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March 2021 Financial Stress Index (FSI) report

Financial stress devastating Australians

March 2021 Financial Stress Index (FSI) report

Number of Australians ‘thriving’ bounces back dramatically as Covid nears end, but worst affected still suffering.

Australians assessed as ‘thriving’ financially – a group that slid backwards eduring the first six months of the Covid pandemic – have bounced back and are doing even better than before the health crisis.

According to the Financial Mindfulness Financial Stress Index (FSI), over a quarter – 25.8 per cent of 645 respondents – were rated as ‘thriving’ between the six-to-12-months into the pandemic from their answers to the FSI questionnaire

The proportion thriving was 18.8 per cent pre-Covid, but that crashed to 2.4 per cent during the first six months of 2020 as a big proportion of people slid into the next category down.

“Many people became extremely uncertain and worried about their financial position during the pandemic,” said Financial Mindfulness, CEO and Founder, Andrew Fleming.

“But extended Government support very likely stopped financial stress from spiralling.”

“When people stopped going out, their personal savings increased and at the same time interest rates were adjusted to their lowest levels in history.”

“The combination of extra savings and cheap money fuelled a personal and Australia-wide economic bounce back. This is reflected in the FSI data collected at February 2021.”

“This ‘bounce-back’ is evidenced in falling unemployment, GDP levels increasing and another property boom.”

The FSI tracked financial stress in detail – and across a range of metrics – over the last 18 months, at six monthly intervals, and captured the ongoing impact from the COVID-19 pandemic.

Depending on their answers to a set of 35 questions, respondents fell into one of five bands: distressed, stressed, managing, succeeding or thriving.

Overall, FSI data found an estimated 2.09 million Australians are experiencing levels of financial stress that reduce their wellbeing and capacity to function.

Financial Mindfulness estimates the associated lost productivity costs Australian business an estimated $27.02 billion per annum – a $5 billion improvement over the last 6 months.

The proportion of respondents ‘managing’ fell from 41.5 per cent in the first six months of the pandemic to 26.1 per cent in the six months from September 2020 to the end of February 2021.

There was a similar but smaller drop in the proportion in the ‘succeeding’ category. The migration of so many respondents to now be ‘thriving’ was partly responsible.

At the other end of the spectrum, a smaller number of people in chronic financial stress – categorised as ‘distressed’ – has continued to increase throughout the pandemic, with financial and psychological factors the main drivers.

“While it is clear that some people have bounced back, there are many Australians who unfortunately continue to experience considerable financial stress,” said neuropsychologist Nicola Gates.

“Inequity is increasing in Australia, and increasing inequality is associated with increases in financial distress.”

Key findings from Financial Mindfulness FSI report (Sept 2020 to Feb 2021) include:

  • 10.75x increase in people who are thriving and not experiencing financial stress.
  • 9.75x increase in those experiencing financial distressed during COVID19 times from pre-COVID19.
  • Decrease in ratings of always feeling isolated, however a small increase on pre-COVID19 levels.
  • Of those who are financially stressed, a large proportion feel worried (86%), overwhelmed (72%), and downhearted (75%) about their financial situation.
  • 64% of people experienced financial shame.
  • Those who identify as excessively eating, drinking, smoking due to their financial situation returned to pre-COVID19 levels.
  • On average 16% of people often have physical stress relating to their money worries.
  • Agitation is the most common somatic symptom of financial stress (71%), followed by tension (69%) and inability to “wind down” (65%).
  • 71% of people are distracted because of financial concerns.
  • Many take an ‘ignorance is bliss’ approach, either ignoring the situation (57%) or recklessly spending (57%).
  • 66% of people note financial stress has negatively impacted their relationships.
  • 59% experienced conflict with loved ones.
Financial stress devastating Australians
Financial stress devastating Australians

About the Financial Stress Index (FSI)

The FSI is a leading measure of total financial stress burden, and levels of financial stress impact across five dimensions; Financial status, Psychological impact, Behavioural signs of stress, Physical/Physiological burden and Social engagement.

The levels of financial stress are expressed on a scale; Thriving, Succeeding, Managing, Stressed and Distressed.

 

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Graduates arrive in their careers with financial stress

Uni students become more debt laden

Graduates arrive in their careers with financial stress.

