Money Matters: The Psychological Toll of Being Left Out

Understanding Financial Exclusion

Financial exclusion occurs when individuals or groups are unable to access basic financial services such as savings accounts, loans, credit, or cashless transactions. This exclusion is often due to economic barriers or the inability to meet the requirements set by formal banking institutions.

As a result, those affected are left out of the financial sector, limiting their opportunities to grow businesses, pursue higher education, and improve their quality of life.

The Extent of Financial Exclusion in Africa

Financial exclusion is not simply a barrier to economic opportunity but also a significant contributor to deteriorating mental health, as millions of individuals struggle with the stress and insecurity of living without access to essential financial services. The issue of financial exclusion is present across the globe. However, the problem is more prevalent among African populations, with over 350 million adults in Africa living without access to traditional banking services compared to a low 5% in most developed countries. 

Currently, around 40% of the continent’s transactions are cash-based, exacerbating economic inequality. Efforts have been made to improve financial inclusion in Africa with the UN’s Sustainable Development Goals and mobile money services such as Kenya’s M-PESA.

However, despite this progress, 40% of African adults remain excluded from formal financial systems due to barriers such as lack of legal identity documentation, high costs, and limited access to banking infrastructure. While there has been notable progress in improving financial inclusion in Africa, substantial efforts are still needed, especially when considering the population growth and continual exclusion of large segments of society, particularly women. 

Taking into consideration the severity of financial exclusion in Africa, understanding and addressing its psychological impacts is essential, seeing as the stress and the insecurity of lacking financial resources not only hinder economic progress but also deeply affect individuals’ mental health and quality of life. 

Understanding the Mental Toll of Financial Exclusion

Lack of access to essential financial services like banking, credit, and insurance, has far-reaching psychological effects, often leaving individuals in a state of anxiety, stress, and hopelessness. The inability to access these services not only affects one's financial stability but also significantly impacts mental well-being. 

Financial exclusion results in financial stress which can worsen mental and physical health, leading to conditions like insomnia, high blood pressure, and depression. It can also cause poor decision-making in relation to one’s finances, creating a cycle of financial and emotional strain. Many turn to unhealthy coping mechanisms, such as overeating or substance use, further impacting both finances and well-being. 

The mental toll of financial exclusion includes stress and anxiety from struggling to manage financial resources with limited options. Furthermore, a lack of access to credit and affordable financial services inhibits wealth building opportunities and exacerbates economic disparities.

On a macro level, this exclusion affects not only individual well-being but also overall economic growth, as it limits investments in education, homeownership, and business ventures. This in turn increases the chances of facing chronic mental health issues, creating a cycle that is hard to break.

Stigma and Social Isolation

Stigma involves negative perceptions, attitudes, or behaviours directed at a group of individuals based on their life circumstances. Individuals who are financially excluded often face social stigma, which can exacerbate feelings of shame and low self-worth. This stigma is particularly pronounced among marginalized communities, where discrimination in lending and financial services further isolates them from economic opportunities.

Stigma and social isolation are closely intertwined with financial exclusion, and both play significant roles in shaping individuals’ mental health and social well-being. When individuals are unable to meet societal expectations regarding financial independence or stability, they may experience feelings of inadequacy and failure. This loss of self-worth can erode mental health over time, leading to anxiety, depression, and feelings of hopelessness.

The stress of not being able to meet financial obligations can create feelings of inferiority. As financial exclusion persists, individuals might internalize the idea that their worth is tied to their financial circumstances, which can further lower self-esteem.

Financial exclusion brings with it a significant amount of stigma. People who lack access to financial services may be stereotyped as lazy, irresponsible, or incapable, leading to judgement from others. The social stigma can cause profound emotional harm, leading to feelings of shame and embarrassment, which isolate individuals further from their community. 

The psychological effects of stigma include a diminished sense of belonging and increased social anxiety. For instance, people experiencing financial exclusion may avoid discussing their financial situation, fearing judgement. The stigma can perpetuate cycles of poverty by discouraging individuals from seeking financial services. As the issue of financial exclusion continues, individuals may feel disempowered, and societal judgments can reinforce their negative self-image.

Over time, the constant exposure to stigma surrounding the lack of access to financial services can lead to mental health issues such as chronic stress, anxiety, and depression. 

