World Mental Health Day 2023: Achieving Financial Wellness in the Age of Debt

📢 “Beware of debt, for it starts with worry and it ends with war” - Umar ibn Al Khattab RA (al-Muwatta’ 2/770)

We need to talk about finance.

The FinTech revolution has opened the way for technology to solve age-old finance problems. From 24-hour challenger banks to hi-tech digital verification products, the archaic boundaries of financial services are evolving to keep pace with the needs of the 21st-century consumer.

And yet, age-old problems still prevail. Even more so as when we dive into one of the ghosts of the old world of finance: interest-based debt.

We live in a time where our entire lives, and indeed aspirations, are connected to debt, whether it be through the homes we live in, the cars we drive with, and increasingly, the everyday items that we buy. This has been exacerbated by the rise of ‘Buy Now Pay Later’ and other subscription models, which have risen to prominence in recent years.

The promise of interest-free payment plans has led to a generation of consumers adopting unsustainable spending habits reliant on financial products that are largely unregulated.

Money Worries and Mental Health

This has huge implications on mental wellbeing, which cannot be ignored. Recent research from the Money and Mental Health Policy Institute suggests that people with mental health problems are three times more likely to be behind on at least one key payment, such as credit cards, rent or energy bills.

This has consequences with data from the UK’s Citizen’s Advice Bureau estimating that shoppers were charged £39 million in late fees in 2021 alone, compounding their struggles.

Of those who were referred to a debt collector for missed payments, 96% experienced negative consequences including sleepless nights; borrowing money to repay their debt and suffering from the rapid deterioration of their mental health.

Of those who were referred to a debt collector for missed payments, 96% experienced negative consequences including sleepless nights; borrowing money to repay their debt and suffering from the rapid deterioration of their mental health.

The ramifications of this financial pipeline has a detrimental impact on attempts to build a financially inclusive society. Financial wellbeing and quality of life is often tied to security and understanding of finances. Primary education in the different financial products available to consumers is crucial in ensuring that consumer mental health is prioritised beyond the profit margins that may be lucrative for financial services firms and the new wave of FinTech innovators.

The Spiritual Impact of Debt

Linguistically, the meaning of the word for debt in Arabic (dayn) relates to submission and humiliation. The debtor is considered as a prisoner, as per the words of the Prophet ﷺ:

📢 “Your companion is being detained by his debt.” (Abu Dawood, 3341)

Moreover, taking out interest-based loans is expressly prohibited, as Allah SWT declares war against those that consume interest:

📢 “O believers! Fear Allah, and give up outstanding interest if you are ˹true˺ believers. If you do not, then beware of a war with Allah and His Messenger! But if you repent, you may retain your principal—neither inflicting nor suffering harm.”

Naturally, Quranic verses and ahadith like the ones quoted above, serve to express the spiritual weight that being in debt can afflict upon Muslims which should be factored in when addressing financial wellness.

It’s important to note that Islam does not entirely prohibit debt. In some cases, people may come across situations that requires borrowing. This is fine provided the borrower borrows within their means and with the intention of repaying the debt in the agreed timeframe.

The Cycle of Debt

Many consumers are increasingly trapped in a debt cycle that impacts their daily lives and further entrenches them under the ramifications of bad credit decisions.

A recent International Survey of Adult Financial Literacy suggests financial literacy across OECD countries such as the UK, the USA, and Australia is lower than typically expected.

This has huge implications for the working populations, with an increasing number of employers waking up to the reality of a lack of proper financial security being interlinked with stress in the workplace.

Young people are also disproportionately affected by this crisis, with recent financial products anchoring the burdens of stress and huge financial responsibility on a generation ill-equipped to handle any disruption to their monthly pay packets.

As we mark World Mental Health Day this year, we need to call out the need for financial literacy and the role that financial institutions must play to help customers make informed decisions about their finances. This includes an uncomfortable conversation around credit and the creation of room within the FinTech space to unlearn some of the more exploitative tactics of the old world of finance.

Financial Literacy is Essential

Education and mediation should be a key focus (for financial institutions and policymakers alike) to ensure the next generation are not trapped in an unhealthy relationship with finance, and are prioritising their mental well-being when making those not-so-average purchases. A lack of understanding of the mainstream financial system leads to a debt cycle that will leave millions across the globe behind and further entrench inequalities and mental deterioration for many.

There are some signs that the dialogue is shifting - there are programmes and tools such as RedStart and MoneyHelper which have opened the door for the next generation to critically look at financial literacy. There are also platforms that address financial literacy for Muslims, such as our very own, Muslim Money Experts, where we strive to champion financial literacy amongst Muslims.

Nevertheless, more steps need to be taken to change the system for the better. Total debt outstrips total assets globally, which tells us that we cannot actually fully break from the cycle of debt, and the most in need of mercy and kindness in society are those worse impacted.

Aspiration should not mean victims of debt cycles should be crudely left out of the formal financial system. Instead, the financial industry as a whole should have an embedded approach to literacy in order to build positive social and mental impact to the society it serves. This not only guarantees that new innovations make brilliant technical solutions for consumers - but long-term mental wellness too.