical steps above then, these stress management and self-care techniques are a great place to start in reducing the stress caused by your financial worries:
Consider your thinking patterns.
Step back and think: are my thoughts are a little disordered or negative? Do they reflect the facts of your (financial) situation or are they emotionally influenced? Making an effort to become aware of unhelpful thoughts and challenging their validity can help to break the stress cycle - a key aim of cognitive behavioural therapy (CBT). Balancing thoughts into a more realistic perspective is not easy but has a positive impact on reducing stress.
Practicing some form of mindfulness is another way to unhook from thoughts whilst introducing a focus on the present moment. It’s not about getting rid of thoughts but acknowledging and allowing them so that they take a back seat. This doesn’t necessarily have to involve a subscription to Headspace or similar apps; we will all have moments when the environment takes our attention away from our troubles: walks in nature, sipping a cup of tea in our gardens, reading a book on the sofa. The intention is to come out of our thinking for a short while and simply focus on our daily actions or hobbies. The 87% app is a great place to find short meditation exercises.
Seek support from friends and family.
Don’t suffer alone. You don’t have to go into detail but sharing part of your problem with your support system will help you to gain fresh perspective or ideas that might help in relieving some of the worry and feelings of isolation that financial stress can bring.
Make time to spend with others.
Even if you don’t feel comfortable sharing part of your problem, even just connecting and engaging with other humans (or pets!) stimulates our ventral vagus nerve (our resting social engagement system), generating feelings of contentment, safety, cooperation, security and healthy relaxation. This is the complete opposite to the stress response, and research shows that caring creates resilience. Plan time for this to make sure it happens.
Breathe.
Always at the top of any stress management protocol is to understand and manage your breathing. One of the key pieces of information that our primitive emotional brain (limbic system) will use to understand that we are not under threat is when our prefrontal cortex (our rational mind) takes control and overrules the stress response when we choose to slow the breath down.
Check out our 5 Helpful Breathing Techniques or try the Square Box Breathing exercise below.
Problem-solving techniques.
When stressed we may experience brain fog and our concentration, memory and reasoning skills feel limited. Problem-solving is a useful way to return to some form of ordered thinking by giving our mind a framework to work with. Clarify what the specific problem is and brainstorm possible solutions. After listing the pros and cons of each option, choose one to put into action.
Relaxation.
To feel relaxed our heart and breathing rates need to switch down into a mode of calm and soothing slowness, when our mind will also be more settled. Try a warm (but not hot) bath with relaxing bath oil to stimulate the soothing sense of smell, or read something you’re interested in to encourage yourself to sit calmly and quietly. And don’t forget music can be a great mood changer, so keep your favourite music playing.
Eat and sleep well.
Maintaining a healthy, balanced diet and getting 8 hours of good quality sleep every night is not always easy to do when you’re stressed, but these are the two non-negotiable fuels for your body if you want it to function well. These both provide a strong foundation that helps protect you from poor mental health.
It’s time for employers to take action:
We have already touched on the mental health repercussions of not addressing financial worries: stress, anxiety, increased risk of depression, loneliness, reduced quality of life and sleep problems. But financial difficulties don’t just impact the individual; the employer suffers too. It is estimated that financial stress costs the UK economy up to £51 billion and 17.5 million hours of lost work each year.
Now more than ever, during a cost of living crisis, understanding financial wellbeing within organisations is a crucial step in fostering healthier and happier workplaces. It is reported that 68% of organisations feel their employees' financial wellbeing has worsened since the pandemic, yet fewer than half of UK businesses have a defined financial wellbeing policy in place. Despite the clear impact of financial stress on mental health and productivity levels, most organisations are yet to invest properly in training and engagement around financial wellbeing.
As businesses we have a duty of care to our employees. We must do more to safeguard their financial wellbeing. While we may not always be able to afford to offer huge salary increases, we can still improve their financial health. Leaders must open up the conversation around financial wellbeing and explore initiatives with staff as part of a wellbeing strategy: financial planning tools, insurance and opportunities for professional progression. With the stigma around financial wellbeing, employees often feel too uncomfortable or ashamed to communicate their financial worries with managers, leaving their issues unknown and unsupported. Business leaders should therefore embrace the power of anonymous wellbeing measurement, allowing them to understand previously unknown aspects of their employees’ wellbeing (particularly financial stress).
Using the 87% Employee Wellbeing Platform organisations can uncover such data-driven insight and can therefore tailor their strategies to improve financial security, target groups that are in greatest need of interventions and get the greatest returns on their investment in employee wellbeing. Book a personal demo with us today to understand how we can help.
External financial support services:
Citizen Advice provide this comprehensive guide that can help with living costs of all kinds and they signpost to other helpful organisations
Step Change and National Debt Line offer free and impartial debt and money advice
Breathing Space offer a government debt respite scheme
