mC?30 - 50 >50 - 80 >80 - 100 POPULATION STRUGGLING FINANCIAL WELLBEING SCORE OUT OF 100 14 W e considered the categories of ‘Financially distressed/Financially unstable/Financially exposed/Financially well’ (applied by Kempson et al., Momentum Financial Wellness Index, UK), ‘Low/Medium/Good/Very good’ (based on 2009 NZ Financial Knowledge Survey), ‘Financially distressed’/’Financially stressed’ (applied by Martin North et al., Digital Finance Analytics), and ‘Just about managing’ (JAM) (first described by Frayne and in wide use in UK political discourse). 15 FINANCIAL WELLBEING REPORT ‘No worries’: Twenty-three per cent of respondents (which could be extrapolated to around 828,000 people15 in New Zealand) were in the top group, with an average financial wellbeing score of 91 out of 100. They were well positioned socio-economically and their financial outlook was positive; they could sustainably cover expenses and they were well placed for retirement. • The top 23% had relatively high levels of overall financial wellbeing with scores in excess of 80 out of 100. As might be expected, they had high scores on all three components of financial wellbeing: meeting financial commitments (mean score of 98 out of 100), resilience for the future (mean score of 91 out of 100), and feeling comfortable (mean score of 83 out of 100). • Their current financial situation was good (86% described it as such). This compared to 34% of those who were doing OK, 5% of those who were getting by and <1% of those who were struggling. • They were also confident about their financial future with 89% confident about the next 12 months. This compared with 48% of those who were doing OK, 19% of those who were getting by and 9% of those who were struggling). • They were the oldest of the four groups (with an average age of 56 years; 67% were aged 50 or more), there was a slight over-representation of males (54%) and 28% held a university degree (compared with 22% of the total sample). different to that of the total sample (median value of $132,400). Most members of this group (91%) had less than $10,000 in consumer debt (versus 75% of the total sample). Not surprisingly the proportion of this group who were ‘comfortable’ with their current debt level (77%) was notably higher than any of the other groups (45% for doing OK, 24% for getting by and 10% for people who were struggling). • The no worries group were also more likely to own their home outright (60% versus 26% of the total sample). They were more likely to live with a partner (70% versus 56% of the total sample). • Interestingly, 60% of those who did live with a partner said they were both savers. This is a marked contrast to how the other groups described themselves and their partners (14% of those who were struggling, 19% of those getting by and 36% of those who were doing OK were ‘both savers’). • Compared to those who were doing OK, the no worries group had particularly high scores on active saving (mean score of 86 versus 65 for those doing OK), not borrowing for everyday expenses (mean score of 96 versus 86), confidence in managing money (mean score of 82 versus 66) and self-belief that they could control their financial situation (mean score of 74 versus 62 on internal locus of control). • Household incomes were higher than average, (35% earned $100,000 per annum or more versus the sample average of 20%). • This group had substantial sums in savings and investments (median value of $113,100) and in their KiwiSaver account (median value of $21,100 amongst those holding this product). • Debt levels were slightly less than those of the other three groups. They were less likely to have a mortgage against their home (20% versus 26% of the total sample). Of those who had a mortgage, the median loan value of $149,300 was not greatly 15 Population estimates drawn from Stats NZ 2013 Census figures, updated in proportion to the January 2017 Estimated Residential Population (https://www.stats.govt.nz/topics/population/) with a further adjustment for respondent age, gender, ethnicity and location. 16 KEY FINDINGS ‘Doing OK’: Forty per cent of respondents (around 1.45 million New Zealanders) had a reasonable level of financial wellbeing. This was the largest group, with an average financial wellbeing score of 65 out of 100. Their financial wellbeing was above average, linked to secure employment and steady household income. • Members of this group had financial wellbeing scores ranging from 51-80 out of 100. Nearly all could meet their current financial commitments (only 3% always/often ran short of money for food and other regular expenses, compared with 14% of those who were getting by) and only 2% were always or often unable to pay bills and loan commitments at final reminder (compared to 9% of those who were getting by) during the last 12 months. • They had higher levels of resilience for the future (only 8% said they did not have any savings, compared with 37% of those who were getting by). They were more comfortable with their financial situation (8% described their current financial situation as ‘bad’ compared with 38% of those who were getting by). • They were no more likely than the group who were getting by to have a mortgage on their home (30% versus 28%) and the value of these loans did not differ greatly between the two groups (median values of $140,000 and $114,000 respectively). At the same time, fewer members of this group had outstanding consumer loans than did those who were just getting by (35% have more than $5,000 in outstanding consumer loans versus 46% of the getting by). • Debt (particularly consumer debt) appeared to be an important differentiator between those who were doing OK and those who were just getting by. While 46% of those who were getting by were uncomfortable with the amount of money they currently owed, this applied to only 23% of the group who were doing OK. • This group was slightly more likely to depend on wages and salary as the main source of household income (62%). Variability in that wage or salary income was likely to be relatively limited (59% stable; 38% vary a bit). • They had more money in savings and investments than those who were struggling and those who were getting by (39% had $20,000 or more, versus 4% and 13% respectively for the other two groups). They also had more in their KiwiSaver account (41% had $20,000 or more versus 16% and 21% of those in the other two groups who held a KiwiSaver account). 17 FINANCIAL WELLBEING REPORT ‘Getting by’: Twenty-four per cent of respondents (around 893,000 New Zealanders) had an average financial wellbeing score of 42 out of 100. For many of these people, it was a challenge to make ends meet. They fell behind the majority of New Zealanders in terms of financial wellbeing. • The getting by group had financial wellbeing scores ranging from 31-50 out of 100. They could meet current financial commitments to a greater extent than those who were struggling (14% always/ often run short of money for food and other regular expenses – compared with 61% of those who were struggling – while 9% always/often lacked the money to pay bills at the final reminder). They had higher levels of resilience for the future than those who were struggling (37% said they did not have any savings compared with 79% of those who were struggling) and they were more comfortable with their financial situation (38% described their current financial situation as ‘bad’ compared with 84% of those who were struggling). Nevertheless, their position on all of these measures was still significantly worse than that of the population overall. • Household incomes were below average (30% reported less than $25,000 per annum; 29% reported $25,000-$49,999 per annum) but were slightly higher than those reported by those who were struggling financially. A substantial proportion (28%) depended on a government payment or allowance as their main source of income and, of those whose main source of income was wages/salary, 53% reported that their income varied considerably (7%) or a bit (46%) each month. • These people had a median value of $2,600 outstanding on consumer loans, about the same amount as people who were struggling, and significantly more than those who were doing OK and those who appear to have no worries. They were more likely than average to use loans from family and friends (26%), financial institutions (25%) and payday lenders (10% borrowing at least once a year). Savings and investments held by this group are below average with 87% having less than $20,000 versus 61% of the total sample. • Compared to those who were struggling, members of this group had higher scores on active saving and on avoiding borrowing for day-to-day expenses. They also appeared to be more confident in their money management skills (mean score of 58 compared with 52 for those who were struggling) and to have greater self-belief in their ability to control their own financial situation (mean internal locus of control score of 55 versus 49 for those struggling with their finances). FIGURE 4. FINANCIAL WELLBEING BY COMPONENT IN THE NEW ZEALAND POPULATION 98 100 91 91 80 SCORE OUT OF 100 83 79 65 60 42 40 20 58 58 57 40 34 28 20 19 7 0 Overall wellbeing Meeting commitments Struggling 18 Getting by Feeling comfortable Doing OK No worries Resilience for the future KEY FINDINGS ‘Struggling’: Overall, 13% of respondents (around 479,000 New Zealanders) had an average financial wellbeing score of 20 out of 100. People in this group were struggling to meet dayto-day financial commitments, were not feeling comfortable with their financial situation and had little financial resilience for the future. • This group comprised 13% of New Zealanders with a relatively low financial wellbeing score (30 or less). Members of this group were struggling to meet their current financial commitments (61% always/ often ran