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