Mental Health and Money: Why Young Adults Are Becoming the Most Financially Fragile Generation

Abstract

Young adults face a convergence of challenges that place them at heightened financial and psychological risk. Recent research shows that financial literacy is lowest among emerging adults, that financial strain is strongly associated with symptoms of anxiety, worry, and loneliness, and that even modest improvements in financial circumstances can produce meaningful psychological benefits. At the same time, digital financial technologies expose young adults to frictionless spending, gamified speculation, and rapid financial loss. Drawing on new empirical work from Sweden, national data from the United States, clinical research on serious mental illness, and observations from teaching personal finance to college students, this article argues that financial literacy must be understood as a mental-health intervention. Personal finance serves as the gateway to financial confidence, stability, and resilience, yet remains under-taught at every level of education. The article concludes with a call to action for families, schools, and universities to prioritize personal finance education as a foundational component of young-adult well-being.

Introduction

Young adults today are experiencing unprecedented levels of financial confusion, emotional distress, and economic pressure. They live in a world where financial mistakes are easier to make, harder to reverse, and more psychologically costly than ever before. As I shift my professional focus toward teaching personal finance to young adults, the connection between money and mental health has become unmistakable. Students regularly express anxiety about checking account balances, panic about debt, confusion about credit, and avoidance of budgeting. Many describe feeling overwhelmed before they even begin. Their challenges are not merely academic. They are emotional. They are behavioral. They are deeply intertwined with the realities of emerging adulthood and the complexity of modern financial systems. This article synthesizes evidence from three strands of research: a Swedish study documenting direct links between financial strain, low financial knowledge, and mental health; U.S. data showing that financial literacy is lowest among adults aged 18 to 35; and clinical evidence demonstrating that even modest financial improvements can reduce depression and anxiety. Together with observations from the college classroom, these findings reveal an urgent and underrecognized crisis: for young adults, financial literacy is not simply a matter of economic well-being. It is a matter of mental health.

Financial Literacy and Mental Health Among Young Adults: Evidence from Sweden

A study of more than 2,000 Swedish young adults provides compelling evidence of the intertwined nature of financial strain and psychological distress. Nearly half of respondents reported financial difficulties during the previous year, one-quarter held high-cost consumption loans, one-third owed money to family or friends, and one in ten had already sought professional debt counseling (Samuelsson, Levinsson, and Ahlström, 2023). Financial literacy scores were notably low, particularly on questions related to inflation, and women scored significantly lower than men. Most importantly, financial strain was strongly associated with symptoms of worry, anxiety, agitation, and loneliness. Those with the lowest financial literacy faced the highest emotional burden. The findings paint a clear picture: financial vulnerability and psychological vulnerability reinforce one another, forming a cycle that is difficult to break without targeted intervention.

Financial Literacy Patterns in the United States: Young Adults at Highest Risk

The United States shows a nearly identical pattern. Lusardi and Streeter (2023) report that financial literacy is lowest among adults aged 18 to 35. Only about half correctly answered questions about inflation and interest, and only one-third understood risk diversification. Alarmingly, only 14 percent of Americans under age 35 answered all three foundational financial literacy questions correctly, compared with nearly half of adults over age 65. Lower financial literacy among young adults is correlated with greater debt burdens, weaker savings behavior, reduced retirement preparation, and significantly higher financial fragility. These trends align with the Swedish findings and reinforce a consistent conclusion: young adults are the least financially prepared yet expected to navigate the most complex financial landscape in modern history.

Financial Stress as a Driver of Psychological Distress

The link between financial strain and mental health is further supported by clinical evidence. Ljungqvist et al. (2016) found that adults with serious mental illness who received modest monthly financial supplements for nine months experienced notable reductions in depression and anxiety as well as improvements in social relationships and self-esteem. These gains occurred without additional therapy or medication changes. The study demonstrates that financial stability itself exerts a measurable positive effect on psychological well-being. Although this research focuses on individuals with severe psychiatric conditions, the mechanism applies broadly: financial pressure intensifies emotional distress, and financial relief can ease it. For young adults already experiencing instability and uncertainty, this relationship is particularly consequential.

A New Digital Financial Risk Environment: Frictionless Losses and Gamified Harm

Young adults now inhabit a financial environment defined by unprecedented accessibility and unprecedented risk. They can lose money without leaving their bedroom. Gamified trading platforms, sports betting apps, Buy Now Pay Later services, cryptocurrency exchanges, and frictionless online shopping make financial loss instantaneous and psychologically charged. The design of these platforms encourages impulsive decision-making through reward cues, social features, instant approvals, and bright visual feedback. The behavioral experience of speculating in cryptocurrency increasingly mirrors the emotional experience of placing a bet on a sporting event.

