How to budget successfully.
Last week, we established that budgeting isn’t easy, so you need to understand why it’s a behaviour that must be followed up with regular—and even daily—actions.
How to budget successfully
Why do a personal budget
Why do a personal budget.
We have started a new financial year. Like in previous financial years, new rules come into effect.
What about the mindfulness part of financial mindfulness
What about the financial mindfulness part.
One crucial component of the Financial Mindfulness program is the practice of mindfulness.
Continue reading “What about the mindfulness part of financial mindfulness”
Mythbusting our beliefs about financial stress
Mythbusting our beliefs about financial stress.
Financial Mindfulness interviewed a dozen people in Hyde Park Sydney while gathering footage for a marketing video, every person we spoke to believed financial stress was all around them.
The problem is “huge, huge”, said one respondent, while others suggested 70 per cent of the population might be under financial stress. A couple said “everyone” was under financial stress; another commented that they “didn’t know anyone” not under financial stress.
Most understood that financial stress could cause, or at least be associated with, other problems in our lives, from depression to anger, insomnia, affecting our concentration and lower productivity at work, and things like social isolation.
Marc Richardson, a Sydney based clinical psychologist, says you can add “hits to your self-esteem”, relationship difficulties and a tendency to alleviate stress with drugs and alcohol to that list.
But there was little consensus among the people we spoke to – and a sense of helplessness – about how to help someone suffering from financial stress: answers ranged from providing financial advice to lending money through to just listening.
When it comes to how we interact with money, the optimum state is one of financial mindfulness.
Financial mindfulness is described as having awareness and paying attention to your finances and financial behaviours. It means more than being money smart or financially savvy, as it includes the capacity to regulate emotional responses that can lead to unhelpful financial behaviour and financial stress.
There is no doubt financial stress is a serious problem. But a key to finding solutions to financial stress is in understanding what it is – and what it is not.
Here are five common beliefs about financial stress – we assess if they are true or false.
Belief 1 – Financial stress is just another type of stress, and stress is normal (so get over it)
Broadly speaking, stress is a physiological reaction to stimulus and is not always bad. “Stress can be helpful and good when it motivates people to accomplish more,” says the American Institute of Stress, while pointing out stress is “a highly subjective phenomenon that it defies definition”.
Technically, the word “stress” is interchangeable with “pressure”, and more often, we use stress when we really mean “distress” or “strain”. Financial stress is a reaction to pressure around money, which can quickly turn to distress. This is undoubtedly partly because – thanks to consumerism – Western society tells us acquiring new stuff is a sign of success. Who would disagree that, in a nutshell, we want more than we need?
Stress can be acute, recurring or chronic. The stress of any type can feel upsetting, but chronic stress can cause illness: the longer we are under money pressure, the worse we feel. That’s where financial stress can be so damaging: it’s mentally exhausting to continually struggle with payments that have no end in sight.
If you add in the tendency to medicate our stress by spending on excesses or luxuries – especially things you won’t or cannot talk about – it’s likely chronic financial stress will take hold.
One expert on financial stress in the United States, DR J. Galen Buckwalter, has identified a syndrome called “acute financial stress disorder”. Think of all the drivers: credit cards, loan and especially mortgage repayments, stress-relief spending and for people on lower incomes, basics like food, heating and rent.
If that last sentence makes it sound like financial hardship is the cause of financial stress, not always.
MOSTLY FALSE
Belief 2 – Financial stress is the same thing as hardship
The Australian Bureau of Statistics’ indicators for measuring financial stress include being unable to pay various bills on time and being “unable to raise $2000 in a week for something important”. However, further reading shows its indicators are pointers to “households … experiencing economic hardship”.
But that is only part of the story of financial stress: it’s likely many more people are under financial distress. Much of the stress we suffer happens because we’ve convinced we need bigger or newer possessions. Or because of rising prices of, for example, housing.
Disturbing revelations about mortgage stress in recent weeks include the news that 130,000 households in New South Wales and Victoria are spending an unsustainable 30 per cent more on repaying their mortgages. More than half of all Tasmanian households are in this position.
The maximum households should spend on repayments, according to many financial advisors, is no more than 30 per cent of gross income.
