Daily BulletinDaily Bulletin

The Conversation

  • Written by David C. Ribar, Professorial Research Fellow, University of Melbourne

Financial well-being is hard to get a handle on.

That’s because it’s a mix of how people feel and how they objectively are.

And it’s multifaceted, including things such as spending, saving, investing, borrowing, and insuring, and competing goals that involve trade-offs, such as whether to spend or save.

To help, the Melbourne Institute and the Commonwealth Bank have pulled the dimensions together in a collection of measures we think are the first of their kind: the Reported and Observed Financial Well-being Scales.

The results released this week show most Australians are doing OK. They report no difficulty paying necessary expenses, can cover unexpected expenses, and feel on track to provide for their financial futures. However, a substantial minority struggle.

As expected, people’s income, assets, and home ownership play big roles in their financial well-being. But their attitudes, capabilities, and behaviour are probably even more important, meaning good financial well-being is possible even at modest levels of income and wealth.

Two ways of examining well-being

Adapting definitions that have been proposed for Australia and elsewhere, we define financial well-being as the extent to which people both perceive and have

  • financial outcomes in which they meet their financial obligations
  • financial freedom to make choices that allow them to enjoy life
  • control of their finances, and
  • financial security

now, in the future, and under possible adverse circumstances.

To construct the scales, we sieved through 33 self-reported survey measures and 17 bank-record measures that captured different elements of our definition. Formal analyis resulted in our two distinct but related scales.

The first, which we call the CBA-MI Reported Financial Well-being Scale, uses people’s answers to 10 survey questions about how they feel; about things such as dealing with their expenses, building up savings, and control over their finances.

The second, which we call the CBA-MI Observed Financial Well-being Scale, uses data from people’s bank records about their balances, payment problems, and ability to cover unexpected expenses.

The two scales move together. People with high levels of financial well-being on one scale tend to have high levels on the other.

However, the two scales are distinct and capture different aspects of well-being, complementing each other and jointly providing a fuller picture than either could alone.

The financially well-off defy the stereotypes. They include retirees, and mortgagees Melbourne Institute - Commonwealth Bank What do the measures tell us? On average, Australians enjoy moderate to high levels of financial well-being, but many experience problems. About a quarter of people report difficulty meeting their necessary expenses, and more than a third report not being able to handle a major unexpected expense or not having enough money for future financial needs. When it came to characteristics associated with financial well-being, we find that people who earn more and own more assets enjoy higher well-being on average. Home-owners, healthier people, and married couples also tend to have a higher financial wellbeing. But within these categories financial well-being can vary. Read more: Why single women are more likely to retire poor Both measures of well-being are higher for people who balance their spending and savings, have strong savings habits, always pay their credit card balances, sacrifice for the future, and actively plan and budget. And there are surprises. Retirees and older people tend to enjoy higher financial well-being than younger people, contrasting with the view that retirement is accompanied by financial distress. People with high mortgage debt and large housing costs also experience higher levels of well-being, although this may be associated with the wealth that is associated with their homes. Read more: Why we should worry less about retirement - and leave super at 9.5% The strong agreement between the two scales reassures us that they are indeed measuring financial well-being. However, the scales sometimes diverge, particularly when measuring the financial well-being of people with complex financial situations, including immigrants and business owners. Improving financial well-being The low levels of financial well-being experienced by some Australians are a cause for concern. Our measures can help identify these people and their circumstances. More importantly, they tell us that people in similar circumstances can experience very different levels of financial well-being, telling us there is considerable scope for improving outcomes. And the strong associations of well-being with financial attitudes, capabilities, and behaviours — all characteristics that can be changed — point to promising avenues for interventions.

Authors: David C. Ribar, Professorial Research Fellow, University of Melbourne

Read more http://theconversation.com/the-financially-well-off-defy-the-stereotypes-they-include-retirees-and-mortgagees-103431

VIDEO: Michelle Grattan on Melbourne cluster outbreaks, Australia's defence spending, and the Eden-Monaro byelection


The US has bought most of the world's remdesivir. Here's what it means for the rest of us


The Conversation


Prime Minister Interview with Ben Fordham, 2GB

FORDHAM: Thank you very much for talking to us. I know it's a difficult day for all of those Qantas workers. Look, they want to know in the short term, are you going to extend JobKeeper?   PRI...

Scott Morrison - avatar Scott Morrison

Prime Minister Scott Morrison interview with Neil Mitchell

NEIL MITCHELL: Prime minister, good morning.    PRIME MINISTER: Good morning, how are you?   MICHELL: I’m okay, a bit to get to I apologise, we haven't spoken for a while and I want to get t...

Scott Morrison - avatar Scott Morrison

Prime Minister Interview with Ben Fordham

PRIME MINISTER: I've always found that this issue on funerals has been the hardest decision that was taken and the most heartbreaking and of all the letters and, you know, there's been over 100...

Scott Morrison - avatar Scott Morrison

Business News

SEO In A Time of COVID-19: A Life-Saver

The coronavirus pandemic has brought about a lot of uncertainty for everyone across the world. It has had one of the most devastating impacts on the day-to-day lives of many including business o...

a Guest Writer - avatar a Guest Writer

5 Ways Risk Management Software Can Help Your Business

No business is averse to risks. Nobody can predict the future or even plan what direction a business is going to take with 100% accuracy. For this reason, to avoid issues or minimise risks, some for...

News Company - avatar News Company

5 Ways To Deal With Unemployment and Get Back Into the Workforce

Being unemployed has a number of challenges and they’re not all financial. It can affect you psychologically and sometimes it can be difficult to dig your way out of a rut when you don’t have a job ...

News Company - avatar News Company

News Company Media Core

Content & Technology Connecting Global Audiences

More Information - Less Opinion