Coping With Financial Stress and Its Mental Health Effects

Unemployment is more than an economic setback; it’s a destabilizing experience that reaches into nearly every corner of daily life. The American Psychological Association’s Stress in America 2025 Report (PDF, 1.1 MB) found that 75% of Americans cite the economy as one of their major stressors, a sign of how many people are carrying the weight of financial uncertainty, whether they’re employed or not.

Continue reading to learn more about financial stress and its short and long-term effects on physical and mental health. Also, discover strategies for managing financial stress and resources available to those experiencing unemployment.

Financial stress is defined as a psychological state in which pressing financial concerns surpass available resources, threatening one’s wellbeing. Financial stress has two components: insufficient financial resources and lack of control over one’s financial situation.

Understanding the causes of financial stress is an important first step. The most common sources include:

For many people, work provides a sense of financial security, self-esteem, and professional validation. When a job disappears suddenly, so can all of those things at once. Research consistently shows that unemployment and underemployment are strongly associated with depression, anxiety, and diminished self-worth.

Financial stress from unemployment goes beyond worrying about bills. It encompasses anxiety about long-term financial goals, unexpected emergencies, deferring healthcare, and the weight of not knowing what’s coming next. Some of the first signs of financial stress include:

Financial stress has real psychological consequences; persistent anxiety about money activates the body’s stress response, elevating cortisol levels and keeping the nervous system in a prolonged state of alert. In the short term, this can manifest as:

Financial stress also contributes to depression by eroding identity, financial security, and social relationships simultaneously, three pillars of wellbeing that employment typically supports.

When financial stress is sustained over months or years, what began as anxiety can evolve into serious physical and mental health conditions. Long-term effects include:

Financial stress also affects access to healthcare, as people often defer doctor visits or prescription medications when they are experiencing financial hardships. Even with insurance, high deductibles can cause people to deprioritize their health in favor of paying for housing, utilities, and food — creating a cycle that’s hard to break without support.

Economic downturns and layoffs are outside of our control, but we can control how we respond to them. Learning how to handle financial stress starts with protecting your wellbeing. However, if you’re still employed but sense instability at your company, pay attention to language like “restructuring,” “operational efficiency,” or “right-sizing” (these terms can sometimes signal layoffs ahead). Check your employer’s public WARN Act filings, which companies are legally required to submit before large layoffs. Getting ahead of potential job loss, when possible, gives you more options.

It’s easy to blame yourself after losing a job and feel ashamed about being unemployed. Shame is one of the most common (and damaging) emotional responses to unemployment. Allow yourself time to grieve, but keep in mind the economic and cultural forces that contribute to economic downturns.

Variables like investor pressure, industry shifts, and executive decisions are not in your control, and giving yourself time to process your emotions helps to release self-blame and guilt. Try to speak to yourself the way you would speak to a close friend in the same situation: with honesty, patience, and compassion.

Carve out non-monetary moments of recreation to help make a psychological buffer against burnout. It may feel like every hour should be spent on your job search, but that approach is unsustainable and counterproductive. Devoting time to the things and people you enjoy refreshes your mind and helps protect your emotional reserves when you need them most.

Joy during financial stress doesn’t require money. Make a playlist. Check out free programs at your local library or community center. Take a walk with someone you care about. Cook a meal that you love. Financial hardship doesn’t remove your right to moments of laughter and connection, and those moments serve as a vital buffer to protect your mental health.

The relationship between physical and mental health is especially pronounced under stress. Regular exercise (like a 20-minute walk) reduces cortisol and improves mood through releasing endorphins. Prioritizing sleep, eating regularly, and limiting excessive alcohol are all ways to fight against the effects of financial stress.

Preserving social relationships without spending money can help counteract the effects of financial anxiety. It’s common to isolate yourself, especially in times of financial crises. When your social life is built around spending, it can feel easier to opt out than to explain your situation. However, withdrawing from the people in your life makes the effects of unemployment stress worse.

While cutting down on discretionary spending is often advised after layoffs, maintaining your social connections is also important. You don’t need to spend money to maintain connections. Have a friend over for a meal. Accept an invitation, even when you’d rather stay home. Allow people to help you when they offer. Connections, big and small, will matter.

Establishing a flexible daily schedule restores a sense of personal agency when job loss disrupts your normal routine; days can blur together in ways that worsen anxiety and depression. Building your own routine creates a sense of agency and forward motion, but you don’t need a rigid schedule.

If you’re a morning person, consider dedicating mornings to focused job searching, then protecting afternoons for a walk, a hobby, or time with people you care about.

While the news is important, it can often be a constant source of anxiety. Social media is a great tool for keeping up with loved ones, but the curated images of other people’s lives can distort your sense of where you stand.

Consider setting designated times to check the news and social media (like once in the morning and once in the evening) to stay informed without feeling overwhelmed.

Whether you’re looking to support yourself or share this page with others, the resources below are free and accessible regardless of your financial situation or insurance status. For broader wellness strategies, visit Northwestern University’s guide to building and maintaining wellness in your life.

The Anxiety and Depression Association of America (ADAA) offers anonymous, free online peer support groups for those managing anxiety, depression, and more. The National Alliance on Mental Illness (NAMI) also offers free, peer-led support groups in-person and online, including groups for family members supporting a loved one in crisis.

The National Foundation for Credit Counseling (NFCC) offers free or low-cost financial counseling. Building a basic financial plan (even in a tight situation) can significantly reduce anxiety. Call 1-800-388-2227 or visit the NFCC website.

Federally Qualified Health Centers (FQHCs) are government-funded community health centers that provide mental health services on a sliding fee scale: you pay based on what you earn, and no one is turned away if they can’t pay. Many also offer primary care, dental, and prescription assistance. The SAMHSA National Helpline (1-800-662-4357) is also available 24/7 to connect you with local treatment options at no cost.

Dial 211 or visit the federal government’s benefits finder to locate food assistance (SNAP), emergency housing help, utility assistance, and other programs you may now qualify for. Taking practical financial pressure off can have a direct impact on mental health.

If you’ve lost your job, file for unemployment benefits through your state’s labor department as soon as possible. Benefits vary by state, but provide some income stability while you search. Visit CareerOneStop to find your state’s filing link.

Job loss is a qualifying life event that allows you to enroll in an ACA Marketplace plan outside of open enrollment. If your income drops significantly, you may now qualify for Medicaid, which covers mental health services.

Unemployment support communities on platforms like Meetup can offer something that friends and family sometimes can’t: perspective from people who are in the same position right now. These groups vary by city and focus, but many are free and meet regularly, either in person or virtually.

Staying informed about the job market can reduce the anxiety of feeling out of the loop. Newsletters like The Job Hopper, Career Essentials, Words of Mouth, and JobsSearch.Guide provide real, actionable tips and stories on how to navigate the current employment climate, employment trends, and more.

Financial stress that is significantly affecting your daily functioning, relationships, sleep, or sense of self is a signal worth paying attention to. You don’t need to be in crisis to benefit from professional support. The earlier you reach out, the more options you have. Northwestern’s MA in Counseling online program trains the next generation of counselors to support people through these kinds of challenges. The curriculum emphasizes evidence-based approaches, including behavioral therapy techniques that have been shown to help people develop resilience, reframe unhelpful thought patterns, and build sustainable coping strategies.

Created by the MA in Counseling online program from Northwestern University.