Financial wellbeing before COVID-19 - All in it together?

Dr Emily Porter, the current ANZ Tony Nicholson Research Fellow, at the Brotherhood of St Laurence (BSL) joins us on the Blog Spot to discuss the ‘All in it together? Financial wellbeing before COVID-19’ (Dec 2020) report, and the patterns of financial wellbeing for low income Australians.

Financial wellbeing before COVID-19  -  All in it together?

Welcome Emily, can you begin by telling us a bit more about the ‘All in it together? Financial wellbeing before COVID-19' report?

The ‘All in it together? Financial wellbeing before COVID-19’ report is the first paper in a series on the financial wellbeing of low income Australians being undertaken thanks to the support of ANZ. The first report explores patterns and trends in financial wellbeing in the two years prior to the COVID-19 crisis.

The analysis used a range of financial wellbeing measures developed by ANZ based on the continuous Roy Morgan Single Source Survey. The data enabled me to examine variations in financial wellbeing among Australians, consider how and why these have changed and focus on the subjective and objective capacity of individuals in low-income households to respond to crises.

This and ANZ’s work draw on Kempson and colleagues’ (2017) definition of financial wellbeing as comprising the ability to:

  1. Meet commitments
  2. Feel comfortable
  3. Be financially resilient

Are we all in it together? What was Australia’s financial wellbeing before COVID-19?

Prior to COVID-19, Australia experienced almost 30 years of uninterrupted economic growth with most households experiencing higher standards of living. In the two years prior to the COVID-19 pandemic, most Australians were characterised with rising ‘financial wellbeing’ scores.

It was good news, but a closer look at the data showed not everyone was benefitting. Some vulnerable groups actually went backwards during this period. These groups include:

  • Unemployed workers were 27 per cent lower than the Australian average in March 2020, despite experiencing a modest 4 per cent increase in financial wellbeing during the two years prior.
  • Single parents started the period with financial wellbeing scores 25 per cent below the Australian average. This gap increased as single parents’ financial wellbeing scores declined by 6 per cent even as all other household types (including couples, couples with kids, and single adults) improved.
  • Disability pensioners also saw their financial wellbeing decline over the period, driven by a sharp 21 per cent fall in their ability to meet everyday expenses.
  • Young people have the lowest financial wellbeing of all age groups. Financial wellbeing Indicator scores for those aged 18 to 29 averaged 54.7 over the two-year period to March 2020 and were 5% lower than scores for those aged 30 to 44 and 22% lower than for those aged 65 and older.
  • Renters are found to have much lower financial wellbeing, with scores around 30% lower than home owners and 15% below those with mortgages. Importantly, the impact of housing on financial wellbeing increases with age.

Tell us more about the financial wellbeing of these vulnerable groups?

“A common factor across these groups is their limited access to full-time work, resulting in lower incomes and high expenditure relative to income.”

All of these vulnerable groups have traditionally faced relatively high economic insecurity and are observed to have relatively low financial wellbeing scores. A common factor across these groups is their limited access to full-time work, resulting in lower incomes and high expenditure relative to income. This creates challenges meeting basic expenses, particularly for renters, and limits ability to save. This leads to weakened financial resilience in the short term.

“People with low or variable income have more limited financial options and opportunities”.

Vulnerable groups with low or variable income have more limited financial options, opportunities and face increased risks, with many people forced to make tough choices, like deciding between whether to eat or pay the rent. Life become very challenging when there’s no financial buffer. Managing unexpected expenses, like car repairs or school excursions becomes almost impossible.

What about long-term financial security?

Financial wellbeing measures are snapshots rather than longer-term measures of economic security. However, understanding how the different dimensions of financial wellbeing interact with social and economic factors provides useful insights as to where improved financial wellbeing can facilitate longer-term improvements in economic security.

In short, having increased financial wellbeing may help cover additional expenses in the short term, but unless they’re able to save over a longer period of time and potentially acquire an asset, they are unlikely to build financial security.

Finally, how has COVID-19 exacerbated their already low financial wellbeing?

We know through our analysis of financial wellbeing data prior to the pandemic that those on low or insecure incomes are likely to experience poor financial wellbeing even in ‘good’ times. This also means many lacked a buffer to cushion the financial impacts of COVID-19. This highlights the need for a decent social security safety net to support those locked out of secure, full-time work. Recovery from the crisis will require investment in job creation and affordable housing to improve financial wellbeing and ensure everyone can build economic security.

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