How is financial wellbeing tracking?

Financial wellbeing is defined as the extent to which someone is able to meet all their current commitments and needs comfortably and has the financial resilience to maintain this in the future.

"An improvement in financial wellbeing, whatever the original cause, has the potential to be self-reinforcing through the improvement on financial confidence and control.” – David Blackmore

International pioneer of financial capability and wellbeing research Professor Emeritus of Personal Finance and Social Policy Research at the University of Bristol, Elaine Kempson explains financial wellbeing is a combination of two factors: “It’s how much money you’ve got, and it’s what you do with the money you’ve got,” she says.

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The latest Financial Wellbeing: A survey of adults in Australia survey is the seventh iteration of a body of ANZ research that began in 2002. The survey of 3,125 adult Australians across different life stages and locations investigates the ‘enablers’ and ‘blockers’ of financial wellbeing, examining behaviours, skills and attitudes to money. It turns out financial wellbeing is a complex blend of socio-economic circumstances, behaviour traits, attitudes towards money and life stage.

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The survey groups the Australian population into four categories:

• The top 29 per cent were considered to have no worries (financial wellbeing score >80-100)
• 43 per cent were doing OK (financial wellbeing score >50-80)
• 17 per cent were getting by (financial wellbeing score >30-50)
• The bottom 11 per cent were considered struggling (financial wellbeing score 0-30).

Australians have an average financial wellbeing score of 64 with men scoring higher (66 out of 100) than women (62 out of 100). Men generally scored above average on all four components of financial wellbeing and women scored below average for whether they were feeling comfortable about their financial situation, their financial resilience and their security for the future.

Retirees have the highest financial wellbeing scores of 77 and young adults and young families averaged 59 and 58 out of 100 respectively.

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Notably, fully retired Australians over 65 years of age have much higher average financial wellbeing than all other groups.

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There has been an evolution in how we understand the concept of ‘financial wellbeing’. For the first time, a fourth dimension of financial has been included – feeling secure for the future, with investment included as an additional financial behaviour with a direct impact on financial wellbeing.

Almost two-fifths (37 per cent) of Australians have more than six months of saved income, however 14 per cent of Australians reported having no savings. Half of the Australian population (51 per cent) made sure that money is available for unexpected expenses or emergencies and 31 per cent had set up their accounts so their savings were put aside automatically.

The 2021 survey uses the revised Kempson et al financial wellbeing model and introduces structural equation modelling (SEM) to better measure and analyse the relationships and causal linkages between each of the different drivers of financial wellbeing.

This approach enabled a better explanation of what affects financial wellbeing and the different pathways to financial wellbeing.

“The addition of the structural equation modelling of the latest data is a huge contribution to our understanding,” Kempson says. “It enables us to assess the overall effects of individual factors on financial wellbeing, including indirect as well as direct ones.”

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Importantly, the new model is able to more accurately measure the total impact of socio-economic factors and life events on financial wellbeing. Socio-economic factors account for 54.5 per cent of a person’s overall financial wellbeing. Health, unemployment, earning potential and life journey are the most significant socio-economic factors affecting financial wellbeing.

This latest conceptual model of financial wellbeing better explores the relationships between these characteristics and how they work together to create financial wellbeing. The model features a feedback loop, whereby an improvement in financial wellbeing improves one’s financial confidence and sense of control.

“Financial confidence and control still influence financial behaviour which in turn influences financial wellbeing - so we have a feedback loop,” says contributing researcher Prescience Research’s David Blackmore. “An improvement in financial wellbeing, whatever the original cause, has the potential to be self-reinforcing through the improvement on financial confidence and control.”

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Financial behaviours, while not as influential as socio-economic factors, still have a very important role to play in financial wellbeing. Saving and spending behaviours – active saving and not borrowing for everyday expenses and spending restraint – continued to have the strongest influence out of all financial behaviours, directly influencing financial wellbeing.

Investment behaviours also directly affect financial wellbeing and money management behaviours such as monitoring finances, planning and budgeting. Informed product choice and decision-making influenced financial wellbeing indirectly through driving saving, spending and investment behaviours.

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There is a big difference between knowledge and behaviour. You ‘know’ you shouldn’t do something but you do it anyway. It’s the same when it comes to money.