My doctoral research identified this broader pattern: financial technology has placed increasingly complex financial products directly at consumers’ doorsteps. The expansion of mobile payment systems, app-based financial tools, and digitized transactions has increased access while also increasing the complexity and speed of financial decisions. Yet many users displayed costly financial behaviors, including spending beyond their means, overdrawing accounts, and engaging with tools they did not fully understand (Fisher, 2021). The democratization of financial access has thus been paired with an escalation in behavioral risk. For young adults, who are already more susceptible to impulsivity, the digital environment magnifies the potential for financial error and emotional fallout.

Discussion: Personal Finance as the Gateway to Financial Literacy and Mental Health

The evidence demonstrates that financial literacy is not merely an economic issue. It is a mental-health intervention. Low financial literacy contributes to poor decisions; poor decisions lead to financial strain; financial strain drives anxiety, depression, worry, and emotional exhaustion. Personal finance is the practical gateway through which young adults learn to navigate the complexity of modern financial life. It is where financial literacy begins: understanding spending, saving, borrowing, and investing in ways that build confidence rather than fear. Learning personal finance is not only informational. It is psychological. It builds agency, competence, and emotional regulation in the face of uncertainty.

Developmental research reinforces this need. Arnett (2007) defines emerging adulthood as the period from roughly ages 18 to 25, sometimes extending toward the late twenties. He describes this stage as marked by identity exploration, instability, inconsistent routines, and difficulty sustaining long-term habits. These characteristics make it challenging for young adults to develop durable financial behaviors even when they possess some level of financial knowledge. When this developmental vulnerability intersects with high-speed, high-stimulation financial technologies, young adults become especially susceptible to impulsivity, risk-taking, and emotional strain. Arnett’s framework clarifies why young adults require not only financial information but also structured routines, habit formation, and supportive environments that make healthy financial behaviors more attainable.

My classroom experience confirms this developmental reality. Many students arrive overwhelmed or do not arrive at all, not because of disinterest but because their lives are marked by instability. Some sleep through alarms after late work shifts. Others face long commutes, unreliable transportation, car accidents, injuries, personal health challenges, or urgent family crises. These disruptions are not occasional. They are common. The chaos of emerging adulthood makes it difficult for students to form consistent habits, including the very behaviors that support financial stability. When daily life is already stretched thin, financial tasks like budgeting or planning can feel impossible, and avoidance becomes a natural response. Their struggles are not failures of character. They are reflections of a developmental period defined by transition, competing priorities, and emotional pressure.

Summary and Conclusion

Young adults are becoming the most financially and psychologically fragile generation. They have the lowest financial literacy, face the highest levels of financial strain, and experience the strongest correlations between money problems and emotional distress. At the same time, they confront a financial environment engineered for impulsivity and instant gratification. The cost of inaction will be measured not only in financial instability but also in rising anxiety, diminished opportunity, and lost potential.

Yet the opposite is equally true. If families, schools, communities, and universities treat personal finance as an essential life skill, young adults can build financial confidence rather than fear, clarity rather than confusion, and agency rather than avoidance. Personal finance education strengthens minds, stabilizes households, and builds more resilient communities. When young adults gain the knowledge, habits, and confidence to manage money well, their mental health improves, their opportunities expand, and their future becomes something they can shape rather than something that happens to them. If we figure this out together, we do not only improve financial outcomes. We improve lives.

References

Arnett, J. J. (2007). Emerging adulthood: What is it, and what is it good for?. Child development perspectives, 1(2), 68-73.

Fisher, P. R. (2021). Financial literacy and behavior in credit unions: An exploration of member financial literacy and financial behavior in the credit union model (Doctoral dissertation, George Fox University). George Fox University Digital Commons.

Ljungqvist, I., Topor, A., Forssell, H., Svensson, I., & Davidson, L. (2016). Money and mental illness: A study of the relationship between poverty and serious psychological problems. Community Mental Health Journal, 52(7), 842-850.

Lusardi, A., & Streeter, J. L. (2023). Financial literacy and financial well-being: Evidence from the US. Journal of Financial Literacy and Wellbeing, 1(2), 169-198.

Samuelsson, E., Levinsson, H., & Ahlström, R. (2023). Financial literacy, personal financial situation, and mental health among young adults in Sweden. Journal of Financial Literacy and Wellbeing, 1(3), 541-564.