Confidence and wellbeing: on different paths

Financial wellbeing is an important measure of society.

Click image to zoom Tap image to zoom

It can tell us about people’s resilience to economic shocks, their ability to meet commitments and how comfortable they feel about their financial future. Financial stress, which is related to financial wellbeing, can negatively impact health outcomes and productivity.

" It is possible that periods of weakness in consumer confidence prompt changes in behaviour that improve financial wellbeing.”

In late 2019, ANZ and Roy Morgan released the ANZ Roy Morgan Financial Wellbeing Indicator - a statistically robust snapshot of the personal financial wellbeing of Australians. It will be reported every quarter.

But is financial wellbeing just another name for consumer confidence? After all, the ANZ Roy Morgan Financial Wellbeing Indicator uses some of the data from the ANZ Roy Morgan Consumer Confidence survey.

There are periods when financial wellbeing and consumer confidence are well correlated. But there are also times when there is considerable divergence - such as the period from the start of 2018 to mid-2019.

ANZ Research thinks the divergence reflects the active components of financial wellbeing. Critically, people can take action that improves their financial wellbeing, over time.

It is possible periods of weakness in consumer confidence prompt changes in behaviour which in turn improve financial wellbeing - so long as people have the financial independence to make those changes.

To develop the Indicator, ANZ and Roy Morgan replicated the results of key questions from ANZ’s 2017 survey into the Roy Morgan Single Source survey which canvasses approximately 50,000 Australians annually. In addition to yielding an overall financial wellbeing score (out of 100), the questions are designed to measure three components of financial wellbeing – meeting everyday commitments, feeling comfortable and resilience for the future.

The breadth of the data gathered through Roy Morgan Single Source enables examination of Australians’ financial wellbeing over time and at a more granular level, across different local geographies and demographics.

Not the same

Questions about an individual’s financial circumstances also form part of the ANZ Roy Morgan Consumer Confidence surveys. So how much do the two measures differ? And what might the differences or similarities tell us about consumers’ financial state?

It is immediately obvious from the chart above that financial wellbeing and consumer confidence are not the same thing. However, for the first four years for which we have the Indicator there was a strong correlation between the two.

But over the 12 months to mid-2019 there has been considerable divergence. Financial wellbeing moved higher. Consumer confidence, in contrast, declined.

The ANZ Roy Morgan Consumer Confidence survey tries to capture more than just the financial circumstances of individuals. It also asks how people view the economy and whether they think it is a good time to buy a major household item.

If the focus is on just the personal financial circumstances of people and how that compares with the Financial Wellbeing Indicator, the chart begins to shift.

The chart above shows less of a gap between the two measures than the original chart but still a divergence over the past 18 months. Since 2018, financial wellbeing has moved higher whereas people’s perception of their financial circumstances have gone broadly sideways – albeit with considerable volatility.

Overall consumer confidence has dropped quite a bit further since June 2019, which is the latest point for the Financial Wellbeing Indicator. The consumer confidence survey’s measure of own finances has held up better than overall confidence but has not improved in line with the gain in financial wellbeing to June.

Does this point to a sharp drop in financial wellbeing at some point? ANZ Research thinks not.

Active measures are key

The key difference between the two measures is that individuals can improve their financial wellbeing.

Looking at the financial wellbeing report, the improvement in financial wellbeing since 2014 has been driven by the positive steps people have taken, such as increasing savings, reducing the percentage of income spent on living expenses, falling ownership of credit cards, declining use of personal finance and more actively tracking their money.

When considering these active behaviours, it is possible to imagine the most extreme divergence between financial wellbeing and consumer confidence could actually be in periods when confidence is under considerable downward pressure.

At such times people may make active decisions that improve their financial wellbeing because they are worried about the economic and financial outlook. So long as they are able to make such decisions, of course. The key to this is likely to be employment.

If people have jobs then they will have a degree of financial autonomy that will allow them to modify behaviour, at least to some extent. Their degree of freedom would be related to their level of income.

If the labour market remains in reasonable shape, ANZ Research sees no reason why financial wellbeing would fall to match confidence. In fact, the divergence between the two could continue to widen as people react to an uncertain outlook by adapting their behaviour.

But if the labour market deteriorates sharply, then it will likely be difficult for people to maintain their financial wellbeing, even with the best will in the world.

David Plank is Head of Australian Economics at ANZ

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

editor's picks

10 Dec 2019

Financial wellbeing: researching the community

Michelle Commandeur | Head of Financial Inclusion at ANZ

Researching the financial wellbeing of communities can help influence the financial services industry. US expert Dr Dee Warmath explains.

19 Apr 2018

Financial wellbeing means rethinking lending: Kempson

Janak Rogers | Host, The ANZ Way podcast

Financial wellbeing expert encourages financial services providers to identify people with an overreliance on debt.

08 Nov 2018

Financial wellbeing: the three pillars

Kath Bray | Managing Director - Retail Banking, ANZ

At the heart of a bank’s social licence to operate is the financial wellbeing of the community.