With interest rate changes long overdue and the unpredictability of unexpected expenses, spending so much money on a mortgage is a recipe for financial stress. That quickly turns to distress with major expenses or a spending habit that is hard to control.
Rent is “unaffordable” or “severely unaffordable” for the majority of people living within an hour’s drive of Sydney city, according to the SGS Rental Affordability Index (and even worse if you live in the city). This means the cost of renting for most people in or near the city puts them under “housing stress”. The situation is not as severe in Melbourne, although most inner-city rental properties qualify as “unaffordable”.
But few homeowners or renters – at least not those in regular work – would qualify for government assistance based on financial hardship, even if they are struggling to stay afloat.
FALSE
Belief 3 – Everyone is financially stressed
From one extreme to the other.
When we talk about chronic and damaging financial stress – the kind defined by the Australian Bureau of Statistics’ financial stress indicators such as having trouble paying bills on time – then no, not everyone is financially stressed.
But it’s very common, and the chances are it’s affecting someone in your family or someone you interact with regularly at work. The Australian Psychological Society’s Stress and Wellbeing Report in 2019 found 35 per cent of Australians report having “a significant level of distress in their lives”.
That report found “personal finances” (49%) were the single biggest cause of stress for Australians for the preceding five years, ahead of “family issues” (45%) and “personal health” (44%).
Those numbers suggest that someone around you is financially stressed, and probably a few people.
ANZ Bank chief executive Shayne Elliott says the lender is preparing to deal with a much larger number of financially distressed customers next year as government support fades, though ultra-low interest rates will give struggling borrowers more time.
The critical question that may never be answered is why some people suffer financial stress while others faced with similar challenges do not.
The American Institute of Stress uses the analogy of people on a roller coaster to show the difficulty of predicting distress. Some people thrive on the shock and discomfort of the roller coaster experience, while for others, it’s pure torture.
“Many times, we create our stress because of faulty perceptions you can learn to correct,” The institute explains. The use of the word ‘perception’ indicates that the institute of stress believes this is partly a problem of thinking as much as anything else.
It elaborates: “all of our experimental and clinical research confirms that the sense of having little or no control is always distressful – and that’s what stress is all about.”
This suggests our personal relationship with the unexpected is a factor that perhaps a sense of helplessness determines whether we turn a normal level of stress into distress.
So, what do we do about financial stress?
PARTLY TRUE
Belief 4 – financial stress will go away if I have more money
A windfall or pay rise is the holy grail for the chronically financially stressed, but unless you are debt-free – or are one in a million and suddenly get rich – it’s unlikely to work for long.
Chances are, the reasons you are chronically stressed about money are more complex than how much you earn (or the state of the housing or job market), as suggested by the above. It may seem the outside world is causing your financial stress, but it’s also possible at least some of your financial stress comes from inside you.
For example, if you can be prone to impulse spending, wanting to buy the latest expensive gadget, or even have a tendency to shower people in your life with gifts, you will likely spend much of that extra money.
Or if you committed yourself to spend 40 per cent (or more) of your salary on your mortgage or rent and a pay rise gets your head above the waterline, might that extra income justify the risky decision you made to over-commit?
If a windfall were the cure to financial stress, then the ultimate solution would be a lottery win, right? Wrong. A shocking 70 per cent of lottery winners end up bankrupt, according to America’s National Endowment for Financial Education.
The truth is that the cost of living, especially in a capital city, combined with servicing debt caused by a lifestyle beyond what you need creates financial stress. Full stop.
When dealing with or preventing financial distress, it is not just about how much money you can acquire. But, unfortunately, that may be missing the point.
So, time to be honest: how much freedom do you have around your spending?
What may be causing you as much distress as the dollar figures keeping you up at night and distracting you at work is the stress itself. In other words, ruminating on the problem of ‘how do I get better with money is probably a painful process.
Perhaps it’s time to go back a step and examine your whole relationship with money?
FALSE
Belief 5 – You can only help someone under financial stress by giving them money or financial education
There’s no doubt the answers to financial stress – which at least superficially presents as having trouble meeting financial obligations – has a few elements.
