Financial Distress Theories
The theory is of the opinion that for firms to avoid distress situation, there is a need for effective and efficient utilisation of fund. Improper cash management leads to an imbalance between the cash inflows and cash outflow and this often leads to financial distress in firm.
Finance theory refers to a body of knowledge that provides guidance for forecasting future interest rates by incorporating economic principles and restrictions. It aims to develop a dynamic model that is both parsimonious and consistent with observed behavior, but there is currently no consensus on how to achieve this.
Sometimes, financial stress is caused by factors outside of your control. Other times, it can be the result of poor financial choices, lack of financial knowledge, or somebody else having control of your finances.
Sixty-two percent say they're stressed more than three days a week and 20% say they feel financial anxiety every day. Millennials and Gen X are also regularly stressed about their finances: 58% and 61% respectively experience anxiety about their finances at least three days a week.
Rising Interest Rates
However, there is some minor concern that the lagged impact from elevated interest rates from 2024 could still bring about a recession. For example, the New York Federal Reserve's predictive model gives a 30% chance of a recession by December 2025.
For many, the biggest factor contributing to this crisis is money. For Gen Z, 30% report that financial issues are their primary source of stress, while 28% of Millennials feel the same.
Inflation/rising prices is a top financial stressor among all races/ethnicities.
The financial instability hypothesis, therefore, is a theory of the impact of debt on system behavior and also incorporates the manner in which debt is validated. In contrast to the orthodox Quantity Theory of money, the financial instability hypothesis takes banking seriously as a profit-seeking activity.
The "wealth effect" is the notion that when households become richer as a result of a rise in asset values, such as corporate stock prices or home values, they spend more and stimulate the broader economy.
Market Timing Theory
The Market Timing Theory suggests that companies make financing decisions based on current market conditions. They issue equity when stock prices are high and issue debt when interest rates are low.
Financial stress can be defined as difficulty meeting basic financial commitments due to a shortage of money. Financial stress increases the risk of homelessness and can negatively impact an individual's health and psychological well-being. Not surprisingly, low income is a significant cause of financial stress.
One of the key concepts of chaos theory is the butterfly effect, which states that a minuscule variation in starting conditions for a model can result in wide variations in the end conditions. In finance, the fractal market hypothesis uses the principles of chaos theory to predict the behavior of uncertain markets.
Financial theory
Minsky stated that in prosperous times, when corporate cash flow rises beyond what is needed to pay off debt, a speculative euphoria develops, and soon thereafter debts exceed what borrowers can pay off from their incoming revenues, which in turn produces a financial crisis.
Financial anxiety is an obsessive fear of things related to money that can often be debilitating. Financial anxiety can be triggered by any number of things, not just a lack of money.
Even if you agreed to do something, if the cost becomes too great, whether that's financial or emotional, you can back out or adjust how much you can help. If you are harming yourself, that is not helping. The goal is to provide help or support without draining your reserves.
There is a consensus among researchers that severe circumstances such as death of a spouse, sexual assault, or learning of a diagnosis of imminent death are examples of major stressful life events—events that we expect will result in psychological and physiological stress responses for the average person.
According to TIAA Institute researchers, financial struggles such as worrying about debt, financial instability or the inability to meet basic needs can trigger stress or reduce resilience against mental health challenges.
Nationwide, it takes an income of $787,712 to be in the top 1% of earners. The median U.S. income is approximately $75,000, with half of Americans earning less.
Although the stress of experiencing a continuing polycrisis affects people of all demographics, recent research from GlobeScan shows that Gen Z respondents across 31 countries and territories are more than twice as likely to say they frequently experience stress and anxiety than are Baby Boomers and older.
Gen Z Struggles With Mental Health
According to McKinsey, over half (55%) of Gen Zers report having either been diagnosed or receiving treatment for a mental health condition, compared to 31% of people aged 55 to 64, who have had decades longer to seek and get treatment.