New Year’s resolution: boost financial wellbeing

The new year can be a financial wake-up call. Between the hangover of the festive season and the added expenses of a new year, it can be a time for financial doldrums and more than a little stress.

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It’s also a time for resolutions so along with other types of health and wellbeing plans, it is worth considering some financial behavioural changes to improve financial wellbeing in the year ahead.

"Financial wellbeing is a combination of two factors - how much money you've got and what you do with the money you have.” – Prof Elaine Kempson

Below are some resolutions to consider which may help create a more positive financial outlook in 2022, based on insights from the 2021 ANZ Financial Wellbeing Survey.

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1. Commit to active saving and not borrowing for everyday expenses

Are you ready to embrace a savings mindset in 2022? Financial behaviours including saving and spending behaviours, investment behaviours and money management behaviours account for 19.3 per cent of financial wellbeing.

In the 2021 ANZ Financial Wellbeing Survey, people with higher levels of financial wellbeing had higher scores for saving and spending behaviours than people who were struggling with their financial wellbeing. They were also more likely to regularly save money, even if only a small amount (89 per cent) than the general population (71 per cent) and people who were struggling (39 per cent). 

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A strong savings mindset is correlated with higher financial wellbeing. Some options to improve active saving include turning on automated savings where possible; learning about “bucketing” techniques as simple as setting up a series of accounts for savings (Scott Pape’s Barefoot Investor series is a great resource for this); using budgeting or financial goal setting tools and spend trackers like ANZ Spendi; and consider trying ANZ’s 6-week financial wellbeing challenge.

2. Commit to changing your financial mindset and behaviours

Financial wellbeing researchers around the world try to understand why people behave the way they do with money - what drives behaviours and what ‘blocks’ and ‘enables’ financial wellbeing. Prescience Research’s David Blackmore, who contributed to ANZ’s Financial Wellbeing Survey, explains making a strong commitment alone to achieving a savings goal will not automatically improve financial wellbeing.

“Rather there would first need to be a change in attitude to more of a ‘saver’ mindset which in turn would need to create a change in behaviour, an increase in ‘active saving’,” he says. “Only after this behaviour change has taken place would we expect to see an improvement in financial wellbeing.”

Central to understanding financial wellbeing and what influences financial wellbeing scores is a person’s socioeconomic context. In ANZ’s latest survey, socioeconomic factors including earning potential, health and unemployment accounted for 54.5 per cent of a person’s overall financial wellbeing score. The research also showed a strong relationship between poor physical/mental health and financial wellbeing.

In fact, the research showed a stronger relationship between health and financial wellbeing than between financial wellbeing and an individual’s savings and spending behaviours, with health accounting for 13.7 per cent of the overall financial wellbeing score.

Research suggests even if someone is doing everything right – actively saving, not borrowing for everyday expenses and exercising spending restraint – a major health event can derail financial stability so investment in all aspects of health is a smart move. Traits, attitudes, confidence and behaviours matter too. For example, behaviour traits account for 13.4 per cent of a person’s financial wellbeing.

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3. Review your spending behaviours and commit to spending restraint

Professor Emeritus of Personal Finance and Social Policy Research at the University of Bristol Elaine Kempson has been a pioneer of financial wellbeing research for decades.

“I've long said that financial wellbeing is a combination of two factors,” she explains. “It's how much money you've got; and it's what you do with the money you have.”

Kempson says self-control has a huge amount to do with how well you manage your money day to day and she applies a simple “want vs need” test when making spending decisions. The goal of this test is to reduce impulsive spending.

Impulsivity is strongly associated with financial wellbeing. Add to this, more informed decision-making behaviours such as gathering and weighing up information before making a decision and you can improve your savings or investment decisions.

4. Improve your financial confidence and control, take responsibility

Do you have a ‘she’ll be right’ mentality when it comes to money, feeling that it’s all out of your control so you don’t need to take responsibility for what happens to you financially? Do you buy things because everyone else is buying them, not taking into account whether you need it or can afford it? This is a key area of interest for financial wellbeing researchers, referred to as the “locus of control”.

Leading researcher in this area Dr Pushpa Wood, Director, NZ Fin-Ed Centre, Massey University explains: “Locus of control in the financial wellbeing space means whether an individual believes/perceives they have control over their destiny or whether it is someone else/external factors controlling their destiny,” she says.

“Each of these perceptions will then influence their approach to financial behaviour and management and will determine whether their behaviour moves towards self-management or handing over this responsibility to someone else.”

For Kempson, financial locus of control is the extent to which people feel the responsibility for how they manage their money rests with them. “It affects all the key behaviours that determine financial wellbeing,” she says. Having an internal locus of control is widely recognised as a positive trait that contributes to an individual’s wellbeing.

5. Review your online risk

From text messages alerting you to a parcel that is going to be delivered to emails asking you to click a link to ‘confirm’ you details, scams are all pervasive. Almost three-quarters of Australians surveyed in the ANZ Financial Wellbeing Survey felt confident in their knowledge of how to protect their security online and 69 per cent felt they understood how to protect their privacy online. Interestingly, the least confident cohort in the survey were 18-24-year-olds.

Keep on top of the latest security alerts through ANZ’s security centre. Other useful resources include the Australian Competition and Consumer Commission’s (ACCC) Scamwatch website, the eSafety Commissioner’s website and the Australian Cyber Security Centre.

6. Embrace optimism and a future focus

The survey found a person’s level of optimism influences how confident and in control they feel about their finances. Their orientation towards the future also matters. Having the confidence and foresight to save for retirement rather than simply hoping for the best will directly impact financial wellbeing.

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Traits such as optimism, future orientation, impulsivity and frugality had the strongest influences on financial wellbeing. These different financial behaviour traits influence financial wellbeing along different pathways through either financial confidence and control or saving and spending attitudes to behaviours and financial wellbeing. Whether an individual is future-oriented, impulsive or frugal influences their attitudes to saving and spending (whether they have more of a saving or spending mindset).

The good news

As research continues to grow deeper, it is very clear there are simple ways to improve your financial wellbeing. What you do with your money can make a situation better or worse.

Author of bestseller Atomic Habits James Clear highlights the importance of examining your habits and looking at the path you are heading down. "It doesn't matter how successful or unsuccessful you are right now. What matters is whether your habits are putting you on the path toward success. You should be far more concerned with your current trajectory than with your current results."

Financial capability and wellbeing is a lifelong process according to Dr Wood. Behavioural research backs this up - our habits matter and it is the same when it comes to money.

Emily Ross is a content producer and Director of Emily Ross Bespoke

Click here to read the 2021 Financial Wellbeing report

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

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