Some of those include effectively setting goals that promote change, learning more about how to manage money – Andrew Fleming, Founder & CEO of Financial Mindfulness says “in addition to improving financial literacy and goal setting, being self aware of your current financial behaviours, good or bad, is so important to unearth those unconscious behaviours. For example, why did I buy another phone when the one I had is perfectly fine. I ended up paying more than I had to and the upgrade features didn’t change anything significant. It was an impulsive decision I made at the time. The clever marketing achieved is purpose at my expense.”
ANZ’s national survey of adult financial literacy showed many Australians have strong levels of understanding around money. However, there were still many people who didn’t save regularly (23%) and did not feel in control of their finances (22%).
“Those most likely to feel out of control were … household incomes of $65,000 or less with children at home and people with a mortgage of $300,000 or more and a household income of less than $100,000,” the report found.
Marc Richardson, says; “mindfulness is very effective at shifting old, hard-to-shift negative beliefs we have about money, such as “I’m no good with money”, “spending makes me feel better” and “money is stressful”.
“Through mindfulness, we can raise awareness of our thought patterns,” he says.
“It’s only through raising awareness of when our negative emotions arise that we can develop capacities to deal with thoughts and feelings. Mindfulness is a beneficial strategy for breaking the cycle of negative thought patterns that lead to negative emotions and enhance feelings of helplessness, hopelessness, and then negative behaviours.
“In fact, without mindfulness, it would be tough for us to catch the underlying attitude which then governs our thoughts, reactions and behaviour.”
MOSTLY FALSE
Sunk cost fallacy and mindless behaviour
Sunk cost fallacy and mindless behaviour.
If you’ve ever persisted with a dead-end job, a loveless relationship or a university degree you quickly regretted starting, all in the hope things will somehow improve, you might want to pay attention.
Maybe you’ve endured reading a novel you hated from the first chapter or stayed through a movie just because you bought tickets – despite the fact you would rather be anywhere else.
You’ve likely done something similar with money.
Perhaps you’ve plunged money into a failing small business or felt obliged to stick with a stock after it crashed, then watched it go lower and lower. Certain cryptocurrencies come to mind.
Maybe you’ve stuck with a supplier at work because they promise to do better when they never live up to them.
Who hasn’t ever ‘chased their losses’ by doubling down on a bad bet?
All these actions, and anything else where we ‘throw good money after bad, are examples of a famous economic principle called the sunk cost fallacy, which can be applied to life in general.
It’s the tendency to continue with an irrational and risky course of action based on blind hope more than the likely outcome.
We do it, but we don’t want to ‘waste’ unrecoverable costs and time – aka sunk costs.
The principle explains why we persist with bad decisions even when they make our personal and work lives more difficult.
It’s a very human response to the loss to try even harder to win, sometimes to avoid feelings of guilt or inadequacy, or even just fear of looking bad.
But ego, politics and emotional decision-making can cause people to double or triple their financial losses, causing ongoing financial stress and emotional stress for individuals, their families and their organisations.
In the cold light of day, it’s not rational, but who hasn’t done something like this.
More importantly, how do we stop this apparently mindless behaviour.
Researchers Andrew Hafenbrack, Zoe Kinias, and Sigal Barsade published their work, ‘Debiasing the Mind Through Meditation’, Mindfulness and the Sunk-Cost Bias in the Journal of Psychological Science 2013.
In the research, the results suggest that increased mindfulness reduces the tendency to allow unrecoverable prior costs to influence current decisions.
“Meditation reduced how much people focused on the past and future, and this psychological shift led to less negative emotion,” Kinias wrote in the journal.
“The reduced negative emotion [then] facilitated their ability to let go of sunk costs.”
Evidently, mindfulness has some power over bad financial decision-making.
When it comes to how we interact with money, the optimum state is one of financial mindfulness.
Financial mindfulness is described as having awareness and paying attention to your finances and financial behaviours. It means more than being money smart or financially savvy, as it includes the capacity to regulate emotional responses that can lead to unhelpful financial behaviour and financial stress.
It is not necessarily about having a good financial position or good financial health, but an active process of being aware of and paying attention to your thoughts, feelings, and financial behaviours in a helpful way.
Another study from Elsevier’s journal Personality and Individual Differences in 2007 found “mindfulness is associated with less severe gambling outcomes”.
