Struggling with debt you are unable to handle leads to poor mental health
Norwegians are one of the world's most indebted people, and now interest rates are rising. Researchers warn that problems with debt leads to poor mental health.
Divorce can have a negative impact on mental health. Losing your job or feeling ‘poor’ can add to frustrations.
However, studies show that the worst thing for your mental health is struggling with debt you are unable to handle.
Interest rates are rising
Interest rates in Norway may double in the future. Norges Bank estimates that the mortgage rate will be over 3 per cent in 2024. It may rise even more.
In several studies, researchers have found that unmanageable mortgages can lead to mental health problems.
Equally serious is the accumulation of debt on consumer loans and credit card debt.
Arne Holte is professor emeritus of Health Psychology at the University of Oslo.
He is worried about this development.
“We now have a number of studies that show the connection between debt problems and mental health problems,” Holte tells sciencenorway.no.
Simply put, if unsecured debt increases, so do mental health problems. Unsecured debt refers to consumer loans and credit card debt.
Holte argues that we must take action now to prevent people from developing mental health problems in Norway in the coming years, when more people may struggle to pay their debts.
4 trillion in debt
Christian Poppe is a consumer researcher at OsloMet University. He closely monitors Norwegians' debt development.
“Norwegians’ debt has been increasing steadily since the 1980s,” Poppe says.
In the last five years alone, Norwegians' total debt has risen from around NOK 3 trillion to around NOK 4 trillion - from 340 billion to 460 billion US dollars .
“This makes us one of the world's most indebted people. In the Nordics, we are only beaten by the Danes,” Poppe tells sciencenorway.no.
For most Norwegians, this large debt is not currently a problem. Until now, low interest rates and price increases on homes and cottages have been manageable.
“But if there’s a sharp drop in housing prices, this whole system can collapse,” Poppe warns.
He points in particular to the many young adults who have massive loans on their homes. Those that have borrowed the maximum amount of five times their gross income.
People view debt as problematic
Eightfold risk of suicide
A meta analysis of four studies, all from Hong Kong, shows that having unsecured debt can increase the risk of suicide by eight times.
Source: Richardson et al., 2013
That debt can weigh on people is nothing new.
Holte emphasises that good economic control is associated with good quality of life, which is also thoroughly documented in past research.
The professor emeritus of psychology is up to date on most of the research on the topic, a new book is on the way, and frequent articles written for the online magazine Psykologisk.no (link in Norwegian).
As former assistant director of the National Institute of Public Health and the deputy head of the Norwegian Psychological Association, Holte knows that debt can cause both mild mental health problems and more serious mental disorders.
Researchers have found the connection in several different countries. This has been established through various measurement methods.
Consumer loans and credit card debt in particular contribute to worsening mental health. The same goes for defaulted mortgages.
Unsecured debt of more than NOK 150 billion
On Friday 8 April 2022, Norwegians had NOK 151,915,535,622 in unsecured debt, according to the Debt Register (link in Norwegian).
These are credit card debt and high-interest consumer loans with no collateral.
Which comes first - mental health problems or money problems?
Mental health problems are disturbances in thoughts, feelings, and behaviours that become so great that they hinder you in your daily life.
Anxiety and depression are the two most common conditions.
Problems with debt can lead to developing mental health problems. However, if you already have a mental illness, this can itself lead to financial problems.
“It is typical that those who struggle with these disorders do not have the strength to deal with the bills that fall into their mailboxes,” Holte says. “In such cases, the debt can accumulate even more. This makes it more difficult to recover from a mental illness, and it can also aggravate the disease.”
Debt can also have consequences for children
Children often notice if their parents have financial problems that increase the risk of mental health problems.
“One UK study shows that children who grow up in families with a lot of debt, develop poorer mental health than other children. This is true even after controlling for a number of background factors, such as unemployment, illness, and low income,” Holte says. “The debt comes on top of the impact of these things.”
The study was published in the journal Demography in 2019.
Family debt is proving to be particularly sensitive for young children. The problems also tend to follow children through life and can increase over time.
Increased housing prices in Norway
Holte doesn't wish to predict whether or not the sharp increase in housing prices in Norway will lead to more people developing mental health problems. There is currently not enough research from Norway to say with any certainty.
“But research from other countries, such as Finland, may indicate that we will see such an association,” he adds.
Nevertheless, things can develop differently in Norway. Holte is positive that Norges Bank has very clearly prepared people for the coming interest rate increase and how it will come gradually.