Graduating from University is an exciting and rewarding experience.

The prospect of being in the field of your choice and apply those years of learning is one of hope and excitement, however there are elements of fear.

Fear of ‘will I be good enough?’, fear of performing to keep this new job, and the fear of the amount of student debt that needs to be repaid.

This last fear has only been increasing over recent decades.

Today Australian degrees cost between A$20,000 and A$40,000, but by 2026 the cost of the average three year degree in Australia will have swollen to over $A50,000; four year degrees, especially those from prestigious universities in high demand subjects would costs substantially more.

The current threshold at which graduates must begin to repay their loans (at four per cent per pay packet) is A$45,881 in 2019/20, roughly the median starting salary for an under-25 Australian resident bachelor’s degree graduate.

A law graduate could expect $55,000, a computer science grad $54,000, while an economics or accounting, psychology or veterinarian studies major both faced $50,000.

Overall, male graduate starting salaries were $55,000 and females were $53,000.

At present $1.9 billion is never repaid (because students fail to reach the repayment income threshold or move overseas) which is expected to grow to $4 billion by 2026.

A HECS-HELP loan, provided by the Government, is subject to interest rates based on the Consumer Price Index. The rate is currently 1.8 per cent.

With the size of student loans growing, the threshold for repayment dropping and work intensification showing no sign of slowing, it’s easy to see where this is headed.

Graduates seem certain to arrive in their careers burdened by financial stress, the single biggest cause of stress for Australians and Americans.

In the US the situation is much worse. Aggregate student debt is $1.5 trillion in 2020, up from $250 billion in 2004 according to the Brookings Institute. Student loans are now the second largest slice of household debt after mortgages, bigger than credit card debt.

About 42 million Americans (about one in every eight) have student loans. The size of this problem was a big issue in the 2020 US presidential campaign.

As students pour into the workforce with financial stress, this will only put more pressure on an already financially stressed workforce, the cost being wellbeing and lower work productivity.

What can be done to abate this growing issue comes down to companies recognising this problem and putting in place wellbeing programs to support its workforce.

The wellness programs offered by employers globally is growing, however it is coming from a low base.

Why has employers taking so long to implement wellness initiatives?

The reasons were highlighted in the Global Wellness Institute Report in 2016.

The range of reservations expressed by employers is wide and varied. A key one was the lack of proof that workplace wellness programs are cost-effective and contribute to company performance.

Financial Mindfulness has developed such a report via its Financial Stress Index (FSI).

The Founder & CEO of Financial Mindfulness says “the FSI measures and tracks employee financial stress for businesses to increase employee productivity and their financial wellbeing.”

“The FSI is used to compile the FSI Quantitative Assessment Report (FSI reports), a leading indicator on how and why financial stress is impacting employee productivity. The FSI and its reports were developed by leading Neuropsychologists, finance and data experts.

Measuring employee financial stress informs employers how, why and where financial stress is impacting on their employees, estimates the cost of lost productivity to their business and comes with suggested solutions.”

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Money doesn’t make you happy, but bad debt makes you sick

Money doesn’t make you happy, but bad debt makes you sick

Money doesn’t make you happy, but bad debt makes you sick.

You can’t buy happiness, goes the old saying. We also know that being in poverty decreases happiness, but instinctively we know having lots of money doesn’t guarantee happiness.

Research backs up the motherhood statement too. In a landmark study, Daniel Kahneman and Angus Deaton, of Princeton University found that after an income of US$75,000, earning more money does not increase happiness.

In 2010, the pair studied the survey responses of 450,000 Americans and found that “high income buys life satisfaction but not happiness”, aka emotional wellbeing.

Then in 2020, three Harvard researchers, Ashley Whillans, Lucía Macchia and Elizabeth Dunn looked at whether prioritising time over money left us happier than focusing on money over time by studying 1000 students graduating from the University of British Columbia.

In short, the students who aimed for money were less happy a year after they graduated than those who made time a priority.

It seems even more obvious that people with lots of debt are not happy, but the extent to which this is true is shocking.

In 2016, Australian investment advice company Acorns Grow Australia surveyed 1000 people and found 70 per cent suffered depression and anxiety because of their money worries, while 76 per cent had trouble sleeping for the same reason. More than half assigned physical health problems to money worries.