Chad Lakey, Keith Campbell, Adam Goodie (University of Georgia) and Kirk Warren Brown (Virginia Commonwealth University) were “hopeful that the greater attention to and awareness of ongoing internal and external stimuli that characterizes mindfulness may represent an effective means of mitigating the impulsive and addictive responses and intemperate risk-attitudes of individuals with problem gambling.”
That’s a long-winded way of saying that paying closer attention to what’s going on around you can reduce compulsive behaviour.
The researchers concluded: “In this light, mindfulness may help to lessen the grip of automatic thoughts, affective reactions, and behaviour patterns.”
Mindfulness also loosens our grip on any particular course of action, and it can help us become a little more flexible in our thinking.
It allows us to stand back from a problem and look at it holistically.
Research into the specific benefits of mindfulness is ongoing, but it seems clear that regular mindfulness practise can positively affect dysfunctional decision-making around money.
Why do women under-earn
Why do women under-earn.
Research constantly proves the point that women earn less than men.
In Australia, legislation exists to promote and improve gender equality (including equal remuneration between women and men) in employment and in the workplace. The Workplace Gender Equality Agency was set up in 1986 to promote and improve workplace gender equality and administers this legislation.
Women earn 86.7 per cent of what men do, on average, according to the agency.
The latest figures, November 2020, show women’s average weekly full-time earnings across all jobs was $1,562.00 compared to men’s average weekly ordinary full-time earnings of $1,804.20. That is a 13.4 per cent difference.
This is known as the gender pay gap, and it means, on average women earn $242 less each week than men.
The situation has been improving since 2014 when the gap was 18.5 per cent, but not significantly in the last 10 years. In 2004 it was 14.9 per cent.
The health care and social services sector has the largest gap – 24.4 per cent.
In the United Kingdom in 2020, the gender pay gap was 15.5 per cent. In the United States, the gap is 16 per cent, and New Zealand is around 9 per cent.
This is a real, long-established, chronic, and truly international which leads to financial stress.
The impact on women is also well documented. Aside from the difference in regular income, which places women under chronic financial stress, there is a gulf between men and women in retirement savings. Women retire with 42 per cent less superannuation than men.
In real terms, if a man retires with $270,710, a woman has just $157,050, according to Australian Super.
It should be self-evident, but productivity between men and women isn’t the reason for the gender pay gap.
Look around at most families and in most offices – it would be difficult to argue with any conviction that women deserve to be paid less for the work they do.
In fact, there is evidence women may be more productive.
According to the American productivity platform Hive, women work 10 per cent harder than men in today’s offices, the World Economic Forum reported.
Hive says both men and women actually complete about 66 per cent of their assigned work. However, women are assigned 10 per cent more work than men these days — that they achieve the same completion rate tells us that they’re being more industrious.
Think about the way life challenges women to multitask in families and society. There are of course individual situations that differ from the norm, but generally, women take the lead on child-rearing and are still doing the lion’s share of domestic duties, despite also working.
Women comprise 47.2% of all employed persons in Australia.
So, more men are employed, by a small percentage, but women perform many more tasks across the day, the week, and the year on average.
This means women are, very generally speaking, are busier and achieving more than men, and women earn between 10 and 20 per cent less than men across the western world.
The reasons for the gender pay gap are many, varied. They include educational differences, occupation, age or family and motherhood. Some of the gender pay gap is down to conscious and unconscious bias – in both men and women.
The biases in men towards paying women at better rates are partly sex discrimination.
In 2016, Australia’s workplace gender equality agency said: The results show that gender discrimination and industrial and occupational segregation persist, and continue to be significant drivers to the gender pay gap.
But some of the unconscious bias in contributing to the gender pay gap also belongs to women.
“Whilst gender barriers do exist, and the pay gap is real, the fact remains that many women undervalue themselves and their contributions,” says behavioural money coach and speaker, Lea Clothier.
“Many women are in fact themselves the barrier to their own success.”
In my experience as a behavioural money coach, I have discovered that many women have a belief in the narrative that they will underearn men. Ms Clothier says.
Under-earning is the reality of earning less than one might expect, given that person’s skills, abilities, experience, qualifications and actual contributions. In other words, being underpaid.
