6 Things That Increase Your Risk Of Having Financial Problems
Ever wondered if there were a kind of crystal ball that could identify whether you'll end up financially secure or running around paying debts with next month's paycheck for the rest of your life? There isn't, but economic studies have revealed that there are a few risk factors, some more obvious than others, that might raise your likelihood of having an issue at some point in your future. And by "issue" I don't mean just having debt; if that were the baseline, every American who'd ever taken out a student loan would have an issue. We're defining money problems as being unable to pay bills at least once, having to pay for necessities on credit, and/or being chased by creditors — the signs of really serious financial trouble, in other words.
Some risk factors for financial troubles are more obvious than others. Addictions of any kind spell trouble, but others are more complicated; mental illness and debt, for instance, form a nasty cycle where they can feed into one another, and innocent things like having kids or trying to live in the moment may indicate that you're more vulnerable to financial difficulty. (Yes, ephemeral stuff like your feelings do actually count.)
Here are six potential indicators of financial trouble in the future, according to economic studies. From heavy gambling to an attitude problem, they all might point towards issues unless they're managed properly.
1. You Smoke A Lot Of Weed
A study published in Clinical Psychological Science in March revealed one of the biggest indications yet between heavy cannabis use and money difficulties in life. It was a long-term study, following over 1,000 children in New Zealand from birth to the age of 38, and the researchers found that the members of the cohort who became heavy weed users (over four times a week, not just an occasional joint) ended up in lower-paid jobs, had worse credit ratings, and higher debt than those who didn't.
One of the researchers stated in a press release, "Our study found that regular cannabis users experienced downward social mobility and more financial problems such as troubles with debt and cash flow than those who did not report such persistent use." It's a relationship rather than a cause, but there's definitely a link between the two, according to this particular study.
2. You Have Mental Health Problems
According to Mind, a UK charity specializing in mental health, the relationship between mental health difficulties and debt is a vicious, circular, and negative one. It did a study of 1,804 people with mental health issues ranging from mild depression to schizophrenia, and their experiences of financial difficulty. The results were pretty alarming: 70 percent of the people in the study hadn't been able to pay a bill on the final notice, 51 percent had been contacted by bailiffs, and 56 percent had gone without food due to a money flow problem.
Mental health issues make people more vulnerable to money problems by disrupting regular work and payment schedules, making it difficult to find jobs, creating unexpected expenses, and generally rocking the boat of any financially secure life. (Some of these behaviors are very specific; people in the mania phase of bipolar I disorder, for instance, may go on spending sprees.) And financial stress and difficulty often only make mental conditions worse. The relationship is well-understood by mental health charities; organizations like Rethink Mental Illness actually provide help with writing off debt and understanding welfare and hospital expenses.
3. You Or You Family Drink Heavily & Struggle With Addiction
Substance abuse is the enemy of financial stability and keeping track of spending. And if there are serious drug or alcohol issues in your family, the likelihood of money difficulties leaps. A Forbes article on addiction issues reports that addictions are dangerously cumulative, as people get higher and higher doses and spend more and more money for their pleasure. One pack of cigarettes or one bottle of wine won't provide the same hit, so addicts will increase their "hit" and spend more money in the process; it's how habits become very hard on the wallet.
But even non-addicts will likely face issues if they overindulge on the regular; a 2009 study showed that there was a relationship between lots of drinking and higher credit card debt among American college students.
4. You Have An Easy-Breezy Attitude Towards Money
An interesting Dutch study came out in 2012; a bunch of researchers became alarmed at the fact that in 2011, nearly 50 percent of all Dutch households couldn't pay a bill on time or got into financial trouble, and they wanted to find out why. What were the risk factors that indicated a household might get into trouble?
One of the key factors found by the Dutch researchers was that a particular attitude to money seemed to be linked to financial problems. The attitude had three parts: a refusal to save money, a propensity to be easily "tempted" to buy or do things, and a "short-term" outlook that doesn't focus on the future. Basically, if people didn't put aside anything for a rainy day and were tempted to splurge all their money on the awesome shiny thing they saw in the window of a shop, they were much more likely to end up in debt or having trouble with bills than people who were more, well, boring about money.
That study and another by the Money Wise Platform in 2014 also found that people with more financial skills (i.e. people who know what all the financial terms mean and how to manage stuff like debt) and more "involvement" in their day-to-day finances were less likely to get into difficulty. So getting clued up and stopping an "eh, one day" attitude to your finances looks to be a good way to head off future trouble.
5. You're A Gambler
Perhaps unsurprisingly, 44 percent of all problem gamblers have severe, recurring money problems, according to a 2012 study by UK researchers. "The relationship between money and gambling is complex," the researchers wrote. "Money is not only the agent through which gambling is accessed, but also a key motivation for engagement, a potential outcome or reward and, for some, a marker that behavior has become excessive or uncontrolled." It's not that all gamblers get themselves into financial difficulties; it's more that a severe gambling problem leads to financial instability, the potential for theft and fraud, reliance on borrowed money, and the disappearance of cash flow into the game. We're not talking an idle game of blackjack once in a while, here.
Thirty-eight percent of all serious problem gamblers surveyed by the researchers had very bad debt, and their array of debts was huge, from banks to small private loans. A lot of the practical support for addicted gamblers actually involves structuring their money so that it's really hard for them to get hold of it and spend it.
6. You Have Kids
If you're thinking of having children, keep this one in mind: the risk of having debt problems rises by more than 50 percent once you have a child, and is particularly high if you have three or more, according to the Money Advice Service. Ninteen percent of all adults with one or more children have debt, but it rises to 26 percent in households with three or more kids.
The main issue , of course, is that kids are really, really expensive; raising a child born in 2013 to the age of 18 will cost the average American couple $245,000, though that alters a lot depending on where and how you live. Daycare is a massive expense, averaging at about $11,666 per year, according to the National Association Of Childcare Resources & Referral Agencies, while Money Aware reported that two-thirds of all queries that came to them in 2015 were from panicking parents in debt. Planning for babies shouldn't just be about cribs; you've also got to have some serious financial discussions about whether you can afford the little rugrats in the first place.
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