Mind Over Money: What Advisers Need to Know About Mental Health and Debt

New research from the Financial Planning Research Journal highlights a growing reality for advisers: mental health plays a critical role in how clients engage with debt and with advice itself.

Here are the key insights for practice:

Mental health doesn’t affect all debt equally

The research found a surprising pattern: people experiencing poor mental health are just as likely to use short-term debt [like credit cards or buy-now-pay-later (BNPL)] as others.

However, they are less likely to take on long-term debt, such as mortgages or personal loans.

Why? Long-term debt requires planning, confidence, and navigating complex financial systems. Mental health challenges can make these tasks harder often leading people to miss out on opportunities like home ownership or structured borrowing.

For advisers, this means clients experiencing distress may still rely on short-term credit, while avoiding or missing out on long-term, wealth building opportunities.

Financial exclusion not behaviour is the key issue

A major finding is that financial accessibility explains over 77% of the gap in long-term borrowing.

Clients with poorer mental health may face:

• Barriers in accessing credit.
• Lower confidence navigating financial systems.
• Fear of rejection or prior negative experiences.

This reinforces that advice challenges are often structural and not simply behavioural.

Short-term debt can mask deeper needs

Reliance on short-term credit may reflect limited access to longer-term options, rather than poor discipline alone.

For advisers, this is a prompt to:

• Look beyond debt symptoms.
• Explore underlying barriers (confidence, access, experience).
• Reframe discussions toward sustainable, long-term strategies.

Informal networks influence decision making

Individuals experiencing distress are more likely to rely on family and informal networks for financial guidance.

This highlights the importance of:

• Understanding external influences on client decisions.
• Positioning yourself as a trusted, judgement-free adviser.
• Building relationships that encourage openness and engagement.

Early financial education has a lasting impact

The study finds that strong parental financial guidance can neutralise the negative impact of poor mental health on long-term borrowing decisions.

For advisers, this means some clients may lack foundational financial skills, and therefore require:

• Clear, simple explanations.
• Structured guidance.
• A focus on building confidence alongside advice.

Mental health affects both capability and access

Mental health impacts:

• Ability to act (confidence, planning, decision-making)
• Opportunity to act (access to financial products).

Effective advice must address both and not just technical solutions.

What this means for your advice approach

Advisers can respond by:

• Simplifying complex decisions.
• Building client confidence incrementally.
• Focusing on access and inclusion.
• Creating safe, supportive client environments.

The bottom line

Clients who appear disengaged from long-term planning are not always unmotivated, rather they may be navigating structural and psychological barriers.

Recognising this distinction allows advisers to deliver more inclusive, effective, and ultimately more impactful advice.

Full research coming soon!

The full research paper titled “Mind Over Money: The Hidden Influence of Mental Health on Debt Management” will be available soon in the Financial Planning Research Journal, published by FAAA.

The FAAA is proud to support and share global best practice research, helping Australian financial planners stay at the forefront of client care and professional excellence.