I've heard this said all my life as something polite you say when someone sneezes, but I've lately wondered if God appreciates a command being spoken in which a blessing is being given to someone who (for instance) may not believe in God which would then have the person saying the blessing taking the Lord's name in vain. Just wondering if this goes against God and the Bible.
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It has been said this saying was started by the Catholic church. Supposedly when a person sneezes, their heart stops and the old wise tale was that demons could enter into the person while the heart was stopped. Therefore by saying God Bless You, it would stop the demons from entering the sneezing person.
To me the words 'bless or blessed' means healthy and/or happy. A sneeze is a symptom that shows distress or disease. It may not be drastic or a sign of much distress or disease. The only thing that bothers me is when some people are quick to bless you when you sneeze and never do it any other time but I overlook it and utter thanks for the blessing.
I think it's better to say "God bless You" when someone sneezes than to say bad words against him/her. :)