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June 2022 / VIDEO

Financial Stress Is a Predictor of Financial Wellness

Discover how financial wellness can enable retirement savings.

Key Insights

  • Debt, particularly unsecured debt, correlates with financial stress.
  • Retirement plan participants who report being stressed about debt are saving less for retirement than those who are not stressed.
  • Promotion and adoption of financial wellness programs can help reduce financial stress and may lead to greater savings and better participant retirement outcomes.

The path to a successful retirement is paved by financial wellness. In the context of saving for retirement, to be financially well requires successful management of day‑to‑day finances, setting and making progress toward financial goals, and believing that these actions will result in a successful retirement. In our 7th annual Retirement Savings and Spending Study,1 T. Rowe Price found that financial stress, specifically around debt, is a primary barrier to people’s belief that they will be able to successfully retire.

In our study, we find that many workers saving for retirement struggle with financial wellness in a variety of ways, and our research suggests that some are deeply affected by struggle with it.

For example:

  • One-third of respondents report that they struggle to stick to their monthly budgets.
  • More than one-third of respondents with student loan debt struggle to repay it. Similarly, 20% of respondents struggle to repay other forms of debt such as credit card or home equity.
  • One-quarter of respondents believe they will have to reduce their standard of living in retirement.

While many people do struggle, many are successful, and we felt it was important to develop a framework by which to measure both progress and success. To measure the behaviors necessary to achieve success in retirement, T. Rowe Price developed the Retirement Behavior Index™. The index measures financial wellness in the context of saving for retirement on a scale of 0–100, with 0 being the lowest and 100 being the highest.2 It measures how well those saving for retirement balance their day‑to‑day finances and the financial goals they set for themselves and how they see their future selves in retirement. Specifically, the index examines:

  1. Management of day‑to‑day household financial behaviors (e.g., savings patterns and responsible credit use)
  2. Setting and making progress toward personal financial goals (e.g., saving for retirement or paying down student loan debt)
  3. Beliefs about what will be true about a person’s future retirement (e.g., maintaining their standard of living or being able to withstand a financial shock)

In 2021, we used the same methodology in our paper, “Financial Wellness Through the Lens of Race and Ethnicity.” This year, we applied the index methodology to better understand the impact financial stress can have on people’s behavior and how they see their future retirements. Most importantly, we hope that by drawing attention to how the effects of financial stress can be quantified, we can help plan sponsors, financial professionals, consultants, and recordkeepers better assist savers to achieve success in saving for retirement.

Many Workers Saving for Retirement Struggle With Financial Wellness

(Fig. 1) Distribution of Retirement Behavior IndexTM scores

Bar chart showing distribution of Retirement Behavior IndexTM

As of August 2021.
Source: 7th annual Retirement Savings and Spending Study.

Financial Stress Often Starts With Debt

It probably comes as no surprise that financial wellness and financial stress are two sides of the same coin. What our research found is that financial stress is a predictor of poor financial wellness. However, there are multiple causes of financial stress, and they affect people differently. In our research, we focused on stress emanating from debt, budgeting, savings (both retirement and nonretirement), managing investments, and health care costs. For those who struggle with financial wellness, stress most frequently stems from the inability to manage debt, budgeting, or lack of retirement and nonretirement savings. In contrast, those with higher levels of financial wellness report being more concerned with health care costs or managing their investments, suggesting that financial stress may emanate from managing wealth rather than managing debt or seeking to save.

Debt, Budgeting, and Savings Are the Three Most Common Drivers of Financial Stress

(Fig. 2) Moderate to high levels of financial stress by source

Line graph showing the weight various factors drive financial stress

As of August 2021.
Source: 7th annual Retirement Savings and Spending Study.

Our research found that financial stress is experienced disproportionately along racial and ethnic lines. Black and Hispanic workers are 34% and 40% more likely than white workers to experience higher levels of debt-related stress, as reported by 56% of Black workers, 59% of Hispanic workers and 42% of white workers surveyed.

Our research also found that a moderate to high level of stress often correlates with age. For example, younger workers (<30 years old) are more likely to experience moderate to high levels of stress relating to budgeting compared with older workers (>50 years old), 73% and 40%, respectively. A similar effect is seen for debt. However, younger workers are less likely to be stressed about retirement savings than those who are entering or are in the middle of their working years (30–49 years old), 50% and 65%, respectively. This demonstrates that relevance is a significant factor and that audiences have unique and often discrete needs— something to note for plan sponsors, financial professionals, consultants, and recordkeepers who may be considering strategies to address financial wellness.