Ms Clothier says persistent societal beliefs such as accepting the idea that men will earn more than men, along with self-worth and confidence are the major barriers that women face.
Many women lack the confidence to take the risk and ask for a pay rise or go for a job with a higher salary.
I also find that many women lack the knowledge on how to successfully negotiate a pay rise or confidence to have challenging conversations.
She says anyone negotiating a pay rise must fully and objectively consider the value that they have contributed.
This means looking at the facts for evidence, getting clear on the contributions made in terms of increased productivity, completion of projects, streamlined efficiencies, increased profitability.
If you can adequately show the value you have directly provided to the company’s people, performance or profits then it can provide evidence to show the value you are bringing in your role and the contribution you have made and can make the pay rise discussion easier to have.
It is both an empowering truth and a difficult one that our own thoughts, words and actions create our reality in life and that also applies to our financial reality.
Disclaimer: Lea Clothier is a product designer and senior leadership team member of Financial Mindfulness.
Ten steps to increase your financial literacy
Ten steps to increase your financial literacy.
The feeling of fear and anxiety of not knowing your subject matter strikes most of us. When it comes to your finances, it is no different. Making financial decisions comes with consequences, both good and bad. Continue reading “Ten steps to increase your financial literacy”
Why our financial literacy matters
Why our financial literacy matters.
While knowledge is power, the lack of knowledge can leave us vulnerable in many areas of life.
This is especially true when it comes to our relationship with money.
Financial literacy is the missing building block undermining many people’s financial capability and personal financial position, invariably leading to chronic financial stress issues.
According to the Global Financial Literacy Excellence Center, the research found that financial stress and anxiety are highly linked to low levels of financial literacy, problematic financial behaviours and decreased financial security.
The situation has worsened during the pandemic.
It is also widely accepted women have lower levels of financial literacy than men, including in Australia which is in the top 10 nations for financial literacy.
In Australia, 63% of men and 48% of women demonstrate an understanding of at least three basic financial literacy concepts, according to data collected in the national Household, Income and Labour Dynamics in Australia (HILDA) survey.
Questions asked of respondents in the HILDA survey were:
Q1: Interest Rate
“Suppose you put $100 into a no-fee savings account with a guaranteed interest rate of 2% per year. You don’t make any further payments into this account and you don’t withdraw any money. How much would be in the account at the end of the first year, once the interest payment is made?”
Q2: Inflation
“Imagine now that the interest rate on your savings account was 1% per year and inflation was 2% per year. After one year, would you be able to buy more than today, the same as today, or less than today with the money in this account?”
Q3: Diversification
“Buying shares in a single company usually provides a safer return than buying shares in a number of different companies.” [True or False]
Q4: Risk
“An investment with a high return is likely to be high risk.” [True, False]
Q5: Money Illusion
“Suppose that by the year 2020 your income has doubled, but the prices of all of the things you buy have also doubled. In 2020, will you be able to buy more than today, exactly the same as today, or less than today with your income?”
If understanding three basic financial literacy concepts can be considered financially literate, then these statistics suggest that around 8.5 million (or 45%) adults in Australia are financially illiterate
But few of us want to talk about the reality of financial capability – or our financial incapability, as the case may be.
Sadly, there is considerable shame associated with saying ‘I don’t understand how my Afterpay works, or my credit card statements, let alone how to effectively manage something as complex as share trading, as detailed as the fine print in a product disclosure statement or as expensive as a 30-year mortgage.
Many of us don’t even truly understand how our phone plans work, or what everything on our payslips means.
According to findings from the United States’ National Financial Capability Study, just 34% of Americans can answer four or five questions on a basic five-question financial literacy quiz correctly.
‘Study participants were asked five questions covering aspects of economics and finance encountered in everyday life, such as compound interest, inflation, principles relating to risk and diversification, the relationship between bond prices and interest rates, and the impact that a shorter-term can have on total interest payments over the life of a mortgage.’
‘Individuals need at least a fundamental level of financial knowledge. This knowledge, paired with financial decision-making skills, can best ensure an individual’s financial capability.’
It’s human nature to want to ‘set and forget’ complex financial issues, and too much product and service marketing leave us with the comforting but untrue idea that we can do that.
