Change in the association between financial hardship and mental health before and during the cost-of-living crisis in Australia.

There is growing concern that the current cost-of-living (COL) crisis may have exacerbated the adverse experience of financial hardship and its effect on mental health, but no study has provided evidence on this using longitudinal data. We aimed to address this knowledge gap to inform policy responses. We analysed 13 annual waves (2012‒24) of nationally representative data from the longitudinal Household, Income and Labour Dynamics in Australia (HILDA) Survey to examine change in the prevalence of financial hardship and the association between hardship and mental health from the pre-crisis period (2012‒19) to the COVID-19 (2020‒21) and the COL crisis periods (2022‒24). Fixed effects models were used to examine the within-person changes in working-age individuals. Mental health was assessed using the Mental Health Inventory. The analysis sample comprised 148,419 observations from 18,759 individuals between 2012 and 2024. Our results showed that the prevalences of hardship increased during the COL crisis period and the deterioration in mental health associated with financial hardship was greater during this period, compared to the pre-crisis period (interaction effect: -0.84; 95% CI -1.22, -0.46). A much greater decline in mental health during the COL crisis period was observed for individuals experiencing mortgage hardship, but only for those with large mortgage repayments (-2.57; 95% CI -5.00, -0.41). These differences were not seen during the COVID-19 period. These findings underscore the need for immediate interventions to alleviate financial stress to prevent mental health problems.