The challenges of managing personal finances and putting enough money aside to ensure their financial futures is weighing on the minds of a significant number of Australians and holding back their happiness in life, according to a new benchmark measure of financial wellbeing, released by Commonwealth Bank and the Melbourne Institute: Applied Economic & Social Research at the University of Melbourne.
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.
The world-first research, CBA-MI Financial Wellbeing Scales (Scales), sought to provide a new measure of financial wellbeing to better understand the financial health of Australians. Uniquely, it combines people’s own perceptions about financial outcomes alongside banking data to show the drivers, barriers and behaviours linked to positive financial wellbeing across both "self-reported" and "observed" scales.
Key insights from the research include:
- Financial wellbeing: the nationwide state-of-play is mostly positive
Overall the research paints a positive picture; some two-thirds of respondents have high financial wellbeing in either their self-reported or observed scales, with one-third having high financial wellbeing in both scales.
- Poor financial wellbeing limits happiness
One in four people surveyed do not enjoy life because of the way they are managing their money. Nearly one-quarter (23 per cent) say they are struggling with money management and almost one-third (29 per cent) say their lives are often or always controlled by their finances.
- Many Australians face financial uncertainty, now and in the future
About one in three respondents 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. In addition, the next generation of retirees might be at risk, with one-third (33 per cent) saying they are not on track to secure their financial future or provide for future needs (32 per cent).
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.”
Professor David Ribar, from Melbourne Institute: 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.”
Scales has been developed as part of a partnership between Commonwealth Bank and the University of Melbourne, and demonstrates the power of collaboration between industry and academia to solve real-world problems.
A simple tool to determine your financial wellbeing score
The CBA Financial Wellbeing (FWB) Score is an online self-service tool which allows anyone to ‘take the test’ and assess their own financial wellbeing. Based on the Scales research, it makes it relatable for the individual by providing tips tailored for their result.
Pete Steel said: “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.”
A definition of financial wellbeing
The research defines financial wellbeing as the extent to which people both perceive, and have, financial outcomes in which they:
- meet their financial obligations;
- have the financial freedom to make choices that allow them to enjoy life;
- have control of their finances; and
- have financial security - now, in the future, and under possible adverse circumstances.
About the Scales research
The research underpinning the Scales is based on findings drawn from an online survey of 5,682 CBA customers in August 2017, and analysis of financial record data that were linked to the customers’ responses. For further information on the methodology, you can read the report: Improving the Financial Wellbeing of Australians.