Financial instruments, personal situations all change – so our actions around finances must change too. Big companies are nimble and unless we want to pay too much, we need to at least understand that our personal financial decisions need to be flexible and we must be prepared to embrace changes in our finances.
But how do we know where to start?
But as the saying goes, we don’t know what we don’t know.
Financial mindfulness is a state of awareness and attention to your finances and financial behaviours that can support the growth of your financial literacy.
It is not the answer to a lack of financial literacy, but it can help us see reality and feel motivated to learn.
A key part of mindfulness is to observe our thoughts, feelings and behaviours as they are – not how we think they should be. This allows us to see the world as it is, rather than just accepting autopilot as a life-long strategy.
In the context of personal finances, developing financial mindfulness is a clear and useful step towards improving financial literacy.
In the second part of this two-part series, we will look at a range of clear steps to improve your financial literacy.
Next week: Ten steps to increase your financial literacy.
New clinical help on the horizon for shopalcoholics
New clinical help on the horizon for shopalcoholics.
We all instinctively know that compulsive, mindless spending can be a problem.
We see it in those around us and even in ourselves at times – especially when stress drives the perceived need to ‘escape’ mentally.
Whatever is behind compulsive shopping, buying, spending, even shopalcoholism – whatever we call it – it can and does result in unnecessary financial stress and even distress if the behaviour goes on uninterrupted.
Financial stress is a condition that can respond positively to a mindfulness program, especially when coupled with other interventions, such as improved goal-setting, financial literacy, and behavioural tools.
These combined can help sufferers produce a preferred state of financial mindfulness.
But not many people realise compulsive shopping has also been described in clinical settings since the early 20th century – more than 100 years.
Despite this, until now there has been no officially recognised diagnosis for the disorder.
That seems surprising how commonplace it appears to be, and how it is widely accepted as growing and as a contributor to issues like personal debt and overconsumption at personal and even macro levels.
Now science has moved a step closer to being able to help people with this behaviour – which is finally being recognised as a condition to be treated.
Flinders University reports that for the first time, world experts in psychology have built a framework to diagnose Compulsive Buying-Shopping Disorder.
This means there could be new pathways for help for people struggling to manage their spending behaviour and mental wellbeing.
The framework, published in the internationally recognised Journal of Behavioral Addictions, confirms that compulsive over-spending can be regarded as a disorder.
The news gives researchers and clinicians tools to design targeted interventions for this potentially devastating condition.
The new guidelines, published in the Journal of Behavioral Addictions, confirm that excessive buying and shopping can be so serious as to constitute a disorder, giving researchers and clinicians new powers to develop more targeted interventions for this debilitating condition.
Evidence-based criteria for Compulsive Buying-Shopping Disorder (CBSD) will be developed by an international team, including Professor Mike Kyrios from Flinders University’s Órama Institute for Mental Health and Wellbeing and Professor Astrid Müller from the Hannover Medical School in Germany.
A study of 138 researchers and clinicians from 35 countries has begun the work.
The research was a collaboration with researchers from the Hannover Medical School at the University of Duisburg-Essen and University of Dresden in Germany funded by the German Academic Exchange Service and Universities Australia.
Professor Kyrios described the new work as a “game-changer” for research into the issue, which could underpin the development of much-needed treatments and improved diagnostic processes to follow.
“In over 20 years, since I started investigating excessive buying, there has been an absence of commonly agreed diagnostic criteria which has hampered the perceived seriousness of the problem, as well as research efforts and consequently the development of evidence-based treatments,” Professor Kyrios said.
Evidence-based treatments should now be possible with agreement on diagnostic criteria.
New diagnostic criteria include the recognition of “excessive purchasing of items without utilising them for their intended purposes”.
In the context of the criteria, excessiveness is described as “diminished control over buying/shopping”.
Another feature of the disorder is that “buying/shopping is used to regulate internal states, e.g., generating positive emotions or relieving negative mood”.
“Clients who show excessive buying behaviour commonly have difficulties in regulating their emotions, so buying or shopping is then used to feel better. Paradoxically, if someone with Compulsive Buying-Shopping Disorder goes on a shopping trip, this will briefly improve their negative feelings, but will soon lead to strong feelings of shame, guilt and embarrassment.”