The Overall Impact on Mental Health

The psychological stress associated with financial exclusion can lead to severe mental health issues such as depression and anxiety. Depression can arise from different causes and is defined as a serious mood disorder that significantly impacts a person’s emotions, thoughts, and daily functioning. For those living paycheck to paycheck, constantly worrying about meeting basic needs can create a relentless cycle of stress that harms both mental and physical health.

Research has shown that limited access to financial services such as credit can prevent individuals from handling financial emergencies effectively, leading to a sense of helplessness. This helplessness can erode self-esteem and lead to a persistent state of anxiety, where individuals feel trapped in their circumstances with no way out.

Studies conducted in the United States show that financial strain negatively impacts mental health, with rising rates of psychological distress linked to economic insecurity, including anxiety and depression. The relationship between financial strain and mental health is complex, influenced by both objective financial hardship and subjective perceptions of financial stress. While poverty and debt have been consistently associated with poor mental health, research suggests that how individuals perceive their financial situation can have an even greater impact on their psychological distress.

It is also important to acknowledge the role of socio-economic factors, such as gender, education, and employment status, in shaping this relationship. Women, those with lower income, and less educated individuals tend to experience greater psychological distress from financial worries.

Addressing these issues could lead to improved public health and financial stability, particularly for vulnerable populations.

The Economic Burden of Depression

Globally, major depressive disorder (MDD) also manifests itself as a significant economic burden. Studies conducted in the United States show that major depressive disorder imposed an estimated annual cost of $326.2 billion in 2018, showing a 37.9% increase from 2010. This rise is partly due to the growing number of major depressive disorder cases.

While direct medical costs accounted for only 11.2% of the total economic impact of MDD, the majority of expenses came from workplace productivity losses, thus indicating that while financial exclusion can impact an individual’s well-being, the depressive symptoms that may occur as a result also burden the economy.

Breaking the Cycle

Addressing the psychological effects of financial exclusion requires systemic changes, including increased access to financial services for individuals pertaining to varying geographic locations. Technology offers promising solutions to the problem of financial exclusion, which as a result, could greatly improve the psychological effects of this dilemma. 

Digital banking offers a significant opportunity to enhance financial control and reduce exclusion. EZO strives to increase financial inclusion through an all-in-one financial application.

The primary objective is to grow this platform to allow all individuals access to financial services regardless of their geographic location or economic status. By making financial services more accessible, it is possible to reduce the negative psychological effects and stigma associated with financial exclusion as it will help individuals gain control over their financial lives.

The Importance of Financial Inclusion for Mental Health

The psychological toll of financial exclusion is profound, affecting mental health, social standing, and overall well-being. To alleviate these effects, it is crucial to work towards creating a more inclusive financial system that supports the mental and financial well-being of all individuals.

Financial inclusion extends beyond mere access to financial services. It aims to enhance overall financial well-being and economic opportunities. Over the past twenty years, an emphasis has been made on the importance of empowering individuals to manage their finances effectively because anxiety and stress are reduced when individuals have access to necessary financial resources.

Research studies have explored how financial inclusion impacts mental health, particularly in developing countries like Nigeria. Mental health conditions, particularly depressive symptoms, have become a significant public health issue, with around 792 million people affected globally. Studies show that those living in poverty are disproportionately affected due to stress, poor living conditions, and poor health. Financial inclusion has been recognized as a potential way to improve mental health by providing financial security through appropriate access to banking institutions and services such as insurance and credit.

In Nigeria, efforts to increase financial inclusion aim to boost economic growth and reduce poverty, consequently alleviating depressive symptoms. Financial inclusion is a crucial policy tool for addressing depressive symptoms, principally in underdeveloped countries. 

EZO

EZO can play a crucial role in reducing financial exclusion by using fintech and blockchain technologies to break down barriers that the traditional banking system often puts in place. By offering a secure and transparent platform, EZO has the potential to make a significant impact on the psychological well-being of individuals affected by financial exclusion.

Financial exclusion often leads to feelings of inadequacy and helplessness, impacting self-esteem and overall mental health. EZO’s commitment to ethical practices and user-centric solutions can help address the barriers that contribute to the stress and anxiety associated with being excluded from the traditional banking system.

We seek to help alleviate these issues by providing a reliable and inclusive platform for managing finances.

By reducing the stigma associated with financial difficulties and ensuring equitable access to financial tools, EZO helps individuals regain control over their economic futures, fostering a sense of empowerment and improving their mental well-being.