If you’re a mortgage lender, you’re likely familiar with the economic challenges today’s borrowers face—rising interest rates, high housing prices, and inflation are just a few ongoing issues. However, there’s another hurdle that’s quietly gaining momentum: money dysmorphia.
While typically associated with body image, the term “dysmorphia” is now being used to describe a troubling trend where people have a distorted view of their finances. It can lead to unnecessary penny-pinching or reckless spending, both of which can impact your mortgage lending business.
In this article, we’ll explore what money dysmorphia is and what’s behind it. After that, we’ll outline how it may be impacting your mortgage applicants and how to proactively address it to protect your lending pipeline.
Table of Contents
What is Money Dysmorphia?
Money dysmorphia refers to a distorted perception of one’s financial situation. Someone experiencing money dysmorphia may earn a steady paycheck and make responsible financial decisions, only to feel persistently anxious about their financial standing.
For reasons we’ll explore below, this trend is on the rise. According to a 2024 Qualtrics study, nearly one-third of all Americans report feeling money dysmorphia. Additionally:
- 41% of millennials and 43% of Gen Z experience money dysmorphia.
- 59% of millennials and 48% of Gen Z feel financially behind.
- 46% of millennials and 44% of Gen Z are “obsessed” with becoming rich.
- Despite this obsession, 69% of Americans with money dysmorphia doubt they ever will be.
While younger generations’ financial fears are prevalent, they’re not always based on reality. Nearly 40% of people who experience money dysmorphia have over $10,000 in savings, which is much higher than the median American savings of $5,300.
What Causes Money Dysmorphia?
Experts aren’t yet sure what drives money dysmorphia. Some believe that growing up in a financially unstable household is a potential risk factor. Low self-esteem, anxiety, and perfectionism may also play a role.
However, the rise in money dysmorphia in younger generations suggests that social media is a key driver. After all, the average millennial and Gen Z consumer spends several hours scrolling on these platforms every day.
And it makes sense—Instagram is flooded with images of influencers jet-setting to exotic countries on private planes, chartering yachts, and donning the latest designer fashion. Seeing these lavish lifestyles often leads people to feel inadequate, regardless of their income or savings.
High-Earners Aren’t Exempt—They’re Actually at a Higher Risk
It’s easy to assume that money dysmorphia is more common among average-income earners. Surprisingly, this isn’t the case. According to HSBC research, people are more likely to underestimate their financial status than overestimate it.
Approximately 51% of Americans earning six-figure salaries report living paycheck-to-paycheck despite their income far exceeding the median household income. Additionally, 49% of high-earners in a separate April survey echoed this sentiment, while 25% of those earning $175,000+ (top 10% of tax filers) described themselves as “very poor,” “poor,” or “getting by but things are tight.”
How Money Dysmorphia Influences Consumer Behavior
Money dysmorphia can manifest in many ways. Some people afflicted with this condition save every penny, even when their budget has room for more flexibility. These consumers may automatically assume they can’t afford to purchase a home, for example.
Others with money dysmorphia may impulsively overspend to “keep up with the Joneses” they see on social media. These consumers are more likely to have high debt-to-income (DTI) ratios, incur undisclosed debt during the mortgage lending process, and aspire to purchase luxury homes that are outside of their budget.
Money Dysmorphia’s Impact on Mortgage Lending
Whether you experience money dysmorphia or not, chances are, many of your mortgage applicants do. Here’s how their money dysmorphia can affect your mortgage lending business:
#1 Their Lifestyle Creep Eats Into Their Down Payment and Closing Costs
Many people work hard to reach the point of being able to afford a home one day. Unfortunately, if these individuals also suffer from money dysmorphia, they may subconsciously overspend on non-essentials to compensate for their ongoing sense of inadequacy.
This phenomenon, known as lifestyle creep, takes place when someone’s standard of living steadily increases as they earn more money. Over time, former luxuries begin to feel like necessities.
When these people apply for mortgages, they often have:
- Less money saved than their income would suggest, reducing their budget for their down payment and closing costs.
- High levels of consumer debt due to charging discretionary items on their credit cards.
- Unrealistic ideas about the type of home they can afford, leading them to feel disappointed with more realistic options.
Read More: The Horrifying Truths About The Impacts of Consumer Debt on Credit
#2 Their Consumer Debt Increases Their DTI
Along with income, employment history, and credit score, DTI plays a crucial role in determining applicants’ mortgage eligibility. Unfortunately, applicants with money dysmorphia who rely on credit cards, “buy now, pay later” programs, and personal loans to fund their lifestyle often face eligibility issues due to sky-high DTIs.
Read More: Understanding Debt-to-Income Ratios’ Impact on Mortgage Approval
#3 They May Exhibit Poor Credit Management
For many people with money dysmorphia, credit often serves as the bridge between their actual financial situation and what they wish it was. They may use their credit card to book expensive trips, purchase designer goods, or eat out at upscale restaurants, enabling them to emulate what they see on social media.