short of money for food and other regular expenses; 32% always/often lacked the money to pay bills at the final reminder). They had limited financial resilience (79% said they did not have any savings at all) and they were not feeling comfortable about their financial situation (84% described their current financial situation as ‘bad’). • Socio-demographically, members of this group were more likely than average to be women (64%), to live in a single adult household (19% alone; 16% single parent), to be from a Maori cultural background (27%), to have a household income of under $25,000 (44%) and to have a government payment or allowance as their main source of income (43%). For those whose main source of income was wages/salary, for most that income varied either considerably (21%) or a bit (48%), each month. • The majority were renting their home on the private market (50%) or from a government agency (13%)16, only 4% owned their home outright. • 22% had experienced at least one period of unemployment in the last two years. • 53% suffered from a long-term health condition, impairment or disability. • 49% reported that they lacked parental advice about financial matters when they were growing up (compared with 33% of the total sample). • Their financial behaviour showed above average use of loans from family and friends (39%), delayed payment schemes such as AfterPay/ZipPay (14%), payday lenders (16% borrowed at least once a year) and lease or hire purchase arrangements (30%). • Given their circumstances, it was not unexpected to find members of this group had the lowest scores on the key behaviours of active saving and avoiding borrowing for everyday expenses. They also had relatively low levels of confidence in their money management skills (mean score of 52 versus the population average of 66) and limited belief in their ability to control their financial situation (mean score of 49 versus the population average of 61). FIGURE 5. NEW ZEALANDERS WHO WERE STRUGGLING (13% with lowest financial wellbeing scores) 79% Didn’t have any savings 84% Had less than a month without needing to borrow if income fell by a third 92% Sometimes, often or always ran short of money for food or other regular expenses 68% Sometimes, often or always were unable to pay bills or loans at final reminder 16 A further 13% paid rent or board to someone else who lived in the house. 19 FINANCIAL WELLBEING REPORT “ The extent to which someone is able to meet all their current commitments and needs comfortably, and has the financial resilience to maintain this in the future ” 17 Professor Elaine Kempson defining financial wellbeing 2. The research showed that application of the five domains of the Kempson model explained 70%18 of a person’s financial wellbeing. Figure 6 summarises the relationships between people’s financial wellbeing and the five domains which influence it; their financial behaviour, psychological factors, financial knowledge and experience, sociodemographic status and economic characteristics. It provides a context and methodology (multiple linear regression) for identifying and better understanding the factors that are the key drivers of people’s financial wellbeing. 70% Five domains of the Kempson model explained 70% of financial wellbeing for New Zealand respondents 17 Kempson, Elaine & Finney, Andrea & Poppe, Christian (2017). Financial Well-Being A Conceptual Model and Preliminary Analysis. 10.13140/ RG.2.2.18737.68961. 18 R2 from Regression modelling 20 KEY FINDINGS FIGURE 6. FIVE DOMAINS OF FINANCIAL WELLBEING MODEL 19 15% Economic factors Important influences: Household income 8% Income varies a lot month-to-month 3% Income fell substantially in last year 2% 18% Social factors Important influences: Own home mortgage-free 6% Aged >60 years 3% Long-term health condition 3% 10% Financial knowledge/experience Important influences: Financial product experience 4% Understanding of risk 3% Product knowledge 3% 43% Financial behaviour Important influences: Active saving 18% Not borrowing for everyday expenses 17% FINANCIAL WELLBEING 14% Psychological factors Important influences: Confidence in money management skills 6% Locus of control 6% 19 a. Between them, these five domains explained 70% of the variation in people’s financial wellbeing. b. T he influence of each domain is represented by the percentage shown next to it (obtained by summing the standardised regression coefficients and rescaling each one to a percentage; the % figures thus represent the shares of the explained influence of these five domains on financial wellbeing). People’s financial behaviour (43%) was clearly the most important influence. c. The influence of individual components is shown for those that were the most important influences on financial wellbeing. d. H ousehold income consists of three separate variables here: <$25k (3%); $25k-<$50k (2%); $150k+ (2%);. 8% is the total influence attributable to these three variables. 21 FINANCIAL WELLBEING REPORT 3. Behaviour had a major impact on financial wellbeing. • Behaviour accounted for 43% of overall financial wellbeing. Financial behaviours tested included spending restraint, not borrowing for daily expenses, active saving, planning how to use your income, monitoring finances and making informed product choices. Some of these were shown to have very little influence on wellbeing. However, the two behaviours to emerge as most important with respect to people’s financial wellbeing were active saving and not borrowing for everyday expenses. Between them, these two behaviours accounted for 35% of the explained variation in people’s financial wellbeing scores. • To illustrate this point, figure 7 shows how two respondents in the survey (with essentially the same income and socio-economic context) achieved very different financial wellbeing outcomes, based on their financial behaviours. The person who scored highly on ‘active saving’ and ‘not borrowing for everyday expenses’ recorded a financial wellbeing score of 74, significantly higher than the person who scored lower on these behaviours (financial wellbeing score of 34). FIGURE 7. FINANCIAL BEHAVIOURS CAN INFLUENCE FINANCIAL WELLBEING • Female • Resident of Auckland • Aged 18-29 years • Single • Household income <$50,000 p.a. • Renting Persona 1 Behaviour scores Not borrowing for day-to-day expenses = 58 Active saving = 48 Overall financial wellbeing score = 34 22 Persona 2 Behaviour scores Not borrowing for day-to-day expenses = 92 Active saving = 90 Overall financial wellbeing score = 74 KEY FINDINGS 4. Active saving behaviour was a key influence on financial wellbeing20. Adopting this behaviour, if at all possible, can help to improve financial wellbeing. • The amount of expenditure required to ‘get by’ will be different for people based on their particular lifestyle, family structure, housing tenure and other factors. By looking at two groups of respondents with very different socio-economic profiles, the survey results illustrate the association between active saving and higher levels of financial wellbeing (Figure 8). • In the first group (single people with household incomes of $25,000 or less, per annum) there was a 34-point difference in the financial wellbeing score between those less likely to engage in active saving behaviour21 and those more likely22 to do so. Similarly, for people living in four-person households with an income of $75,000-$149,999 per annum, there was a 28-point difference in the financial wellbeing score between those less likely to be actively saving and those more likely to be doing so. FIGURE 8. IMPACT OF ACTIVE SAVING ON FINANCIAL WELLBEING For different income groups 67 28 34 OUT OF 100 FINANCIAL WELLBEING SCORE 73 45 33 Income <$25k/single persons Less likely to save Income $75k-<$150k/ four or more person households More likely to save 20 Kempson, Finney & Poppe, 2017 21  Those whose active savings scores were in the lowest 33% of all people with household incomes below $25,000. 22  Those whose active savings scores were in the highest 33% of all people with household incomes below $25,000. 23 FINANCIAL WELLBEING REPORT 5. The survey showed that many people, regardless of income level reported that they were borrowing money for everyday expenses. This is a critical factor in determining financial wellbeing. • Financial wellbeing improved when it was possible to avoid borrowing money to cover everyday living expenses. This finding acknowledges that there are circumstances of genuine financial hardship where borrowing money to cover living expenses can be necessary. By looking at two groups of respondents with different socio-economic contexts, the survey results illustrate the relationship between borrowing money for everyday expenses and financial wellbeing (figure 9). • In the first group (single people household incomes of $25,000 or less, per annum) there was a 30-point difference in the financial wellbeing score between those more likely to borrow for everyday expenses23 and those less likely to do so24. Similarly, for people living in four-person households with an income of $75,000-$149,999 per annum, there was a 26-point difference in the financial wellbeing score between those more and those less likely to borrow for everyday expenses. FIGURE 9. IMPACT OF NOT BORROWING FOR EVERYDAY EXPENSES ON FINANCIAL WELLBEING For different income groups 26 63 OUT OF 100 FINANCIAL WELLBEING SCORE 74 30 48 33 Income <$25k/single persons Less likely to avoid borrowing Income $75k-<$150k/four or more person households More likely to avoid borrowing 23  Those whose scores on not borrowing for everyday expenses were in the lowest 33% of all people with household income <$25,000. 