A “world-first” report has found that home owners have much higher “financial wellbeing” than renters, with those without mortgages reporting the highest levels of wellbeing.
The Commonwealth Bank of Australia (CBA) and the Melbourne Institute of Applied Economic & Social Research (MI) at the University of Melbourne undertook a research project in a bid to “provide a new measure of financial wellbeing to better understand the financial health of Australians”.
The CBA-MI Financial Wellbeing Scales sought to show the drivers, barriers and behaviours linked to positive financial wellbeing across both “self-reported” and “observed” scales.
According to the CBA-MI definition, financial wellbeing is “the extent to which people both perceive and have: 1. Financial outcomes in which they meet their financial obligations; 2. Financial freedom to make choices that allow them to enjoy life; 3. Control of their finances; and 4. Financial security – now, in the future, and under possible adverse circumstances”.
The scales are based on findings drawn from an online survey of 5,682 CBA customers in August 2017 and analysis of financial record data linked to the customers’ responses.
According to the benchmarks, while two-thirds of respondents had high financial financial wellbeing in either their self-reported or observed scales, just one-third had financial wellbeing across both scales.
Further, almost one-third of Australians (31 per cent) said they were not on track to secure their financial future, with one in four people surveyed admitting they do not enjoy life because of the way they are managing their money.
About one in three respondents was found to have low financial resilience, with 31 per cent observed with a low savings balance and 37 per cent saying they couldn’t handle a major unexpected expense.
Moreover, one-third (33 per cent) said they were not on track to secure their financial future or provide for future needs (32 per cent).
The researchers said this showed that while Australian retirees, on average, have higher reported and observed financial wellbeing than other Australians, the next generation of retirees “might be at risk”.
The researchers noted that the way people perceive and experience their own financial outcomes can be very different from the way an outsider might observe them based on objective financial data.
“Our quantitative analysis shows that there is sufficient difference between them to consider them to be separate components of financial wellbeing,” the research reads.
Recent immigrants, people with business or non-wage incomes and customers with “modest” account balances were more likely to have a divergence between their scale values, while those who had recently experienced “major life events”, people with large housing payments and those who are sometimes, but not always, paying their credit card balances also had larger divergence.
Home owners vs renters
Perhaps unsurprisingly, home owners had much higher financial wellbeing across both reported and observed metrics, on average, than renters.
The median reported score for home owners with a mortgage was 58, while the median observed score came in higher – at 67.
Those without a mortgage had even higher financial wellbeing, with a reported score of 70 and an observed score of 78.
On the flipside, those respondents who were renting their dwellings had a median reported score of 48 and a median observed score of 56.
The research also found that financial wellbeing uniformly increases with income and that there was a strong association between higher financial wellbeing and an understanding of finances.
Commenting after the release of the report, Pete Steel, executive general manager digital at CBA, said: “Financial wellbeing is a complex issue. The scales research is a significant contribution to the conversations about what financial wellbeing means in Australia.
“We have an ambitious purpose to improve the financial wellbeing of our customers and communities, but we know there’s no ‘one-size-fits-all’ approach to financial wellbeing. This is the challenging part when it comes to measuring – and helping to improve – their financial wellbeing.”
Likewise, Professor David Ribar, from Melbourne Institute of Applied Economic & Social Research at the University of Melbourne, said: “We are confident that the Financial Wellbeing Scales will be valuable tools for policymakers, financial institutions, service providers, researchers and the public for many years to come.
“By combining both self-reported financial wellbeing data and objectively observed measures, the scales provide dimensions of understanding that represent a first in its field, internationally.”
CBA has now rolled out an online Financial Wellbeing (FWB) Score tool to allow users to assess their own financial wellbeing and provide tips for improving their financial wellbeing.
Mr Steel concluded: “We want to be a better bank for our customers and this is one step forward in helping us achieve that.
“Our Financial Wellbeing Score empowers Australians to take control of their financial wellbeing by helping them not only deal with everyday expenses, but also unexpected ‘rainy day’ costs and ‘one day’ long-term financial goals.”
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