STIRLING, Scotland — Not only can raising interest rates lead to worsened credit ratings and a deeper dive underwater for people struggling with debt, it also has a measurable affect on their mental health, a new study by British researchers found.
Central banks in many countries, including the U.S. and the United Kingdom, control interest rates on many types of major loans. Rates are raised or lowered based on a number of economic factors and forecasts. The measure is typically taken to control how much people and businesses spend or invest in order to control inflation.
While interest rate hikes are a necessary evil to help regulate the economy, researchers at the universities of Stirling and Nottingham found they can spark mental health breakdowns for many people in dire financial straits.
“Central banks have the task of maintaining economic stability, but it is important for central bankers to recognize that by manipulating economy-wide interest rates, there are likely to be serious consequences for some people’s mental health,” argues Dr. Christopher Boyce, behavioral scientist at Stirling Management School, in a statement.
The study is believed to be the first to attempt to link federal interest rate hikes and mental health conditions. To reach their findings, researchers surveyed 15,818 adults in the United Kingdom between 1991 and 2009. Questions focused on mental health of participants, as well as their debt and savings.
The authors found that when interest rates increased, people with large debts experienced a higher likelihood of mental health difficulty. The hikes didn’t seem to have an effect, however, on people who save much of their money. In particular, they calculated that for every 1% rate increase, there was a 2.6% increase in the incidence of mental health issues experienced by those heavily in debt.
“Our research has potentially important policy implications,” concludes Dr. Boyce. “Whilst it is important to avoid high unemployment and instability – which in themselves can be detrimental to mental health – central bankers need to understand that the tools they use to maintain economic stability can also have direct consequences to mental health.”
The full study was published in the July 2018 edition of the Journal of Affective Disorders.