In 2013, University of Southampton researchers Thomas Richardson, Ronald Roberts and Peter Elliott found links between severe unsecured debts (such as credit card debt, student and personal loans) and poor health, especially mental health by reviewing 65 previous studies.

Those with unsecured debts were 3.24 times more likely to suffer “mental disorders” than those without unsecured debt and 2.77 times as likely to have depression. They were 2.68 times more likely to be problem drinkers but a scary 8.57 times as likely to be dependent on drugs. Sadly, people with debt are 7.9 times more likely to take their own lives.

Back to the Acorns survey results, a third of Australians aged between 25 and 44 had “abused” alcohol because of financial stress, while 20 per cent coped with money worries by using illegal drugs. It did not say how many turned to prescription drugs to manage.

“The majority of studies found that more severe debt is related to worse health,” the Southampton university team found. Their research was published in the Clinical Psychology Review.

Then there’s the phenomenon of ‘debt-anger’, in which instead of getting fearful about money, people in debt get very angry. By definition, the person affected becomes stressed, and can experience damage to their relationships, feelings of isolation and despair and even weaken one’s immune system.

Australia has world-leading levels of household debt according to most measures. When debt is taken as a percentage of net disposable income, Australia had the fifth highest debt per household out of 35 OECD nations, at nearly 210 per cent of net income, in 2020.

Australia was also the worst in the Asia-Pacific region, in relation to its household debt-to-GDP ratio, according to The Asian Banker website.

Even though most of Australia’s household debt is related to wealth creation or an asset, such as a home loan (the average mortgage debt is $350,000), well over a third of Australians (37 per cent) report they are struggling to repay their debt.

In various research the percentage of Americans struggling with debt is anywhere between 30 per cent and 70 per cent. Even the smaller number is a huge worry.

Citizens of both nations – and people throughout the so-called ‘first-world’ – repeatedly cite money worries as at or near the very top stressors in their lives in surveys and studies.

The Southampton university study didn’t go into which came first – poor mental health or money problems. But the links are clear and so is the message: heavy financial stress will either make you sick, or keep you that way.

The study also didn’t go into what to do about severe financial stress – but there’s plenty of advice out there. The traditional options include consolidating debt, budgeting and financial planning, or studying or working longer hours to try and land a more lucrative role. The latter approaches can come with their own problems: the stress that results from overwork and social disconnection.

One widely praised and usually inexpensive option is to be mindful about money. Mindfulness, defined by some as moment-by-moment awareness, helps to still the mind and improve messy and negative thinking. A huge amount of research worldwide has shown mindfulness positively affects a range of mental health issues including depression, anxiety, memory loss and sleeplessness.

If you are experiencing distress in your life and live in Australia call: Lifeline 131114, Mensline 1300 789 978 or Beyond Blue 1300 224 636; regarding debt problems, the National Debt Helpline may be of use on 1800 007 007.

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Financial stress and under-earning

Financial stress and under-earning

Financial stress and under-earning.

When people think about answers to financial stress a lot of energy and attention is paid to our spending. Where does all our money go, we are urged to ask of ourselves and our partners.

The implication is clear: if we suffer financial stress we share a flaw – impulsive and sometimes reckless spending. We can easily go straight to the conclusion that we are over-spenders, who use spending to numb out boredom and difficult emotions. We might even think we are greedy.

For some people, sadly, those are harsh truths. But just as many people try with all their willpower and attention to detail and live within their means, and cannot seem to make ends meet. For many people, a polar opposite problem to over-spending applies under-earning.

Earning less than your skills suggests it wouldn’t be a major problem if it wasn’t so damn expensive to live; so huge numbers of people are driven into debt.

It isn’t cheap to live in Australia, especially in a capital city like Sydney.

According to Numbeo (the world’s largest cost of living database), the cost of living in Australia is 17.6% higher than in the United States. In fact, it’s cheaper to live in countries such as France, United Kingdom, Germany and Canada.

US households on average carry US$145,000 (A$187,400) in debt, according to the personal finance website The Ascent. In Australia the figure is even higher, skyrocketing beyond A$250,000. Much of those debts are mortgage repayments, an essential cost and also an investment in our futures.