24 24  Those whose scores on not borrowing for everyday expenses were in the highest 33% of all people with household income <$25,000. KEY FINDINGS 6. The relationship between income and financial wellbeing was a complex one. Financial wellbeing was influenced by many factors, not just by how much people earned or how much they had in savings and investments. • The survey showed that people’s socio-economic circumstances contributed 33% to explaining differences in financial wellbeing. These findings draw attention to the fact that financial wellbeing involves a ‘state of mind’ component based on people’s feelings and expectations about their current and future financial situation, which is not based solely on their income or how much they have in savings and investments. Consequently, while income was found to be an important influence, the survey showed that people can have relatively high levels of financial wellbeing without necessarily having particularly high incomes or, as discussed in point 7 (page 26), particularly high levels of savings and investments. straightforward; income was more strongly related to financial wellbeing at lower levels of income and also at the highest level. • Particularly noteworthy however is the wide variation in financial wellbeing scores within each income band. For example, amongst those with household incomes below $25,000 per annum, 25% had wellbeing scores of 61 or more out of 100; that is, they had scores that were above more than 25% of people reporting household incomes in the range $100,000 up to $150,000 per annum. 23% • When combined with other factors that influenced financial wellbeing, household income contributed 8%25 to explaining differences in financial wellbeing scores. As shown in figure 10, the relationship between income and financial wellbeing was not 23% of respondents in New Zealand had less than $1,000 in savings FIGURE 10. RELATIONSHIP BETWEEN INCOME AND FINANCIAL WELLBEING There was very little change in financial wellbeing scores as income increases from $50k to $150k per annum. 80 77 OUT OF 100 FINANCIAL WELLBEING SCORE 100 60 40 61 57 61 83 65 88 94 78 70 71 72 56 51 46 38 20 81 88 53 42 28 LITTLE CHANGE 0 Under $25,000 $25,000 - $49,999 $50,000 - $74,999 $75,000 - $99,999 $100,000 - $124,999 $125,000 - $149,999 $150,000 or more INCOME 75th percentile Average 25th percentile 25 E stimate from regression modelling of financial wellbeing where income was one of a set of independent variables. Household income accounted for 8% of the explained variation in financial wellbeing. Behaviour change will always be moderated by income which remains a fundamental backdrop to financial wellbeing. Income allows people to save and avoid borrowing for daily expenses, as well as having a direct effect on financial wellbeing. 25 FINANCIAL WELLBEING REPORT 7. How much money people had in savings had a significant influence on their financial wellbeing score but, as with income, the relationship was not straightforward. • The survey showed that people could have relatively high levels of financial wellbeing without necessarily having particularly large amounts of savings and investments. There was a relatively wide range of financial wellbeing scores within each savings/ investment category; for example, amongst those with $1,000 to $4,999 in savings and investments, 25% had financial wellbeing scores of 63 or more; that is, they had scores that were higher than 25% of those with $50,000 to $99,999 in savings and investments. • Despite this variation within categories, the results still showed that on average higher savings and investment balances were associated with higher levels of financial wellbeing. While the mean financial wellbeing score for those with less than $1,000 in savings and investments was 35 out of 100, this rose to 85 out of 100 amongst those with $250,000 or more in savings and investments. • The findings also showed that having some savings as a buffer was conducive to higher levels of financial wellbeing, particularly for people with the lowest level of savings. There is a marked 17-point increase evident in financial wellbeing scores between those with less than $1,000 in savings (35 out of 100) and those with $1,000-$4,999 in savings (52 out of 100). FIGURE 11. SAVINGS AS A BUFFER Less than $1,000 in savings was associated with lower financial wellbeing 100 94 69 63 OUT OF 100 FINANCIAL WELLBEING SCORE 83 77 80 60 88 AVERAGE FINANCIAL WELLBEING LOW FINANCIAL WELLBEING 70 20 23 73 65 52 35 85 77 76 $100,000 $249,999 $250,000 or more 59 58 45 40 82 98 62 53 47 42 0 Less than $1,000 $1,000 $4,999 $5,000 $9,999 $10,000 $19,999 $20,000 $49,999 AMOUNT IN SAVINGS 75th percentile 26 Average 25th percentile $50,000 $99,999 KEY FINDINGS 8. The research showed how factors such as home ownership, age and the way parents teach their children about money when they are growing up influenced financial wellbeing scores in New Zealand. Social factors accounted for 18% of the explained variation in people’s overall financial wellbeing. Specifically, the influence of the following factors is worth highlighting: of financial wellbeing (mean score of 68) than those who were either currently or formerly employed in middle/lower white collar occupations (mean score of 56), upper blue collar occupations (mean score of 61) or lower blue collar occupations (mean score of 52). Those who had completed a university degree exhibited higher levels of financial wellbeing (mean score of 66) than those who had not done so (mean score of 58). • Home ownership: People who owned their own homes had higher levels of financial wellbeing. The average financial wellbeing score was 77 for those who owned their home outright, 59 for those with a mortgage on their home and 49 for those who rented. There was no clear relationship between the size of mortgage debt and financial wellbeing (figure 12). • A ge also played a role in financial wellbeing, with older people generally having higher levels of financial wellbeing. There were no doubt many factors influencing this. People aged 60 years or more were more likely to own their own home, and to have had longer to accumulate superannuation and other assets. Of people aged 60 years or more: • Aside from the direct and indirect effects of income on financial wellbeing characteristics such as level of education and occupation were also associated with differing levels of financial wellbeing. When considering these results, it is important to keep in mind that while some groups did have higher levels of household income and (this was an important influence on financial wellbeing) people in these groups also had higher scores on other key influences on financial wellbeing such active saving, not borrowing for expenses and confidence in money management. - 60% owned their home outright (versus 14% of those aged under 60 years); - median savings/investment balances were $39,500 (versus $3,400 for people under 60); and - median KiwiSaver account balances were $19,500 (versus $7,200 for people under 60). Parental advice is also important – people whose parents did not provide them with advice on money matters when they were growing up had lower levels of financial wellbeing on average (55) than those whose parents did provide such advice (62). • As earlier analysis has shown, it would not be correct to attribute the higher levels of financial wellbeing solely to higher levels of household income. With that in mind, we noted that people who were either currently working in upper white collar occupations, or who had done so in the past, had higher levels FIGURE 12. IMPACT OF HOME OWNERSHIP STATUS ON FINANCIAL WELLBEING SCORE 77 80 OUT OF 100 FINANCIAL WELLBEING SCORE 100 59 60 42 49 51 Paid rent to a private landlord Paid rent/board to someone who lived in the house 40 20 0 Paid rent to a government agency Owned home (had a mortgage) Owned home (mortgage-free) 27 FINANCIAL WELLBEING REPORT People whose parents provided them with advice when growing up had higher financial wellbeing on average. 9. It is important to look at financial wellbeing in the context of social and economic disadvantage. Factors such as the direct and indirect effects of a lack of stable income, single parent status, unemployment and poor health were all important negative influences on financial wellbeing. The survey showed that certain groups of people were vulnerable to lower financial wellbeing as a consequence of these factors. • People who had been off work due to illness for a period of at least two months during the last year had a score of 40, 19 points below the national average of 59. • Single parents had a financial wellbeing score of 42 out of 100, 17 points below the national average. • People who had considerable variation in their household income had a financial wellbeing score of 44 out of 100, 15 points below the national average. • People who had a period of unemployment in the last 12 months had a financial wellbeing score of 47 out of 100, 12 points below the national average. 28 • People living with a long-term illness or disability had a financial wellbeing score of 52 out of 100, seven points below the national average. 10. The survey showed that people’s financial knowledge had only a limited direct influence on their financial wellbeing. Financial behaviour, attitudes and social and economic circumstances were more important direct influences. • The research indicated that the amount of knowledge and experience people had accounted for 10% of the total explained variation in financial wellbeing scores. • This is not to say that financial knowledge is irrelevant; clearly those with better financial knowledge were in a position to make better financial decisions. However, what the research shows is that regardless of people’s knowledge, other factors such as psychological influences, social and economic circumstances and the ability to actually take action (that is behaviour) are more important influences on the final wellbeing outcome. KEY FINDINGS 11. People rated their knowledge of bank accounts and products to manage their money day-today as substantially better than their knowledge of longer-term financial investments which might improve their financial situation and prepare them for retirement. • While 53% of people rated their knowledge of day-to-day banking and finance products as good26 knowledge of investment and retirement products was rated substantially lower. Just 30% of respondents considered they had good27 knowledge of investment and retirement products. 