Understanding financial wellbeing in times of insecurity

The Brotherhood of St Laurence recently released a report their 'Financial Wellbeing in times of Insecurity' working paper. The paper provides a basis for a broader understanding of the factors that shape financial wellbeing and the capacity of individuals to experience economic security. In this post Dr Dina Bowman and Dr Marcus Banks from the Research and Policy Centre explore the paper's key findings.

What is financial wellbeing?

Social and economic factors such as work, education and family circumstances have major effects on financial wellbeing. Individual factors such as financial knowledge, skills, attitudes, motivations and behaviours also play important roles in financial wellbeing.

But the concept of financial wellbeing is ill defined, despite its growing popularity and use in social policy, financial services and the development of financial products. While there is some recognition among policymakers and others that financial wellbeing is influenced by social and economic factors, the focus of policies, programs and products tends to be on individuals and their behaviour. This focus doesn’t recognise the broader factors that cause financial insecurity, such as uncertain income due to casual work and the rising costs of living. 

Not just an individual problem

Overall, this focus on individual behaviour reflects the broader shift of responsibility and risk from the state and business to individuals that has occurred since the 1980s, with the rise of neoliberalism.

Drawing on the ideas and techniques of behavioural economics, an individual approach to financial wellbeing highlights ways to improve poor motivation, skills or attitudes that are assumed to be lacking among people experiencing poverty or financial stress. While there’s no doubt that budgeting and money management skills are important, financial stress and uncertainty should not be mainly attributed to individuals’ lack of financial skills. When incomes are meagre and precarious no amount of budgeting will fix the problem.

The Brotherhood of St Laurence’s Spinning the Plates study showed that many people on low incomes are careful managers of money. For example, Olivia carefully develops shopping lists and scours catalogues to find the cheapest grocery items at different supermarkets. Alice, a mother of five, who works part time, says: ‘The kids going to have their shower, and I'm knocking on the door after five minutes saying, get out of there. That places a strain’. She also comments on the anxiety of unexpected costs, like car repairs or getting a child’s tablet fixed. ‘Somehow you come out the other end. I can fix the problem and I’ve reduced what’s at home, so we might have more basic meals that week.’

Ideas matter

Ideas matter because they influence policies, services and people’s lives. The idea of financial wellbeing provides an overall rationale for more specific policies and programs relating to financial literacy (knowledge and skills) and financial inclusion (access to financial services).

The development of the idea of financial wellbeing is a prime example of how ideas are shaped by wider social and ideological changes. In Understanding financial wellbeing in times of insecurity, a working paper just published by researchers from the Brotherhood of Laurence and RMIT University, we trace the origins and rising popularity of financial wellbeing in social policy, financial services and financial product development. We argue that while the idea of financial wellbeing holds promise, it risks obscuring the realities of poverty.

In our paper we give an example of how financial counsellors in the 1980s endeavoured to show financial wellbeing can be influenced by factors other than individual behaviour. Well-meaning charities at the time were advising clients on low incomes that their financial problems were mainly due to poor budgeting. The financial counsellors and their clients organised campaigns against some of the causes of financial insecurity, including predatory lending practices of businesses such as finance company AVCO and department store Waltons. Judy Power, in her book Community warriors, details how the financial counsellors looked ‘beyond the individuals to the society in which debt was so dramatically increasing’.

A broader understanding of financial wellbeing

A broader focus is required for financial wellbeing, beyond individual motivations and skills. The negative impact of social and economic policies on people’s incomes needs to be the central concern it addresses. 

To improve current financial wellbeing policies we propose the capability approach of economist and philosopher Amartya Sen, which focuses on the interplay of individual aspirations with the necessary resources and real opportunities that enable individuals to live good lives.

Our working paper is part of a collaboration that explores the economic and social dimensions of people’s financial circumstances.

Posted by Luke Craven.