Money is one of the main things which keeps us up at night. Money can’t buy happiness, but a lack of it can lead to increased financial worries about meeting needs now and in the future. Money plays a critical role in all our lives as it pays our mortgage or rent, is critical to deciding where we live, is what pays for our bills and helps contribute to our children’s education as well as our financial wellbeing.
Financial wellbeing is an integral part of our overall mental, social and physical wellbeing as feeling content in our life comes from feeling control over our finances and being able to respond to and cope with unexpected financial shocks.
It might surprise you to learn that only 45% of Aussies feel on top of their money and almost 2 million are considered to be "financially stressed. Debt can be a looming challenge, especially with the costs of living constantly increasing. Maintaining financial commitments can become overwhelming, but ignoring money concerns could lead to increased feelings of stress and anxiety, impacting relationships.
What is financial wellbeing?
Financial wellbeing considers whether a person has adequate income to meet basic needs, pay off debts, cover unexpected expenses and still has some money left over, is in control of their finances and feels financially secure, now and in the future.
No-one wants to worry about putting food on the table, paying bills when due or not having enough savings when that unexpected cost appears. But how many of you can truly say you are in a position where you are not worried or haven’t worried at some point in your life about finances?
Your level of financial wellbeing and the resources you need to use to support your wellbeing may change throughout life.
You can have relatively high levels of financial wellbeing without having a high income, savings and investments. Many Aussies living in their own home, mortgage-free, state comfortable financial wellbeing. You can also achieve normal levels of wellbeing with low income, so long as you feel in control of how you spend money.
How do you measure financial wellbeing?
Measuring your financial wellbeing requires an understanding of your overall financial situation and assessing your financial stress/ resilience against the following criteria:
- Ability to meet expenses – Do you have an adequate income to meet expenses, pay off debts/ maintain manageable debt levels and have some money left over to make choices for saving buffers, unexpected expenses or enable you to afford some “added extras”.
- Feeling in control and acting in control of your finances by setting and pursuing financial goals – Do you have access to and autonomy over your finances? Do you understand and keep track of finances, plan for the future and exercise spending restraint?
- Feeling financially secure – Do you have limited financial worries and are you satisfied with your financial situation?
- Financial resilience – Do you have strong financial capability and are you willing to apply that knowledge in your life? Do you have access to external resources and support to respond to financial shocks, including planned and unplanned life events?
Some key factors that can influence your financial wellbeing include:
- Behaviour such as day-to-day money management behaviours (i.e. budgeting, monitoring finances, using money management apps), future planning behaviours (i.e. saving, reducing expenses, paying off more than minimum amounts on loans, additional contributions to superannuation), buying behaviour (i.e. spending restraint, making informed product choices). Your behaviour defines how well you manage your financial situation
- New or changed regulation, legislation and policy, such as income support and superannuation changes, can change financial situations and make it difficult for you to manage expenses by creating uncertainty, increasing financial worries and decreasing your sense of control over financial circumstances
- Access to appropriate and affordable financial services and products (including bank accounts, internet banking, credit cards, financial advice and loans). The ease of access and affordability of services and products can impact financial wellbeing if you are unable to access what you need to manage your financial
- Homeownership and cost of living - Costs of living are rising and renters can feel unsatisfied with their financial situation if they are unable to obtain a mortgage due to housing affordability, comparing themselves to others of the same age who own a house. Housing costs can put pressure on household budgets and cause financial
- Income – The amount, stability and source of income (i.e. work, government benefits) can impact your financial wellbeing as it defines your spending ability, making it easier to cover expenses and save.
- Couple dynamics - Women and men can have different levels of satisfaction, with couples often earning different amounts and managing money in different ways. This can sometimes lead to conflicts and even financial abuse, especially if one person is controlling all the finances.
- Life stages, lifestyle and unexpected events - Your financial wellbeing might be different as you enter different stages of life (i.e. university, moving out of home, marriage, homeowner, retirement) and experience unexpected life events (i.e. pregnancy, divorce, redundancy, termination of role, the death of a family member). The amount of money required to manage finances will be different for people based on their particular lifestyle. These experiences can impact your financial wellbeing, especially if you do not have saving buffers, are living beyond your means and need to pay sudden large expenses.
- Financial knowledge – Knowledge is power and provides an understanding of financial terms, concepts, products and services, allowing people to better manage finances, impacting financial wellbeing. Young adults whose parents spoke to them about financial management when they were growing up also have greater financial knowledge.
- Disability, physical health and mental health - Mental health conditions can affect your ability to manage money effectively. Poor health and disability can also put negative pressure on finances, through the costs of care, restricted education, restricted employment opportunities and low government benefits. People with disabilities have access to lower funds, impacting financial wellbeing
- Caregiving and financial dependents - Your household’s income relative to the number of dependents will impact future financial wellbeing, as expenses are higher with additional mouths to feed. Caregiving can also negatively impact the financial, physical, and emotional health of caregivers