As financial inequality worsens in Australia, a new study suggests that the ways to measure and understand what impacts individuals’ financial wellbeing must adjust to focus beyond their circumstances.
Stagnant wage growth, shrinking full-time employment and greater numbers of people locked out of home ownership combine to make this a pressing issue suggests the new working paper Understanding financial wellbeing in times of insecurity by RMIT and the Brotherhood of St Laurence.
Associate Professor Ashton de Silva, one of the paper’s authors from the RMIT Centre for Urban Research and School of Economics, Finance and Marketing says that financial and economic decisions don’t occur in a vacuum – they’re made by people often in complex situations who weigh many factors and who are affected by countless other variables that they may not even be aware of.
“In order to know which policies and practices help or hurt people’s financial security, it is necessary to cohesively understand the many components that shape it,” he said.
“This involves looking critically at the social and cultural norms that are prevalent, along with an individual’s personal characteristics (e.g. age, gender, literacy, values/attitudes, etc) and how they influence people’s financial capability.”
Co-author, Dr Dina Bowman, Principal Research Fellow in the Research and Policy Centre at the Brotherhood of St Laurence, says that the concepts underlying the design of financial wellbeing policies, programs and practices require more careful consideration.
“Taking this approach paints a much more detailed picture of the ‘financial resilience’ of individuals and of the wider society, showing where the real problems to tackle are and allowing for better financial planning overall,” she said.
“At stake is whether financial wellbeing policies, programs and practices will actually improve financial wellbeing, will have no effect, or will have the unintended consequence of entrenching inequality and poverty.”
The authors suggest that creating tools that measure a greater ‘life satisfaction’ in various areas (e.g. employment, family, links to community, health) and devising financial policies that account for them in people’s lives is more effective than narrowly considering what increases people’s bank accounts.
Financial Literacy Australia (FLA), a major funder of financial education programs, has not supported all of the Organisation for Economic Co-operation and Development’s (OECD) standardised measures of financial literacy.
The programs FLA funds provide resources that help participants achieve their own financial goals whatever they may be, rather than enforcing a standard set of targets for everyone.
“Separating financial wellbeing from social policy is not possible,” says De Silva.
“A limited understanding of financial wellbeing focused solely on individuals diverts attention from systemic and structural issues.
“In short, this way of studying financial wellbeing could ‘treat the symptoms, but not the underlying disease’.”
Story: Jack Hopkins
