What is financial distress?

1 Aug, 2024

When we’re hit with a term like ‘financial distress’, we naturally gravitate towards the extremes.

We can make the assumption that if we have a roof over our head and food on our plate, we couldn’t possibly be in distress. But if you find yourself constantly worrying about making ends meet or just getting by, you may already be experiencing this.

Let’s break it down.

Being in financial distress looks like:

  • being unable to meet your current and future financial commitments
  • having no resilience to financial shocks
  • feeling insecure, uncomfortable, and discontent with your financial situation.

And financial distress is more common than you think.

According to the Australian Treasury, “In 2020, around one in five households experienced each of the two financial stress indicators: cash flow problems and unable to raise funds”. And in the last 12 months, 3.7 million households experienced food insecurity (Foodbank, 2023).

How does financial distress happen?

Australia has a long history of viewing financial hardship as a moral failing, leading to feelings of shame for those experiencing it (ASIC and Beyond Blue, 2022).

But there are many ways in which we can find ourselves in financial distress. We may experience a slow decline, where costs begin to increase and our earnings don’t rise to match this. Or we can be hit with a sudden life change or unexpected event, such as unemployment, divorce or separation, medical expenses, unsuccessful investments, or other situations that impact our financial standing.

What are the impacts of financial distress?

The impacts of financial distress can be devastating, with some groups being at greater risk, including single parents, the elderly, and people with disabilities.

These impacts can look like:

  • Social – Someone needing to move away from family and friends as they can no longer afford housing in the area, and therefore becoming isolated.
  • Emotional – Someone feeling so overwhelmed by their financial situation that they become crippled by anxiety and a strain is put on their relationships, leading to breakdowns in marriage and family.
  • Physical – Someone who is unable to afford food on a regular basis, negatively affecting their health and wellbeing.

Financial distress is complex and can lead to very real and challenging feelings of loneliness and isolation.

If you believe you are in a position of financial distress, it’s important that you seek help. No one should face this alone. Access support through CAP Australia:

Get help

References

The Treasury (2023). Making Ends Meet.

Foodbank (2023). Hunger Report.

ASIC and Beyond Blue (2022). Money and mental health.