12. The survey showed that psychological factors, including aspects of people’s personality and their attitudes towards money, had an impact on financial wellbeing scores. We found that psychological factors accounted for 14% of the explained variation in people’s financial wellbeing. People’s outlook on life had an important impact on their financial wellbeing score. The research highlighted that self-belief and confidence to make financial decisions and manage day-today finances were two critical psychological factors influencing overall financial wellbeing. • People who were the most confident in their dayto-day money management skills had a financial wellbeing score of 71 out of 100. This dropped to a score of 34 for those who were the least confident in money management skills. Nevertheless, it is worth noting that 12% of those with high confidence scores of 80 or more out of 100 actually had financial wellbeing scores below 40 out of 100. This indicated that some people may have been over-confident when assessing their money management skills. • Internal locus of control (i.e. the belief that people can determine what happens in their own life) has an impact on financial wellbeing scores. Of particular interest is the deterioration in financial wellbeing scores for those at the bottom end of the scale who did not believe they had much control over their lives. (Average wellbeing score of 44 versus 66 for those at the top of the scale.) 13. High levels of income variability were associated with lower levels of financial wellbeing. People running their own business and women were overrepresented in the group that reported very variable income. • While comprising only 8% of the total population, those whose household income varied considerably from month-to-month had lower financial wellbeing (mean score of 44 out of 100) than those whose income only varied a bit (mean score of 56) or whose income was stable (mean score of 64). • Those whose income did vary considerably were more likely than average to be self-employed (19%) in a business of which they were the sole employee (60% of those with highly variable incomes who owned their business) and which turned over less than $100,000 per year (54% of this group). There was also a slight over-representation of women in this group (56% females versus 44% males). 26 Sum of responses 1 & 2 on a five point scale 1 (very good) to 5 (very poor) 27 Sum of responses 1 & 2 on a five point scale 1 (very good) to 5 (very poor) 29 FINANCIAL WELLBEING REPORT CONCLUSION This report seeks to improve knowledge of financial wellbeing in New Zealand by using the Kempson et al. model to place our research in a contemporary context. The findings acknowledge the efficacy of that model in describing the connection between a person’s financial wellbeing and their knowledge and experience, attitudes and motivations, behaviours as well social and environmental factors. The survey findings suggest that encouraging positive financial behaviour (particularly active saving and where possible, not borrowing to cover everyday expenses) will improve overall financial wellbeing. This is a shift from the previous focus on improving financial literacy and knowledge. 30 Given the importance of the ongoing monitoring of financial wellbeing, ANZ has committed to continue its longitudinal approach. The modelling used is a reflection of where an individual sees themselves at a moment in time, and how they are feeling about the future. Subsequent surveys will enable us to see how financial wellbeing might vary, and how it will be influenced by a range of economic, social and technological factors over an extended period. In addition to providing insights for a range of stakeholders, this work will inform ANZ’s initiatives to improve financial wellbeing for our customers, employees and communities. APPENDICES APPENDICES 1. LITERATURE REVIEW Financial Wellbeing: Evolution of the concept, meaning and application Roslyn Russell and Jozica Kutin, RMIT University The concept of financial wellbeing has gained prominence in research and policy over the last few years. While it may be tempting to view the term as yet another buzzword in the field of personal finance, it is in reality proving useful as a construct. The term ‘financial wellbeing’ is inherently intuitive and understandable to everyday people, practitioners and researchers alike. Other terms increasingly used in the literature and in industry that are analogous (but not necessarily interchangeable)28 to financial wellbeing are financial health, financial wellness and financial fitness: all reflecting health-related concepts. The major strength of the term ‘financial wellbeing’ is that it explicitly recognises that finances are inextricably linked with wellbeing. By combining the terms (finance and wellbeing) it reduces one of the biggest barriers to people focusing on their finances – that is the inclination to consider financial issues as separate from or unrelated to the other elements of life. Financial wellbeing combines concepts related to the fields of personal finance and the broader area of personal wellbeing. Both fields have long histories, have evolved in parallel and draw from a number of common disciplines including economics, psychology, and health (Bowman, Banks, Fela, Russell, & de Silva, 2016). While financial wellbeing can stand alone as a concept it is also a subset of personal wellbeing and should be understood within the context of the individual’s life within a household, community and society. Improving personal wellbeing has become an important policy priority in many countries29. This has led researchers to prioritise understanding it, measuring it and exploring ways to best improve the factors that lead to wellbeing. Wellbeing indices include elements such as housing, income, education, security, connectedness, health and life satisfaction (Capic, Li, & Cummins, 2017), democratic or civic engagement, living standards, environment, leisure and culture, time use or work-life balance, and community vitality (Canadian Index of Wellbeing, 2016; OECD, 2017). Wellbeing is associated with happiness (Hayes, Evans, & Finney, 2016a, 2016b) and the Australian Unity measure of happiness includes having financial control as being one of the three factors that comprise ‘the golden triangle of happiness’ along with personal relationships and a sense of purpose (Australian Unity, 2017; Cummins et al., 2007). Financial wellbeing is also becoming increasingly recognised in industry as being important for employees. Reduced productivity due to financial stress is costly to employees and organisations (AMP Life, 2016). As a regional example, estimates are that nearly half of Australian workers worry about their financial situation and can spend almost 10% of paid work hours thinking about financial issues (Map My Plan Ltd, 2015), and 24% are financially stressed (AMP Life, 2016). High levels of financial stress within a workplace increases turnover and number of sick days taken and it is estimated that it can cost Australian employers between $47 billion-$60 billion (AMP Life, 2016; Map My Plan Ltd, 2015). 28 See Gerrans et al., (2014) The relationship between personal financial wellness and financial wellbeing: a structural equation modelling approach. Journal of Family and Economic Issues, 25: 145-160. 29 https://uwaterloo.ca/canadian-index-wellbeing/about-canadian-index-wellbeing/wellbeing-around-world 31 FINANCIAL WELLBEING REPORT What does it mean to have financial wellbeing? Evolution of the financial wellbeing concept There are a number of definitions of financial wellbeing that are being used in academic literature, industry reports and government policies – all having very similar meanings. The commonly agreed components of financial wellbeing are being able to meet financial commitments; have resources to enjoy life, and ability to cope with unexpected financial shocks. There is also in most definitions a temporal consideration to financial wellbeing. One should feel in control and satisfied with the present financial situation, while having positive views and plans for one’s financial future. To varying degrees financial wellbeing definitions include subjective measures of feelings and satisfaction about financial situations, and objective measures of financial management behaviours. This approach mirrors that of personal wellbeing measures which usually include objective indicators about levels of health, education and lifestyle; more subjective type measures of satisfaction with life; and also emotions and thoughts (Vlaev & Elliott, 2014). As the personal finance area of research and practice has evolved over time, so too has the terminology and our understanding of how to create a financially healthy population. Following is a brief overview of the evolution of terminology relevant to understanding financial wellbeing31. Internationally there has been a groundswell of work to further our understanding of financial wellbeing. Primarily the recent work30 has come from the USA – the Consumer Financial Protection Bureau (CFPB) (Consumer Financial Protection Bureau, 2015); the UK – Momentum & University of Bristol (Hayes et al., 2016a, 2016b); UK /Norway – Kempson, Finney, and Poppe (2017) and Australia – Centre for Social Impact, Muir et al. (2017). As our understanding grows and new terms are introduced, it does not mean older terms become redundant. The growth in knowledge and research has induced the need for terminology that is more reflective of current understanding, and is intuitive and comprehensive. Each term retains its place in understanding financial wellbeing. Financial literacy Fifteen-to-twenty years ago, the literature in personal finance predominantly focused on individual levels of ‘financial literacy’. In short, financial literacy refers to individual knowledge and skills in managing money. This era of work which focused on measuring and improving financial literacy reflected the dominant but flawed belief that more knowledge would or should result in effective financial behaviour. The focus on financial literacy neglected to include external environmental conditions that impact on people’s financial situation. The state of the economy, responsibilities of institutions, people’s income and opportunity for employment and household circumstances were largely left out of the picture. The underlying assumption was that individuals who experienced financial hardship only needed more financial knowledge to improve their financial situation. 