By Kristin Naragon-Gainey

Financial stress is affecting us in many different ways. Some people are struggling to pay bills, feed the family, or maintain a place to live. Others are meeting their basic needs but are dipping into their savings for extras.

Financial stress is increasing and, understandably, is causing some distress. But understanding and finding ways to reduce our financial stress – and its emotional impact on us – can help make this challenging time a bit easier.

What is financial stress?

If you’re finding it difficult to meet your current expenses or are worried about your current or future finances, you’re under financial stress. Like other types of stress, financial stress has two components:

– objective: financial difficulty, where you don’t have enough funds to cover necessary expenses or debts

– subjective: perceptions about your current or future finances, leading to worry and distress.

These two are related. But someone can have trouble meeting their expenses, view this as acceptable, and not be overly worried. Alternatively, someone may be reasonably financially secure but still feel quite stressed about their finances.

Why are we feeling it?

There is a broad range of factors that can influence your current level of financial stress. These include contextual and personal ones.

Contextual factors are societal-level influences on the current financial landscape. These include rates of economic growth, market performance, governmental and political policy, and distribution of wealth.

Personal factors contributing to stress are unique to each person. For example, demographic characteristics such as age, gender, education and ethnic group may influence someone’s access to financial resources.

Other personal factors that can affect financial stress are financial literacy and practices, personality traits that influence behaviour and perceptions, and major life events with financial implications (such as marriage, having a child, or retiring).

The health impacts can be severe

High levels of financial stress can impact people’s wellbeing, raising levels of psychological distress, anxiety and depression.

A review found clear evidence for a link between financial stress and depression, and that the risk for depression was greatest for people on low incomes.

A large survey of adults in the United States also found that greater financial worries were associated with more psychological distress. This was especially the case for people who were unmarried, unemployed, had lower income levels and who were renters.

So people who are more vulnerable financially – in an objective sense – are also most likely to experience negative psychological effects from financial stress.

However, the perception of your financial situation matters here too. In one study of older adults it was not just someone’s financial situation that was linked to their wellbeing, but also how satisfied people were with their wealth.

Severe financial stressors, such as being forced to sell your home if unable to meet mortgage payments, can affect both psychological and physical health.

What can you do about it?

While we can’t change the broader financial landscape or some aspects of our financial situation, there are some simple ways to help reduce financial stress and its impacts.

1. Take small steps

Try to identify elements of your finances you can improve and act on some of them, even if they are small steps.

This may include creating and following a budget, cutting some extra costs, applying for available financial assistance, getting quotes for more affordable utilities or insurance, or contemplating a career change.

Even little changes can improve your financial state over time. Taking action in a difficult situation can improve wellbeing by giving you a greater sense of agency.

2. Check your take on the situation

Examine your perspective. Are you often seeing the negative aspects of your situation but ignoring the positive ones? Are you worrying a lot about very unlikely catastrophes far off in the future? It’s worth checking whether your perceptions about your financial situation are accurate and balanced.

3. Don’t be too hard on yourself

Your financial state does not reflect your value as a person, and over-identifying with your financial status can lead to further stress. Financial difficulties are the result of many factors, only some of which are under your control.

Reminding yourself that your finances do not define you as a person can reduce feelings of sadness, shame or guilt.

4. Take care of yourself

It’s draining dealing with ongoing financial stress. So focus on self-care and coping strategies that have helped you with past stressors.

This may mean taking some time out to relax, deep breathing or meditation, talking with others and doing some things for fun. Giving yourself permission to take this time can improve your mood, perspective and wellbeing.

5. Ask for help

If you are struggling financially or psychologically, seek help. This may take the form of financial advice or assistance to reduce financial difficulties. If you notice yourself feeling persistently down, anxious, or hopeless, reach out to friends or family and get help from a mental health professional.

Get-rich-quick schemes, pyramids and ponzis: five signs you’re being scammed

Consumers are under a lot of financial strain. The World Economic Forum reports that the cost-of-living crisis is affecting people across the globe. With food and fuel prices rising, it’s becoming increasingly difficult to keep financially afloat. On top of that, salaries aren’t keeping up with inflation, making it more difficult to save and build wealth.

It’s during such times of economic difficulty and uncertainty that fraudsters lure unsuspecting consumers into “get-rich-quick” schemes, offering an avenue to make easy money by investing in a “lucrative” financial opportunity.

Nothing beats the prospect of making easy money, and every now and again there seems to be a “get-rich-quick” scheme circulating on WhatsApp or on social media that seems legitimate. But it’s not.