Over-reliance on credit can lead to the following issues:
- Elevated credit utilization
- Frequent credit inquiries
- Missed payments
- Collections activity
Each of these factors can contribute to a lower credit score, directly impacting these applicants’ mortgage eligibility.
Read More: Cracking the Code on Credit: A Complete Guide to Boosting Consumer Credit Scores
#4 They May Delay Their Dreams of Homeownership Unnecessarily
So far, we’ve focused on the overspenders who suffer from money dysmorphia. However, we can’t forget those who hold tight to every dollar and underestimate their abundance.
These applicants may convince themselves that homeownership is permanently out of reach, even if they have ample savings, a lucrative salary, and a strong credit score. Without a mortgage lender’s encouragement, they may never take the first step toward applying.
How You Can Address Money Dysmorphia With Your Mortgage Applicants
Money dysmorphia is on the rise, and while you can’t eliminate it, you can curate a mortgage lending experience that accounts for it and counteracts it. Here’s how:
#1 Offer Financial Education Early and Often
Due to the disorienting nature of money dysmorphia, many sufferers simply don’t know where they stand financially. You can provide them with clarity by:
- Creating educational content about mortgage eligibility.
- Offering instant prequalification on your website.
- Inviting them to schedule eligibility consultations with you.
Your expert guidance can ground applicants in reality. Some may realize that they need to get their spending in check before pursuing homeownership, while others may realize they’re in a better position to buy a home than they thought.
You can help under-qualified applicants become mortgage-ready by sharing practical tips for budgeting and raising their credit scores. We already have a wealth of educational resources you can pass along to your applicants on the Certified Credit blog.
#2 Address Consumer Debt Upfront
Rather than waiting until underwriting to discuss debt, ask aspiring homeowners about their debt load during your initial conversations. This way, you can determine if they should take some time to chip away at their consumer debt before submitting a formal application.
#3 Protect Your Pipeline With Cascade UDM
While you can (and should) educate your applicants on the risks of incurring new debt after securing a mortgage approval, applicants with money dysmorphia may not always heed your advice. You can proactively protect your business against their reckless spending with Cascade Undisclosed Debt Monitoring (UDM).
This solution automatically monitors your applicants’ credit activity from their initial application through closing. It can send you real-time alerts about new:
- Tradelines or inquiries
- Missed payments
- DTI increases
- Payment increases
- Collections activity
With these timely insights, you can reach out to your borrowers and help them remedy their harmful credit activity before their closing date.
Read More: Reducing Fraud and Repurchase Risk with Undisclosed Debt Monitoring
#4 Refine Your Marketing Messaging
Cascade UDM can help protect your pipeline after borrowers apply, but attracting financially conservative consumers requires a more nuanced approach. These applicants often delay applying altogether, assuming they’re unqualified.
In reality, these individuals tend to be ideal borrowers, thanks to their:
- Strong saving habits
- Limited debt load
- Responsible credit management
To reach this audience, tailor your marketing messaging to their unique needs and concerns. For example, you can provide motivation and reassurance by highlighting case studies of successful applicants in similar situations. These stories of financial empowerment can motivate these applicants to seek out your services.
#5 Promote Down Payment Solutions
Many borrowers with money dysmorphia may believe they need to put 20% down to buy a home. However, this isn’t the case with many loan programs. What’s more, some of your applicants may qualify for down payment assistance programs, including grants, forgivable loans, and low-interest loans.
By highlighting these cost-saving opportunities, you can renew applicants’ hope that their dream of homeownership is attainable.
Read More: Finding a Way Home: 8 Strategies for Helping Buyers Overcome Affordability Challenges
Combat Mortgage Applicant’s Money Dysmorphia With Certified Credit
While money dysmorphia may be irrational, you can’t afford to ignore its impact on today’s mortgage applicants. From irrational spending to unnecessary self-doubt, consumers’ distorted perceptions inevitably shape their borrower behavior. Fortunately, you can counteract money dysmorphia’s effects by following the tips above.
Looking for innovative solutions to assist with this process? Certified Credit has you covered. Along with Cascade UDM, we also offer:
- Customizable credit reports
- Credit score improvement tools
- Automated credit supplements
- Automated lead generation
- Automated prequalification
- Automated verification of income and employment
- Flood zone determinations
- Fraud and risk support
- Property and valuation tools
- Settlement services
Want to learn more? Schedule a credit consultation with the Certified Credit team today!
Sources:
New York Times. Are You the Only One Who’s Broke? Or is it ‘Money Dysmorphia’?
https://www.nytimes.com/2025/04/12/style/boom-boom-spending-money-dysmorphia.html
Credit Karma. Gen Z and millennials are obsessed with the idea of being rich, and it could be leading to money dysmorphia.
Very Well Health. How Money Dysmorphia Can Hurt Your Mental Health and Finances.
https://www.verywellmind.com/money-dysmorphia-8713617#toc-why-do-we-experience-money-dysmorphia
HSBC. How much do you need to earn to be wealthy? £213K, according to new insight from HSBC UK.