“This can make people better prepared,” he says.
Consumer debt is financed with credit cards
Why do some Norwegians borrow so much money in the form of consumer loans or on their credit card?
Not everyone in Norway owns a home that serves as collateral for the bank. Not everyone has a credit rating which allows the bank to give a regular loan. In such cases, the only option for someone may be to take out a consumer loan.
This is problematic as the interest rates for consumer loans are usually much higher than if you were to pay a mortgage in which your property serves as collateral.
If you are unable to pay this consumer loan, a credit card is often the next option.
The interest rates accumulated from a consumer loan with a 15 per cent interest rate is then paid off with credit card debt of well over 20 per cent interest.
Some people fall into and are trapped in this vicious cycle – until it becomes too much.
London model shows promising results
Holte wants to spread awareness of the mental health dangers associated with having an unsecured loan or a mortgage that has become unmanageable.
“There has to be a closer relationship between the Norwegian Labour and Welfare Administration (NAV) and mental health care in Norway,” he argues.
A model for this has already been tried out in North London, with promising results.
According to Holte, the results of this showed that professionals cooperate better when they are able to meet each other and work together. They become much more aware of the connections between debt problems and mental health problems.
Few are asked about financial problems
British researchers found that only 6 per cent of those who received help from mental health care were asked about their financial situation.
“We can assume that this is not much better in Norway,” Holte says.
This is in spite of the fact that we know that disorders such as anxiety and depression are much more common in families with poor finances.
Holte believes it is also worth looking at the UK's offer of rapid mental health care aimed at those affected by anxiety or depression. This means you can get help without being on a waiting list.
Such offers could also be possible in Norway.
The British found that if patients with both mental and financial difficulties also received financial counseling, the therapy would have a far greater effect.
“However, something like this has not yet been considered in Norway,” Holte says. “It’s a shame and very unfortunate. But it’s not too late to do something about it.”
Who has a lot of unmanageable debt?
These are largely people with low incomes and little wealth, people who quite often live on unemployment benefits or disability benefits.
This group in society often does not own their own home and thus can not provide collateral for ordinary loans.
Therefore, they instead resort to consumer loans or credit card loans, if, for example, there is no money to pay the rent.
Source: Arne Holte
Lots of shame
Holte reminds us that for most people, having unmanageable debt is associated with a lot of shame.
People keep it secret. Many end up isolating themselves from others.
“If no one specifically asks you about your debt, you usually do not spontaneously tell someone,” Holte says. “This is especially true in a country like Norway where the social differences have increased greatly.”
Norms for what is acceptable also seem to come into play:
People who have a lot of unmanageable debt and who live in areas where it has long been common to have a lot of debt and there are many bankruptcies seem to have fewer mental health problems because of this, the research shows.
Very profitable to invest in debt counseling
Holte is convinced that it can be very profitable for the Norwegian state to invest in providing people with better debt counseling.
Mental health problems are Norway's most expensive health risk.
“They cost more than all cancers combined and more than all cardiovascular diseases combined. We are talking about between 280 and 290 billion kroner every single year,” Holte says. “No other group of diseases negatively affects our health while we are alive to such an extent. No disease causes greater loss of healthy years for people of working age.”
With every person who receives disability benefits in Norway due to mental health problems, Norway loses an average of 21 working years.
“Every single cohort that is left out of working life for most of its life, mostly due to failing mental health, costs the country NOK 30 billion,” Holte says.
Translated by Alette Gjellesvik.
Sources and references:
Arne Holte. “Unmanageable debt increases the risk of suicide - an unsystematic overview” (link in Norwegian), Psykologisk.no article, 2020.
Arne Holte. “Mental illness increases the risk of unmanageable debt, which in turn prevents recovery from the illness - an unsystematic overview” (link in Norwegian), Psykologisk.no article, 2020.
Arne Holte. “Effective measures against mental health problems as a result of household debt - an unsystematic overview” (link in Norwegian), Psykologisk.no article, 2020.
T. Richardson et al. “The relationship between personal unsecured debt and mental and physical health: a systematic review and meta-analysis”, Clinical Psychology Review 33, 2013.
J. Gathergood. “Debt and depression: causal links and social norm effects” The Economic Journal 122, 2012. Abstract.
A. Reeves et al. “Economic shocks, resilience, and male suicides in the Great Recession: cross-national analysis of 20 EU countries”, European Journal of Public Health, 25(3), 2015. Abstract.