Our research interests centre on financial systems in emerging economies, and we advocate for financial inclusion and empowering marginalised communities through financial literacy and financial planning. We use our academic platform to share our expertise on finance, including common financial traps people should steer clear of.

“Get-rich-quick” schemes are one such trap. They’re also sometimes called ponzi or pyramid schemes. The schemes are a form of financial fraud. The people running them take money through deception: the misrepresentation of information and identity. They promise financial benefits that don’t exist.

You should avoid them because, more often than not, they are bogus and fraudulent business ventures.

There have been some massive fraud schemes over the past 30 years. In the early 1990s, MMM Global - one of the world’s largest and most notorious ponzi schemes - defrauded up to 40 million people, who lost an estimated $10 billion. Ponzi schemes have since resurfaced in different forms in South Africa, Nigeria, Zimbabwe, Kenya, Ghana and several other African countries.

There are five tell-tale signs of a “get-rich-quick” scheme. Watch out for them.

The five tell-tale signs

Firstly, they offer exaggerated and above-market returns within a short period of time, with the promise of little to no risk.

There are two golden rules when it comes to investing. The first is that it takes time to make money. Amassing a small fortune within a short space of time should raise questions about the scheme.

The second rule is: the higher the risk, the higher the return. In other words, no investment is risk free or can guarantee significant returns. There is always some risk involved. An investment that promises substantial returns tends to be quite risky, which repels most people with a low appetite for risk.

Secondly, new members are constantly recruited to join the scheme.

Typically, such schemes are sustained by relying on the investments of new members to pay existing members. Once the number of existing members exceeds new members, the scheme goes “belly-up”. At best you lose out on the returns you were promised. At worst you lose all the money you’ve invested.

When the scheme collapses, it is almost impossible to recover the money you’ve lost because you’ve technically given it to a stranger (remember, the definition of financial fraud encompasses the misrepresentation of identity).

Thirdly, there is urgency to join the scheme and no clarity on how the scheme works.

This is a classic characteristic of a “get-rich-quick” scheme. There is usually no clear answer about the nature of the scheme, what it invests in, how it generates its returns or the credentials of the organisation.

Legitimate investments are transparent and can provide investors with all the information they need to help them decide whether to invest. Unsurprisingly, a proper check of “get-rich-quick” schemes will unmask their fraudulent nature. This is why there’s always the urgency and coercion to make an immediate financial commitment under the guise of missing a once-in-a-lifetime opportunity to get rich.

Fourthly, the scheme is not registered with or regulated by any recognised authority.

Regulatory authorities are important because they monitor the conduct of financial service providers and protect consumers by keeping their best interests in mind. The protection provided by financial regulators also instils confidence in financial systems.

“Get-rich-quick” schemes are not registered and operate outside the framework of regulatory bodies. This makes investors more vulnerable to loss and makes it more difficult to seek legal recourse when the loss occurs.

Legitimate investments in South Africa are offered by authorised financial service providers and regulated by the Financial Sector Conduct Authority. You can search for any authorised financial service provider on the authority’s website.

Fifthly, they use the testimonies from existing members who’ve earned big bucks to promote the scheme.

At the initial stages, the scheme tends to pay out to those who have invested early, and these members are encouraged to share the news of their wealth (which travels fast and far) to promote the scheme.

But this is a tactic used to create the impression that you too can earn returns in the double digits. These schemes are both unsustainable and unethical as one person gets wealthy through someone else being deceived.

Too good to be true

It’s worth repeating that if it sounds too good to be true, then it probably is.

Wealth comes from a sound investment strategy and decisions made over time. Any promise to “get rich quick” should be treated with the cynicism it deserves. It will ultimately reveal its fraudulent nature. Recognising the signs of “get-rich-quick” schemes can save you from unnecessary financial distress.

It’s always a good idea to do your own investigation before committing your finances into any investment. You can find more information on the various types of scams through the South African Banking Risk Information Centre’s website and report them to the South African Fraud Prevention Service.

Bomikazi Zeka, Assistant Professor in Finance and Financial Planning, University of Canberra and Abdul Latif Alhassan, Associate Professor in Development Finance & Insurance, University of Cape Town

This article is republished from The Conversation under a Creative Commons license. Read the original article.

* Naragon-Gainey is Associate Professor of Psychology, University of Western Australia

** The views expressed do not necessarily reflect the views of IOL or its sister titles.

PERSONAL FINANCE