The Delphi research method was used to reach a consensus from the researchers and clinicians involved in a complex psychological disorder.
“The Delphi technique is an ideal method to integrate diverse perspectives from international and interdisciplinary experts in the field of Compulsive Buying-Shopping Disorder,” says co-investigator Dr. Dan Fassnacht, Senior Lecturer in Psychology at Flinders University.
“This helped us to developed diagnostic criteria featuring large agreement among experts in the field, and is an important milestone to better understand and treat this behaviour.”
Dr. Kathina Ali, Research Fellow at Flinders University and co-investigator of the study adds: “Previously, it was difficult to compare studies without agreed criteria.”
“Now for the first time, we can start examining Compulsive Buying-Shopping Disorder more precisely which should help us improve our treatments for this disabling condition.”
The cost of divorce and its impact on families
The cost of divorce and its impact on families.
We know that divorce – the unsettling reality for one in three marriages – usually has an immense but largely immeasurable emotional impact on couples and their children.
But the financial costs can be quantified. A detailed report by the National Centre for Social and Economic Modelling for AMP (called Divorce: For Richer, For Poorer) shows a $14 billion cost to “the nation [in] government assistance payments and court costs”.
Closer to home, divorce means financial stress increases for divorced families in almost every area.
“Divorce has a significant impact on families’ financial wellbeing, whether they have children or not, both in the short and medium term,” the report found.
“While most families start to recover economically five years post-divorce, there remains a significant gap [20 per cent] in the financial well-being of divorced and married couples even five years later.”
The report found the median age of divorce for men was 45.3 years and women 42.7 years. It claimed divorce typically occurs during “couples’ prime wealth accumulation and child-rearing years”.
The division of assets caused the greatest financial stress and damage, the report concluded, with retirement looking “bleak” for divorced couples because “super balances for divorced women are 70 per cent less than married women, and 28 per cent lower for divorced men compared with married men.”
“A divorced parent aged less than 45 years has 35 per cent fewer assets than a married respondent of the same age, while a divorced parent aged 45–64 years has assets valued at only 25 per cent of those of a married parent from a similar socio-economic background.”
In the short to medium term, there were big differences in day to day expenses that could conceivably set up problems for years.
Household expenditure changed significantly before and after divorce, with the biggest differences experienced 1 to 4 years out from divorce.
For divorced men and women with dependent children, spending on items such as groceries, utilities, meals eaten out and alcohol and cigarettes increased, while money spent on clothing and footwear, repairs, maintenance and insurance dropped. The changes remained five years and more after divorce, although the disparities had eased.
The proportion of a divorced mother’s total income spent on groceries climbed 27 per cent between 1 and 4 years after a divorce, while the share of their incomes spent on utilities rose nearly 47 per cent. Their spending on health and medicines fell, while five years after divorce they were spending 45 per cent more on alcohol and tobacco.
Divorced fathers with dependent children increased their spending on education by 39 per cent inside the first 4 years of divorce. “This may reflect fathers having been the main income earner in the family and that paying for their children’s education is their main source of child support,” the report found.
But divorced dads’ spending on also alcohol and tobacco by 53 per cent inside the first four years. Their grocery spending rose by nine per cent.
The report found: “Divorced mothers are more likely to experience financial stress than divorced fathers or couple families.
One in five newly divorced mothers report they can’t afford to spend on the kids such as school clothing, leisure activities, or school trips for their children. This compares with only one in 50 newly divorced fathers.”
This may be related to the one area fathers benefited from after divorce: income. “The income of a divorced father is 26 per cent higher than the income of a … married father.
This may reflect increased job mobility in terms of location and type of work as well as an increased ability to accept higher paying work.”
The employment rate is also higher for divorced fathers than married dads five years after the divorce.
The report also claimed education outcomes for children from divorced families are slightly worse than for those families whose parents remained married.
Family breakdown increases a child’s chance of being an early school leaver (i.e. doesn’t complete year 12) by 6 per cent [and] decreases their likelihood of getting a tertiary education also by 6 per cent compared with children whose parents were married when they were 14 years of age.