30 See Kempson et al. (2017) for discussion of earlier definitions and work on financial wellbeing. 31 K empson et al. (2017) and Bowman et al. (2016) have provided comprehensive reviews of the evolution of terms from financial literacy, financial capabilities to financial wellbeing. These pieces of research also include discussions on how related concepts such as financial resilience and financial inclusion fit into our current framework of financial wellbeing. 32 LITERATURE REVIEW Financial literacy is generally measurable through questions that have right or wrong answers, are usually mathematical in nature and involve being able to understand financial terms and documents (Klapper et al., 2015). In relating this to a public health analogy, it would be akin to knowing the facts about nutrition, exercise and healthy lifestyle habits. Of course, simply knowing the facts does not make us healthy until we translate that knowledge into behaviour. Having said that, effective behaviour is less likely to occur without knowledge. Literacy or knowledge is important, but it is not sufficient for wellbeing. Financial capability Around 10 years ago, research began to focus on the importance of taking action and adopting certain behaviours. Atkinson, McKay, Kempson and Collard (2006) in the UK provided the most comprehensive and seminal work that developed the concept of financial capability. The important contributions from this research were that financial capability includes sets of behaviours and not just knowledge, it is not a singular concept but is comprised of five domains: making ends meet, keeping track of finances, planning for the future, choosing appropriate financial products and staying informed. Johnson and Sherraden (2007) added a critical element to our understanding of the term financial capability by explicitly including ‘opportunity’ to act on knowledge. This highlighted the importance of external factors and how they can either inhibit or provide opportunities to develop capabilities. Financial capability is not just an individual responsibility, it incorporates the role of institutions in enabling financial inclusion, provision of adequate income and opportunities to learn and implement behaviours. Financial wellbeing Financial wellbeing is the most holistic concept to date. It answers the need for a term that included elements that we knew were important in explaining differences in people’s financial situations that were not adequately focused upon in the past. Models of financial wellbeing include a range of external factors. Socio-economic indicators such as income, employment, health and social support make a significant difference to the level of financial wellbeing. It does incorporate the need for knowledge (financial literacy), behaviours (capabilities), and is heavily influenced by attitudes and psychological traits. They also include consideration of the present and the future. Financial wellbeing will be different for everyone but an effective index will include objective as well as subjective measures. The following section summarises the drivers of financial wellbeing as indicated in the most current measures. 33 FINANCIAL WELLBEING REPORT What are the drivers of financial wellbeing? Kempson et al. (2017) have tested a range of factors that drive financial wellbeing. Figure 13 shows their financial wellbeing model. The most important drivers of financial wellbeing lie within our social and economic environments. Within these contexts are our individual capacities and opportunities to optimise our financial wellbeing. Embedded in knowledge, skills and behaviours are other considerations such as attitudes and psychological traits. It is important to note that the size of the boxes reflects the degree of importance of each of the factors in driving financial wellbeing. Socio-economic factors Kempson et al. (2017) research found that income and workforce participation are significant drivers of financial wellbeing32. Part-time employees were better at tracking money than full-time employees and self-employed individuals or micro-entrepreneurs were not as capable as employees when it came to saving and planning. Muir et al. (2017) used an ecological systems approach to exploring financial wellbeing in Australia and produced a ‘financial wellbeing tree’ to depict the influences and components of financial wellbeing. This approach devoted specific focus on each layer within the system in which we live by considering not only individual influences, but also household, family, peer-level, community and societal influences. The consideration of these broader elements provides a direct link from financial wellbeing to the components of overall wellbeing (OECD, 2017). FIGURE 13. FINANCIAL WELLBEING MODEL Kempson et al. 2017 Financial resilience Knowledge, skills & experience Socio economic environment Financial behaviours Financial wellbeing Feeling comfortable Psychological factors Meeting commitments 32 P lease note that while the Kempson et al. (2017) model was developed using UK and Norwegian data, but the survey used to test the model was disseminated in Norway. 34 LITERATURE REVIEW While the Kempson et al. research did not specifically measure variables such as social capital or community socio-economic status, the Muir et al. research did and found that social capital was significantly associated with financial wellbeing. In personal wellbeing measures, social capital may reflect social connectedness and relationships; it is having people in your life who support you and having access to resources if needed. The Muir et al. ‘financial wellbeing tree’ model also included life stressors and personal health as important contributors to wellbeing. The Hayes et al. (2016b) Momentum UK Financial Wellness index included three macro factors that influence financial wellbeing. It used unemployment rate, which of course impacted income and indicated strength of the economy, and changes in GDP per capita that could give an average income per person. The World Bank data used in the index included a Purchasing Power Parity which accounted for cost of living across countries. The third macro indicator used in the UK index was the Gini coefficient which is a measure of inequality. Individual factors Within the Kempson et al. framework are factors that relate to individual capacities such as knowledge, financial behaviours and psychological traits. Kempson et al. found the most important financial capabilities or behaviours to financial wellbeing were active saving, not borrowing for everyday expenses and restrained spending. The psychological traits that were most significant to those behaviours were reduced impulsivity, a future time orientation, internal locus of control and self-control. Knowledge was found to be the least important of the individual capacities in influencing financial wellbeing. Muir et al., found similar individual factors to be important, especially among the objective behavioural measures of meeting expenses and having money left over, being in control and feeling financially secure. Muir et al. also found having savings and building resilience for unexpected expenses were both important. Muir and Hayes et al. specifically included financial inclusion as a significant driver of financial wellbeing – this element could be also seen as an external factor with responsibility lying predominantly with financial institutions. Muir et al. did not specifically include psychological traits but found that personal health was an important driver of financial wellbeing. Having a disability or poor physical or mental health was detrimental to financial wellbeing. Hayes et al. included many of the individual capabilities and objective measures included in the Kempson and Muir models and also included having assets and financial confidence. 35 FINANCIAL WELLBEING REPORT New Zealand initiatives to support financial wellbeing The New Zealand National Strategy for Financial Capability (2015), led by the Commission for Financial Capability (CFFC)33 outlines efforts to improve the financial wellbeing and capability of New Zealanders. The CFFC is the office of the Retirement Commissioner and its core responsibilities are financial capability, retirement income and retirement villages (CFFC, 2017a). In relation to measurement of financial wellbeing, the CFFC has also implemented a national outcomes tool (the New Zealand Financial Behaviour Index: Colmar Brunton, 2014) to monitor changes in the five streams covered by the New Zealand National Strategy for Financial Capability. The CFFC also plans a ‘Financial Capability Barometer’ which will include measures of ‘optimism or pessimism about financial future’ (CFFC, 2017 p. 15). Whilst the Financial Behaviour Index covered items that are also considered in the Kempson et al. and other financial wellbeing scales, it misses critical aspects such as how satisfied New Zealanders are with their current financial situation, whether they feel comfortable or can afford extra things, and their confidence about their financial future. This is a critical component of wellbeing, which differentiates wellbeing from financial capability. The Ministry of Social Development (MSD) also plays a very active role in improving the financial wellbeing and capability of New Zealanders, and in publishing reports on the material wellbeing of New Zealanders (Perry, 2017). 