Financial stress impacts cognitive performance and mental health

Research indicates that financial insecurity significantly impacts cognitive function and mental health. Studies from Harvard and Princeton universities highlight a phenomenon known as ‘mental bandwidth,’ where persistent financial worries can cause a temporary drop in cognitive performance by as much as 13 IQ points, similar to the effects of sleep deprivation.

Physiologically, constant money stress can trigger the amygdala to continuously release cortisol, placing the nervous system in a permanent survival mode. This biological stress response impairs logical thinking, impulse control, and long-term planning. In Germany, a study by Consors Finanz suggests that approximately one in four women experiences such financial stress.

Psychological perspectives suggest that financial security is often a fleeting feeling rather than a permanent state based on absolute bank balances. While a pilot project involving a basic income provided 1,200 euros monthly to 122 participants for three years, results showed increased satisfaction and mental health without a reduction in work output.