What negative effect does borrowing have on financial well-being?

When examining the impact of borrowing on financial well-being, the correct choice highlights a critical aspect of borrowing: it often increases debt and financial strain. Borrowing can help individuals cover immediate expenses or invest in opportunities, but it also results in an obligation to repay that borrowed amount, typically with added interest. This obligation can lead to a cycle of debt where individuals find themselves consistently managing multiple loans and payments.

Increased debt can strain finances by reducing available income for other essential expenses, leading to stress and financial instability. As debts accumulate, borrowers might also face higher monthly payments, which can further squeeze their budgets. This situation can limit their ability to save for future needs or invest in opportunities, thus compromising their overall financial well-being.

The other options illustrate concepts that do not accurately reflect the common consequences of borrowing. For instance, while borrowing could theoretically improve financial literacy, that is not a direct negative effect. Similarly, while some may argue that responsible borrowing can lead to increased wealth, this is contingent on the effective management of debt rather than an inherent outcome of borrowing. Lastly, borrowing does not necessarily reduce the need for savings; in fact, having a solid savings foundation is crucial, especially when borrowing, to avoid financial straits in emergencies.