33 https://www.cffc.org.nz/ 34 http://www.mywellbeing.co.nz/mw/default.html 36 In that report, measures of non-income based wellbeing were incorporated to develop the Material Wellbeing Index (MWI). The MSD used an incomewealth-consumption-material wellbeing framework, and acknowledged that material standard of living was influenced by household income and financial and physical assets. It found that not all low income households were in hardship and ‘not all in hardship have low incomes’ as there are ‘many factors in addition to income that determine a household’s level of material wellbeing’ (Perry, 2017, p. 4). The Auckland University of Technology (funded by Sovereign) developed the Sovereign Wellbeing Index (SWI) in 201234. It ranked those who had optimal wellbeing as ‘Awesome’, with 25% of New Zealanders reaching this ranking (Mackay, Schofield, Jarden, & Prendergast, 2015). This general wellbeing score has not changed significantly since 2012. FINANCIAL WELLBEING Bibliography Allin, P., & Hand, D. J. (2017). New statistics for old? – Measuring the wellbeing of the UK. Journal of the Royal Statistical Society: Series A (Statistics in Society), 180(1), 3-43. doi:10.1111/rssa.12188 AMP Life. (2016). Financial wellness in the Australian workplace. Retrieved from Parramatta, Australia: https://www.ampcapital.com.au/goals/MyLifeGoals/ media/contents/Articles/2016/December/October-2016_Financial-wellness-in-the-Australian-workplace_FINAL.pdf ASIC. (2017). Independent evaluation of ASIC’s MoneySmart Teaching Program. Report 554. Retrieved from Canberra, Australia: http://download.asic.gov. au/media/4563536/rep554-published-4-december-2017.pdf Atkinson, A., McKay, S., Kempson, E., & Collard, S. (2006). 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Retrieved from Sydney, Australia: http://download.asic.gov.au/media/4563530/ey-sweeney-case-studies.pdf Financial Literacy & Savings Partner Working Group. (2015). Whanau and low-income household savings report. Retrieved from Auckland, New Zealand: http://www.mbie.govt.nz/info-services/infrastructure-growth/maori-economic-development/documents-image-library/hkkar-whanau-and-lowincome-household-savings-report.pdf Gerrans, P., Speelman, C., & Campitelli, G. (2014). The relationship between personal finanical wellness and financial wellbeing: A structural equation modelling approach. Journal of Family Economic Issues, 35, 145-160. doi:10.1007/s10834-013-9358-z 37 FINANCIAL WELLBEING REPORT Hayes, D., Evans, J., & Finney, A. (2016a). Momentum Household Financial Wellness Index: Wave one. 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Building financial capability in New Zealand. Retrieved from Auckland, New Zealand: https://www.cffc.org.nz/assets/ Uploads/Financial-Capability-Government-Statement.pdf OECD. (2017). How’s life? 2017: Measuring wellbeing. Retrieved from OECD Publishing, Paris, France: http://www.oecd-ilibrary.org/economics/how-slife_23089679 Perry, B. (2017). The material wellbeing of NZ households: Overview and key findings from the 2017 household incomes report and the companion report using non-income measures. Retrieved from Ministry of Social Development, Wellington, New Zealand: https://www.msd.govt.nz/documents/ about-msd-and-our-work/publications-resources/monitoring/household-income-report/2017/incomes-report-overview.pdf Russell, R., Kutin, J., Green, R., Banks, M., & Di lorio, A. (2016). Women and money in Australia: Across the generations. Retrieved from RMIT University, Melbourne, Australia: https://www.academia.edu/31292558/WOMEN_AND_MONEY_IN_AUSTRALIA_ACROSS_THE_GENERATIONS?auto=download Russell, R., Kutin, J., Stewart, M., & Rankin, G. (2017) MoneyMinded Impact Report 2017. http://www.financialliteracy.gov.au/media/560892/mmimpact-2017.pdf Vlaev, I., & Elliot, A. (2014). Financial wellbeing components. Social Indicators Research, 118(3), 1103-1123. doi:10.1007/s11205-013-0462-0 38 SURVEY METHODOLOGY 2. SURVEY METHODOLOGY The 2017 ANZ Financial Wellbeing Survey was conducted in New Zealand as an online interview: Online Survey: • 30 minute online survey • Total NZ responses received: n=1,521 • New-Zealand wide • Quotas set for age, gender, ethnicity and location • Data post-weighted to latest Statistics New Zealand population estimates for age, gender and location • Fieldwork dates: 1-8 Dec 2017 • Panel used for online survey was SSI [www.surveysampling.com/services/data-collection/online-surveys/] • An eight-minute CATI survey run in parallel to provide comparisons to be made for key measures only to assist in the transition phase from the methodology used in previous waves. 39 FINANCIAL WELLBEING REPORT 3. TECHNICAL APPENDIX This research project was based on the model of financial wellbeing proposed by Elaine Kempson et al. (initially as in the Norwegian study35; and as modified in subsequent deliberations and discussions between her and the ANZ research team). This defines financial wellbeing as ‘the extent to which someone is able to meet all their current commitments and needs comfortably, and has the financial resilience to maintain this in the future’; this definition suggests financial wellbeing is comprised of three components; meeting commitments, feeling comfortable and resilience for the future. The model also posits that people’s financial wellbeing is influenced by various factors including their behaviour, personality traits and attitudes, knowledge and experience, as well as social and economic factors36. A set of survey questions has been developed by Kempson et al. to measure the components of financial wellbeing and the things which influence it, and these questions provided the basis37 for an online survey of 3,578 Australian and 1,521 New Zealand adults which was conducted by YouGov Galaxy during December 2017. Variable derivation The data obtained from this survey underwent a process in which each survey variable relevant to the model framework was made suitable for use in constructing the separate model components. Following Kempson’s recommended approach, this involved making sure that every variable to be used in the analysis included all valid cases in the sample. Missing responses (such as ‘don’t know’ and ‘prefer not to answer’) were recoded to the most relevant meaningful response category; typically, to either a middle value within the scale, or to the most common (‘modal’) value. To facilitate interpretation of the components, response categories were re-ordered where necessary to ensure that a low score corresponded to low capability and a high score to high capability. Finally the analysis variables were allocated to the relevant level and element of the conceptual framework, for example, a component of financial wellbeing, a type of behaviour or a particular financial attitude. Component derivation In keeping with the approach used by Kempson, Principal Components Analysis (PCA) was used to construct the model components from the survey variables cleaned and derived as described above. All analysis was undertaken within each component of the conceptual framework, with variables allocated to specific components, based on the conceptual structure defined by Kempson et al. The reliability and sampling adequacy of the data used to establish each component were tested using Cronbach’s alpha and the Kaiser-Meyer-Olkin (KMO) statistics respectively; no serious data inadequacies were revealed by this process. PCA creates a standardised score38 for each respondent so for ease of interpretation these were rescaled to take on a potential score ranging from a true minimum of 0 to a true maximum of 100. In keeping with Kempson’s approach, where the minimum and maximum possible component scores were not obtained by any respondent, we created ‘fake’ cases with the minimum score on each variable contributing to that component, and if necessary another with the maximum score on each variable. The PCA was re-run including these two minimum/maximum cases, ensuring all respondents scores were truly scaled between 0 and 100. The ‘fake’ cases were then removed. In addition, for detailed reporting purposes we also calculated simple average scores for each component. This approach was developed because of its transparency and also, because the scores are not standardised and thus support more ready comparisons between subgroups as well as across different data sets. The approach involved rescaling each contributing variable to a score out of 100, summing the relevant variables for each component and then obtaining the mean score out of 100 for the component. Table 1 summarises the outcome of this process; it shows the final set of questions used to create each component, the component loadings39 as well as the weighted40 scores derived from the PCA and simple average approaches for both Australia and New Zealand. Examination of the scores presented in this table shows very little difference between the results obtained for Australia and New Zealand and very little difference between the scores derived from the PCA and those calculated by averaging the scaled scores each component variable. It should be noted that the PCA scores were used for all of the modelling work described in the next section but that the average scores were used for reporting levels of financial wellbeing in the body of the report. 