The 2021 report includes a more holistic look at the drivers of financial wellbeing and includes new areas of questioning to better explain financial wellbeing. Areas studied include:

• Future financial security
• Digital capability and online scam experience
• Key life events
• Disruptions to the lifecycle such as health and mental health
• Access to social support
• A broader range of behaviour traits including frugality, optimism and goal setting.

For example, the research showed a strong relationship between poor physical and/or mental health and financial wellbeing. In fact, it has more of a bearing on financial wellbeing than a person’s savings and spending behaviour.

Of respondents with low financial wellbeing who disclosed their mental health was fair or poor, 46 per cent were “getting by” and 68 per cent were “struggling”.

For RMIT University Professor Roslyn Russell, the updated modelling of the drivers of financial wellbeing forces us to “widen the lens” of financial wellbeing and recognise the externalities that influence or stymie positive behaviours.

“These updates take account of the context, identify the barriers and allow us to create effective solutions,” she says. The new model also allows for better targeting of resources to areas that make the most difference.

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The 2021 report specifically explores the interrelationship between financial wellbeing and mental health. For Brotherhood of St Laurence Director, Research and Policy Centre, and Professorial Fellow, University of Melbourne Shelley Mallett, the findings that many people with poor mental health also have low financial wellbeing is important.

“We know from our service work that targeted person-centred social support which intentionally invests in the development of financial wellbeing and mental health can be transformative for people living in these circumstances,” she says. “It can enable people to navigate these interlinked stresses with dignity and agency.”

This latest financial wellbeing report also includes new insights on how a person’s financial locus of control - the extent to which people feel responsibility for how they manage their money rests with them - affects key behaviours that determine financial wellbeing.

Buying clothing through buy-now, pay-later financial products just because your friends are, rather than determining that the purchase is a ‘want’ rather than a ‘need’. Informed decision-making is a key behavioural trait for financial wellbeing, gathering and weighing up information before making a decision.

“It is the opposite of impulsivity in many ways,” Kempson says.

The insights in the survey around the effect of socio-economic factors on financial wellbeing and life stage create significant implications and opportunities for banks and other financial institutions.

Consumer Action Law Centre Chief Executive Officer Gerard Brody raises the question of whether financial products should be designed with a recognition of life context and different socio-economic contexts, so as to aid financial wellbeing.

"I’ve often thought it strange that a long-term product like a mortgage assumes regular repayments through 20-25 years when we know people’s working lives are disrupted and their income isn’t going to be consistent over that time,” he says.

For the first time, the survey includes questions to assess knowledge of the risks of managing money securely through websites and apps. It turns out 79 per cent of Australians aged over 65 years agreed with the statement that they could ‘manage their money online securely using websites and apps’. It was in fact lowest for people aged 18 to 24 years with 67 per cent responding positively to the statement.

The 2021 survey has come a long way since the earliest ANZ research which began in 2002. Back then, the focus was on the premise that financial literacy equals knowledge rather than taking into account socioeconomics, behaviours, attitudes and other contexts. The research has evolved to reflect this.

Kempson describes the survey as an “enormous step forward” in how we understand the drivers of financial wellbeing.

“It is the longest running survey and yet it has adapted to meet new challenges as we understand better what matters most to people’s financial lives. Generations to come will be grateful for the wealth of information it provides,” she says.

ASIC Senior Executive Leader - Consumer Insights and Communications and Regional Commissioner ACT Laura Higgins says everyone has a financial life even if they are not engaged in it.

“We make dozens of financial decisions every day – where we shop, what we eat, how we get around,” she says. “Improving financial wellbeing and empowering people to make changes that impact their financial circumstances can begin with simply understanding that these common choices are also money choices.”

Higgins says from a young age, we engage with money choices, we learn the difference between needs and wants, the importance of shopping around and understanding that sometimes we have to wait for things.

“Recognising we all have financial lives and that we are using the skills we need to make financial decisions many times a day can give us more confidence to engage with our finances,” she explains.

As understandings of financial wellbeing deepen and research findings create stronger links to overall wellbeing, the importance of building financial wellbeing and interventions to improve financial wellbeing will only increase.

Emily Ross is Content Producer and Director of Emily Ross Bespoke.

Gerard Brody, Laura Higgins, Shelley Mallett and Roslyn Russell were invited to contribute insights as members of ANZ’s external steering committees for this research. ANZ acknowledged their contribution to the research through a donation to their nominated charity.

Click here to read the Financial Wellbeing report.