Last, it is important to state that people often feel the negative effects of moderate to high levels of financial stress unevenly. In addition to age, gender, race, and ethnicity, household debt and income are— unsurprisingly—also factors as to who is affected by financial stress and why.

Financial Stress From Debt, Budgeting, and Nonretirement Savings Strongly Correlates With Household Income

(Fig. 3) Moderate to high levels of financial stress by source and household income

Bar charts showing percentage of participants across various income brackets who report high levels of stress across various categories

As of August 2021.
Source: 7th annual Retirement Savings and Spending Study.

Interestingly, there does not seem to be a strong correlation between marital status and financial stress, as married or partnered couples have similar levels of stress as the respondents who were single. That said, we do see significant differences between women and men. Women are 26% more likely than men to experience higher levels of debt-related stress, as reported by 51% of women and 41% of men surveyed. Women also experience higher levels of financial stress relating to budgeting, nonretirement savings, and health care expenses.

Importance of Financial Resiliency

The prevalence of financial stress relating to debt, budgeting, and nonretirement savings leads us to conclude that many workers lack the resiliency (e.g., ability to pay) to overcome many common financial obstacles such as an auto repair bill or a trip to the doctor. Our research suggests that survey respondents are quite aware of their vulnerability and would like to take steps to address it. In fact, 88% of those we surveyed shared that saving for an emergency (such as losing their job or having an unexpected expense) was a major or minor financial goal. But almost one-quarter reported making not very much or practically no progress toward meeting their goal. Moreover, when asked how they might pay for an unexpected expense, only one‑third of the workers we surveyed claimed they had an emergency fund specifically allocated to meet that need. More common is the intention to use debt such as a credit card (43%) to pay for an unexpected expense. The finding is consistent with research from the Federal Reserve that suggests that 48% of Americans either cannot pay or would have difficulty paying for an unexpected $400 expense.3

The role debt plays in financial stress is unique because not all debt is created equal. For example, those who report financial stress relating to debt are more likely to cite student loans, medical debt, or payday loans as sources of stress compared with credit cards, auto loans, or home equity loans. What we can infer is that the characteristics of some forms of debt are indicative of hardship rather than day‑to‑day household finance. Our research also suggests that there are factors such as age and income that may be correlated with how people perceive debt. For example, we know that younger workers tend to earn lower wages than older workers. Younger workers are also more likely to have student loan debt. Thus, it is not surprising that those who hold student loan debt report moderate to high levels of financial stress. Financial fragility comes fully into view when this group is asked about what resources they have available to them if they were to face a financial emergency. Almost half said they would rely on both credit cards and friends and family; far fewer cited said they would turn to an emergency fund.

Debt Is Both a Source of Financial Stress and a Barrier to Financial Resiliency

(Fig. 4) Age, income, debt, and financial resiliency

Bar charts showing sources of stress and sources of liquidity by varying factors

As of August 2021.
Source: 7th annual Retirement Savings and Spending Study.

This is not the only example of the challenges that people face with financial resiliency. Other types of potentially burdensome debt, in addition to student loan debt, include payday loans and medical debt. Managing this debt is critical to achieving financial wellness. Regression analysis reveals that debt‑related stress is a strong predictor of Retirement Behavior Index™ scores, as is stress related to budgeting. People can save for retirement and achieve financial wellness, but they must examine day‑to‑day spending, set and make progress toward financial goals, and envision the outcome they can achieve in retirement by prioritizing the future over today.


This material is provided for general and educational purposes only and is not intended to provide legal, tax, or investment advice. This material does not provide recommendations concerning investments, investment strategies, or account types; it is not individualized to the needs of any specific investor and not intended to suggest any particular investment action is appropriate for you, nor is it intended to serve as the primary basis for investment decision‑making.

The views contained herein are those of the authors as of June 2022 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

Study results provided throughout the material are as of the most recent date available and are subject to change.

This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types, advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

The principal value of target date funds is not guaranteed at any time, including at or after the target date, which is the approximate year an investor plans to retire. These funds typically invest in a broad range of underlying mutual funds that include stocks, bonds, and short‑term investments and are subject to the risks of different areas of the market. In addition, the objectives of target date funds typically change over time to become more conservative.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.

T. Rowe Price Investment Services, Inc., distributor, T. Rowe Price Associates, Inc., investment adviser and T. Rowe Price Investment Management, Inc., investment adviser.

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