35 E laine Kempson, Andrea Finney & Christian Poppe, Financial Well-Being – A Conceptual Model and Preliminary Analysis, SIFO Project Note no. 3 – 2017 36 See figure 2 (page 13) in the body of the report. 37 Due to the need to investigate several other topics, not all influencing factors were included in this survey. 38 T hat is, the number of standard deviations the respondent’s score is from the mean of a normalised distribution with a mean of zero and a standard deviation of one. 39 These are shown for Australia only but the patterns for New Zealand were much the same. 40 YouGovGalaxy post weighted the survey data by age, gender and geographic location in line with adjusted census estimates provided by the Australian Bureau of Statistics and Stats NZ. An adjustment for ethnicity was also applied to the New Zealand data. 40 TECHNICAL APPENDIX TABLE 1 Items used to define each component of the financial wellbeing model and weighted mean scores for each of the model components (Australia and New Zealand) FINANCIAL WELLBEING Meeting commitments Feeling comfortable Financial resilience Overall financial wellbeing Item Loading in Component PCA score B5 How often do you run short of money for food or other regular expenses? 0.891 B6 Which of the following statements best describes how well you are meeting your bills and credit commitments at the moment? 0.828 B8 In the past 12 months, how often have you been unable to pay bills or loan commitments at the final reminder due to lack of money? 0.850 B4 How often do you have any money left over after you have paid for food and other regular expenses? 0.813 B1 How would you describe your current financial situation? 0.888 B2 How confident are you about your financial situation in the next 12 months? 0.844 B7 How well do you think this statement fits you personally? My finances allow me to do the things I want and enjoy life. 0.837 B9 If tomorrow you had to meet an unexpected expense that is equivalent to a month’s income for your household, how much of it would you be able to cover from money you have available either in cash or in your bank account? 0.889 B10 Would you need to borrow, overdraw your account or use a credit card to meet an unexpected expense equivalent to a month’s income? 0.810 B11 If your income fell by a third, for how long could you meet all your expenses without needing to borrow? 0.753 B12 Thinking about the total income of your household, approximately how many month’s income do you have in savings? 0.795 Derived from all of the above items Weighted PCA Scores out of 100 Wtd Average Scores out of 100 Aust Mean NZ Mean Aust Mean NZ Mean 71 73 70 72 55 54 55 54 54 52 53 52 59 59 59 59 41 FINANCIAL WELLBEING REPORT TABLE 1 (CONTINUED) Items used to define each component of the financial wellbeing model and weighted mean scores for each of the model components (Australia and New Zealand) FINANCIAL BEHAVIOUR For your regular income, how often do you make a plan or a budget for how it will be used? Do you plan exactly how you will use the income or only make a rough plan? 0.896 How often do you keep to the plan you make for using your income(s)? 0.906 How well do these statements fit you personally? 0.907 C1a I run short of money because I overspend 0.907 C1b I am impulsive and tend to buy things even when I can’t really afford them Not borrowing for dayto-day expenses C5 How often do you have to borrow money or go into debt to buy food or to pay expenses because you have run short of money? 0.908 C6 How often do you have to borrow money to pay off debts? 0.890 C2c How often do you tend to do any of the following? Overdraw or go into negative balance where your account is below $0 on your everyday transaction account 0.727 Monitoring finances C10 Do you know how much money you spent personally in the last week? 0.774 C11 How often do you check your account(s) (e.g. everyday transaction account, credit card account) including finding out your balance and checking transactions that have been made? 0.774 Active saving C3 How often do you save money so that you could cover major unexpected expenses or a fall in income? 0.816 C4a How well do these statements fit you personally? C4b I try to save money to have something to fall back on in the future C4c I try to save money regularly even if it is only a small amount Planning / budgeting C7 Item Loading in Component PCA score C8 C9 Spending restraint 0.895 Weighted PCA Scores out of 100 Weighted Average Scores out of 100 Aust Mean NZ Mean Aust Mean NZ Mean 60 60 60 60 74 74 74 74 83 82 82 80 73 78 71 74 63 60 63 60 57 55 56 54 66 66 66 66 0.914 0.878 0.914 I always make sure I have money saved for bad times Informed product choice Informed decisionmaking C15 Before you got this , did you personally search for information from a range of sources? C16 Before you got this , did you personally search for information from a range of sources? C17 Did you personally consider many different alternatives before you decided which to get? 0.844 C18 How carefully did you personally check the detailed terms and conditions of the before you got it? 0.865 C19a How well do these statements fit you personally. I always get information or advice when I have an important financial decision to make 0.834 C21 Please indicate how strongly you agree or disagree that this statement describes you personally. I try to stay informed about money matters and finances. C19b 42 I spend a lot of time considering the options before I make financial decisions 0.907 0.532 0.854 TECHNICAL APPENDIX TABLE 1 (CONTINUED) Items used to define each component of the financial wellbeing model and weighted mean scores for each of the model components (Australia and New Zealand) PSYCHOLOGICAL FACTORS Item Loading in Component PCA score Time orientation (personality) D1a I focus on the long term 0.649 D1b I live more for the present day than for tomorrow 0.835 D1c The future will take care of itself 0.762 Impulsivity (personality) D1d I often do things without giving them much thought 0.865 D1e I am impulsive 0.874 D1f I say things before I have thought them through 0.804 D1g I care about how other people see me 0.878 D1h I am concerned about my status among people I know 0.849 D1i I want other people to respect me 0.766 D1j D1k I am good at resisting temptation 0.841 I find it difficult to break undesirable habits 0.541 D1l I am always in control of my actions 0.794 D1m I can pretty much determine what happens in my life 0.774 D1n My financial situation is largely outside my control 0.543 D1o When I make financial plans I do everything I can to succeed 0.767 D1p When I have a difficult decision to make I tend to put it off to another day 0.838 D1q When I have to do something important I don’t like I do it immediately to get it done 0.520 D1r When I have to choose between a lot of options I find it difficult to make up my own mind 0.757 D1s I prefer to buy things on credit rather than wait and save up 0.675 D1t I would rather cut back than put everyday spending on a credit card I couldn’t repay in full each month 0.434 D1u I prefer to spend any money I have rather than save it for unexpected expenses or an income fall 0.813 D1v I find it more satisfying to spend money than to save it 0.792 D2a How confident are you about your ability in the following aspects of your budgeting? 0.876 D2b Your ability to manage your money day to day 0.904 Social Status (personality) Self control (personality) Locus of control (personality) Action orientation (personality) Attitude to money management (attitudes) Confidence in money management skills (attitudes) Weighted PCA Scores out of 100 Weighted Average Scores out of 100 Aust Mean NZ Mean Aust Mean NZ Mean 60 59 61 59 66 65 66 65 50 50 50 50 58 58 57 57 60 61 61 61 55 53 55 54 69 68 69 68 65 66 65 66 Your ability to plan for your financial future D2c Your ability to make decisions about financial products and services 0.896 43 FINANCIAL WELLBEING REPORT TABLE 1 (CONTINUED) Items used to define each component of the financial wellbeing model and weighted mean scores for each of the model components (Australia and New Zealand) FINANCIAL KNOWLEDGE AND EXPERIENCE Money management experience (experience) Financial product experience (experience) Understanding of risk (knowledge) 44 Weighted PCA Scores out of 100 Weighted Average Scores out of 100 Aust Mean NZ Mean Aust Mean NZ Mean 87 86 86 85 35 36 34 35 57 56 57 56 68 71 67 70 What role do you play in the following activities? A9a Planning how the money in your household is spent 0.929 A9b Ensuring that regular household expenses e.g mortgage, household bills or repayments on money borrowed are paid 0.912 A9c Making the financial decisions in your household 0.942 Which of these different financial/bank accounts and products do you have, either on your own or jointly with someone else? A5 Number of products held 0.848 Have you personally been responsible for buying or renewing any of the following products in the past three years? C14 Product knowledge (knowledge) Item Loading in Component PCA score Number of products bought/renewed 0.848 How would you rate your knowledge of each of the following? C22a Bank accounts and other products to help you manage your money day-to-day 0.862 C22b Longer term financial investments to help you improve your financial situation and plan for retirement 0.861 C22c How to find more information about a financial product or investment when you feel you don’t know enough to make a decision on your own 0.896 C25a A high-return investment is also likely to be high risk 0.798 C25b You can reduce risk by saving into more than one account 0.594 C25c Borrowing more than three times your household income