But what about credit card debt? In the US, the average credit card debt per household is US$7,000 according to nerdwallet.com, while the average American with a student loan owes $56,000 and the average car loan is $27,000.

Card debt is lower in Australia, around A$2500 per cardholder, while car loans are slightly higher here.

It’s not yet known what the average debts owed to credit services like Afterpay and ZipMoney are as they are too new, but the national bill in Australia is thought to be over $1 billion.

“Many people believe that card and personal loan debts come from heedless spending, and to get out of debt you have to stop buying luxuries and living a lifestyle beyond your means,” says Andrew Fleming, Founder and CEO of Financial Mindfulness.

These assumptions are often wrong he says. “Often people use cards, credit services and loans because their incomes don’t match their expenses, especially when an unexpected expense comes along,” he says.

In most western economies it is well known that the cost of living – let alone the price of major life expenses like property – has outpaced inflation and wages for many years.

One answer to how we cope with going back even when we have the best of intentions is to confront the issue raised near the start of this article: under-earning.

But beyond a state, most of us find difficult, even shameful to talk about, what is under-earning, exactly?

First, it’s useful to identify what under-earning is not.

Barbara Stanny, author of Overcoming Underearning: A Five Step Plan for a Richer Life wrote in Forbes in 2011 that an under-earner is not someone who chooses a low income or a simpler life without much work.

“It is always a CONDITION OF DEPRIVATION[sic] not just of money, but of time, joy, freedom, choices and self-esteem,” Stanny wrote.

Under-earners are often drowning in debt and vague about money, she wrote. They might even have an “anti-money attitude”, unwittingly sabotage their own career prospects and underestimate their value at work. Often they are also co-dependent (meaning they put others’ needs ahead of their own).

Under-earning is a chronic condition that’s not going to be fixed in a day, let alone by reading an article, but awareness of it can start to break decades-long negative cycles.

People work through deep-seated issues like using anything from various forms of therapy to mindfulness practice.

The latter approach can help alleviate financial stresses and strains at two levels. “Mindfulness practice won’t necessarily change your earnings,” says Andrew Fleming.

“But it will give you a new awareness of what you are doing and help change your approach to what and how you spend and what you earn.”

He says regular mindfulness practice will help people clearly see the reality of their situation, “instead of being stuck … with your mind racing 100 miles an hour” – and will give you the calm to deal with it.

And you’ll need that calmness because negative, even painful feelings are likely to come out of seeing the realities behind your financial stress.

“Frustration and discomfort can be a sign of a breakthrough, a new awareness,” Fleming says.

“It might help you take action, perhaps asking for a pay rise and being confident when doing so, having an authentic conversation with the boss or it might put you into gear to pursue a better-paid vocation, either within the same company, the same industry or by doing something totally new.”

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Want to avoid financial stress: ask yourself these questions

Want to avoid financial stress: ask yourself these questions

Want to avoid financial stress: ask yourself these questions.

There’s never been so many options for accessing cash quickly as there are today, and that’s very appealing around this time of year – especially this year, with many more people unemployed as a result of the ‘pandemic induced’ economic disruption.

Nobody wants to be in financial stress (or distress) or have money worries. But sometimes a quick fix becomes a long-term problem if we ‘go there’ over and over.

We all know the quick fixes to cashflow problems available today. On top of the huge success of ‘buy now, pay later’ products like Afterpay and ZipMoney, people are increasingly signing up to so-called ‘pay-on-demand’ services that – for a fee of around 5 per cent – will let you draw cash against your pay before it is deposited into your bank account.

New financial services arise (and succeed) because someone has identified a need and met that need. That’s fair enough. Financial products and services that give people flexibility and help them out of a squeeze are welcome. There are a lot of positives when one considers all the angles and different perspectives.

These new services, referred to above, are sign of the times. They also tell us some important things – that many people basically live paycheck to paycheck and that there is a groundswell of support for the idea that employers shouldn’t pay in arrears and instead should pay as people earn.

We need to be clear – and we urge mums, dads and singles to be clear about what these services really are: they are loans that have to be repaid.

As a rule, we cannot endorse the regular use of fee-based short-term loans to get by every week.