to buy a home substantially increases the risk of payment problems 0.800 TECHNICAL APPENDIX INFLUENCES ON FINANCIAL WELLBEING Following the approach described by Kempson et al, the next analytic task was to use multiple linear regression analysis to examine relationships between overall financial wellbeing (and its three individual components) and other domains and components of the model. The aim of this task was to identify the key drivers of financial wellbeing from each of the model; that is, financially capable behaviour, financial knowledge and experience, psychological factors and key socio-demographic, economic and environmental characteristics. As most of the socio-economic and environmental variables were categorical, dummy coding was used to convert each category of the parent variable into a set of individual binary variables for use in the regression analysis. For each categorical variable, it was necessary to exclude one of the binary variables created from the regression as its value could be perfectly predicted from the other binary variables in the set. The categories excluded in this way were males, 18-24 year olds, buying a home with a mortgage, having a stable income, working in an upper white collar occupation, having a university degree, family structure of a couple with no children living at home, having less than $1,000 in consumer debt, less than $100,000 in mortgage debt and a household income in the range $75,000 to $99,999. It should be kept in mind that the regression coefficients reported for the other categories are expressed relative to these excluded categories; these excluded categories are shown as appropriate in the following results tables. Table 2 shows the standardised regression coefficients (ß) for all those variables that were statistically significant predictors of one or more components of financial wellbeing in New Zealand while Table 3 shows the same information for Australia. All components have been shown for the key domains of behaviour, psychological factors and knowledge and experience, even where these were not statistically significant predictors of financial wellbeing. The tables demonstrate the key importance of behaviours (particularly active saving and not borrowing for expenses) as predictors of financial wellbeing; as well as confidence in money management skills, household income at relatively low and high levels, variability in household income and outright home ownership also play important roles in this. They also illustrate a high degree of similarity in the importance of these predictors in both the Australian and New Zealand models. 45 FINANCIAL WELLBEING REPORT TABLE 2 Regression: predicting financial wellbeing (New Zealand) Standardised regression coefficients for all significant variables in each model Overall financial wellbeing Meeting commitments Feeling comfortable Financial resilience Model fit (adjusted r2) 0.70 0.59 0.57 0.60 Active saving 0.31 0.19 0.23 0.39 Not borrowing for expenses 0.31 0.48 0.16 0.24 ns ns ns ns Planning/budgeting -0.09 -0.06 -0.07 -0.09 Informed decision making Informed product choice Behaviour variables Psychological factors Knowledge Economic factors -0.06 -0.05 -0.04 -0.07 Spending restraint ns ns ns 0.05 Monitoring ns ns -0.04 ns Confidence in money management skills 0.10 0.09 0.13 ns Locus of control 0.10 0.09 0.16 ns Attitude to money management ns ns ns ns Concern about social status ns ns ns ns -0.04 -0.06 ns ns Time orientation ns ns ns ns Impulsivity ns ns ns ns Action oriented ns ns ns ns Product knowledge 0.05 ns 0.06 0.07 Financial product experience 0.09 0.08 0.07 0.10 ns ns ns ns Understanding of risk -0.06 ns -0.08 -0.06 ns Self control Money management experience Income less than $25k (vs $75k-<$100k) -0.08 -0.07 -0.11 Income $100k-<$125k (vs $75k-<$100k) 0.04 ns 0.06 ns Income $125k-<$150k (vs $75k-<$100k) 0.05 ns 0.06 0.04 Income $150k or more (vs $75k-<$100k) 0.07 ns 0.09 0.04 Household income varies a lot (vs stable income) -0.06 -0.10 -0.07 ns Household income varies a bit (vs stable income) -0.05 -0.08 -0.04 ns Income decreased substantially -0.05 ns -0.09 ns Income increased substantially 0.04 0.03 0.03 0.04 $10k-$50k consumer debt (vs less than $1k) -0.05 -0.04 ns ns More than $50k consumer debt (vs less than $1k) ns -0.04 ns ns Own home outright (vs buying with a mortgage) 0.15 0.07 0.12 0.18 Main income source is govt payment -0.04 ns -0.08 ns ns -0.05 ns ns 0.09 ns 0.07 0.12 Did not complete year 12 (vs Uni. Degree) ns -0.04 ns -0.04 Trade/TAFE Certificate (vs Uni. Degree) ns -0.05 ns -0.05 Couple with children -0.04 ns -0.05 ns No financial advice from parents when growing up -0.03 ns ns ns Has long term health condition -0.07 -0.04 -0.09 -0.05 25-39 years (vs 18-24) 60 years plus (vs (18-24) Social factors 46 Females (vs males) ns ns ns -0.07 Middle/Lower white collar occupation (vs upper white) ns ns -0.04 ns Lower blue collar occupation (vs upper white) ns -0.04 ns ns TECHNICAL APPENDIX TABLE 3 Regression: predicting financial wellbeing (Australia) Standardised regression coefficients for all significant variables in each model Overall financial wellbeing Meeting commitments Feeling comfortable Financial resilience Model fit (adjusted r2) 0.69 0.63 0.55 0.57 Active saving 0.35 0.20 0.28 0.42 Not borrowing for expenses 0.29 0.50 0.13 0.21 ns ns ns ns Planning/budgeting -0.07 -0.03 -0.06 -0.09 Informed decision making -0.09 -0.06 -0.08 -0.08 Spending restraint 0.03 0.04 ns 0.04 ns ns ns ns Confidence in money management skills 0.14 0.13 0.20 0.04 Locus of control 0.09 0.06 0.14 ns Attitude to money management -0.06 -0.03 -0.06 -0.04 Informed product choice Behaviour variables Monitoring Psychological Factors Knowledge Economic Factors Social Factors Concern about social status 0.03 ns ns 0.03 Self control -0.03 -0.05 -0.04 ns Time orientation ns ns ns ns Impulsivity ns ns ns ns Action oriented ns ns 0.03 ns Product knowledge 0.05 ns 0.06 0.05 Financial product experience 0.07 0.05 0.08 0.09 ns ns -0.03 ns Understanding of risk -0.05 ns -0.08 -0.03 Income less than $25k (vs $75k-<$100k) -0.08 -0.07 -0.11 ns Income $25k-<$50k (vs $75k-<$100k) -0.05 -0.04 -0.07 ns Income $100k-<$125k (vs $75k-<$100k) ns 0.03 ns ns Income $150k or more (vs $75k-<$100k) 0.06 0.03 0.07 0.05 Money management experience Household income varies a lot (vs stable income) -0.07 -0.07 -0.08 -0.03 Household income varies a bit (vs stable income) -0.04 -0.05 -0.05 ns Income decreased substantially -0.06 -0.05 -0.09 ns Income increased substantially 0.04 0.03 0.07 -0.03 $1k-$10k consumer debt (vs less than $1k) ns ns ns -0.04 $10k-$50k consumer debt (vs less than $1k) -0.02 ns ns -0.05 >$50k consumer debt (vs less than $1k) ns -0.03 ns -0.03 More than $250k mortgage debt (vs less than $100k) ns ns -0.03 ns Own home outright (vs buying with a mortgage) 0.13 0.05 0.12 0.15 Main income source is govt payment -0.06 ns -0.08 -0.07 25-39 years (vs 18-24) 0.02 ns ns ns 40-49 years (vs 18-24) ns ns -0.03 ns 50-59 years (vs 18-24) ns ns -0.03 ns 60 years plus (vs 18-24) 0.06 0.05 ns 0.11 Trade/TAFE Certificate (vs Uni. Degree) -0.03 -0.02 ns -0.03 Single parent (vs couple with no children) -0.03 ns ns -0.03 Couple with children (vs couple with no children) -0.03 ns ns ns No financial advice from parents when growing up -0.04 ns -0.03 -0.04 Had financial advice from parents when growing up ns ns 0.03 ns -0.04 -0.03 -0.04 -0.03 Been divorced/separated at some time ns -0.02 ns ns Females (vs males) ns ns ns -0.06 -0.02 ns ns -0.04 Has long term health condition Lower blue collar occupation (vs upper white) 47 FINANCIAL WELLBEING REPORT SUMMARY DOMAIN SCORES To facilitate reporting it was decided to create overall scores for each domain (that is, behaviour, psychological factors, knowledge and experience, social and economic factors) from each of the significant predictors shown in Tables 2 and 3. While these domains were not necessarily interpretable constructs (e.g.: an overall score on the psychological factors), it was felt they would be useful to summarise the regression results. The predictor variables used to calculate each domain score were allocated a weight which reflected their ability to predict overall financial wellbeing; as the aim was to predict an actual wellbeing score, the unstandardised, signed regression coefficients were used for this purpose. The weighted predictor variables were summed to create a total score for each domain and finally, the five domain scores created in this way were used as predictors in a regression on overall financial wellbeing. The standardised regression coefficients from this regression for each of the five domains were converted to percentages which reflected their relative contribution to the explanatory power of the model41. FINANCIAL WELLBEING GROUPS It was also decided to allocate respondents into four groups based on their financial wellbeing scores. We elected to follow the same strategy as that used in Momentum UK Household Financial Wellness Index project which involved taking the highest and lowest financial wellbeing scores and dividing this range into four equal groups. As our lowest score was zero and our highest 100, this approach meant the four categories would be defined by financial wellbeing scores of 0 to 25, >25 to 50, >50 to 75 and >75 to 100. While this distribution was satisfactory for the Australian data, the smaller New Zealand sample meant the 0 to 25 group contained too few respondents for us to be comfortable with the estimates made from it. For this reason, we extended the ‘bottom’ range from 0 to 25 to 0 to 30 which gave us a more robust sample for this low scoring group. The remaining groups were also adjusted slightly to accommodate this change. 41 See figure 6 (Page 21) 48 Australia and New Zealand Banking Group Limited (ANZ) ABN 11 005 357 522. ANZ’s colour blue is a trade mark of ANZ.