Here are at least four reasons:

  1. Paying regular fees for basically spending your own money is just adding another debit to your account, and it’s not insignificant (Think about it: how often would you pay $15 to withdraw $300 from an ATM?)
  2. The second reason is there’s a basic truth that these service providers (let’s call them small lenders, as that’s what they are) want you to ignore: spending more than you earn every week is a dangerous habit.
  3. Financial stress. See points 1 and 2.
  4. We believe that with ‘mindful spending’ – spending done with full awareness of your financial position and your needs and wants – you can reduce, and avoid, damaging financial stress.

The good news is that by using awareness and acceptance of your financial position, you can feel much more in control of your personal finances and your week-to-week expenses.

With a healthier financial mindset – where you aren’t experiencing the symptoms and impacts of financial stress – short-term loans become what they were designed for: a useful solution to an emergency cash flow problem.

Here are some questions to ask yourself if you regularly use ‘buy now, pay later’ services like Afterpay, and have used – or want to use – ‘pay on demand’ apps and services.

  1. When was the last time you looked at your credit card statement? If you are avoiding it, why is that?
  2. How many ‘buy now, pay later’ accounts do you have?
  3. Do you keep track of the total amounts owed? Are those totals increasing over time?
  4. How often do you use buy now pay later services?
  5. What do you buy using these products? To solve emergency money issues, or for normal living expenses? (Note: clothes and haircuts are rarely an emergency)
  6. How often would you use ‘pay on demand’ (getting an advance on your pay) apps and services?
  7. What would you buy with the money you receive from ‘pay on demand’ services?
  8. Is your overall financial position better or worse after using ‘buy now, pay later’ and/or ‘pay on demand’ services?
  9. What would it really take to improve your overall financial position?
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Financial stress is widespread

Financial stress is widespread

Financial stress is widespread

Money worries are common. They existed before COVID-19 and now with changes in our employment and society, financial stress has become more widespread.

The Australian Psychological Society reports that financial stress is one of the major causes of stress in adults, and recently published research on the Financial Stress Index (FSI) from Financial Mindfulness, indicates an escalation of financial stress symptoms due to COVID-19 including negative impacts on relationships.

Financial stress is personal and impacts all areas of our lives. It is something we experience regarding our financial situation today or our financial future.

It also involves our thoughts about money and finances and what we do in terms of spending and saving, and how we manage our finances. 

Financial stress can arise during short term specific financial demands such as change in employment, or from a chronic and long-term financial concern, such as increasing debt with interest repayments or difficulty repaying a home mortgage.

The problem with financial stress is that it does not just impact our finances, it can have a significant effect on our wellbeing including our physical and mental health along with our relationships, work, behaviour and potentially our environment.

Some signs that financial stress is affecting your health, work and relationships include arguing with the people closest to you about money, becoming aggressive to others,  difficulty sleeping, feeling downhearted, overwhelmed, angry or fearful, mood swings, tiredness, loss of appetite, and withdrawing from others.

While these reactions affect your overall wellbeing, if they continue for a prolonged period of time, they could turn into serious health issues.  The important thing is to seek appropriate help.

People from all walks of life may experience problems with their finances at some stage in their lives. It is not something to feel embarrassed or ashamed about, especially as those feelings can stop people from getting the assistance they need.

Financial mindfulness means being aware and paying attention to your finances, and that may mean seeking help. The help required will vary from individuals. It may be practical financial support, or learning budgeting skills, or seeking assistance to manage the stress of money worries.

The first step to being financially aware is to determine how stressed you are by your finances. Our unique Financial Stress Index (FSI) designed by a team of Neuropsychologists and financial experts works out your financial stress levels and potential symptoms.

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Australians distressed and acting aggressively to others

Australians distressed and acting aggressively to others

Australians distressed and acting aggressively to others.

These are the findings from the latest Financial Mindfulness Financial Stress Index (FSI) report which has tracked financial stress in detail over the last 12 months and captured the impact from the COVID-19 pandemic.

An estimated 2.29 million Australians are experiencing levels of financial stress that reduce their wellbeing and capacity to function and it is dragging on the Australian economy.

The lost productivity costs Australian business an estimated $32.14 billion per annum. Key findings from the Financial Mindfulness FSI report during COVID-19* include:

      • 8.76x increase in people always acting “aggressively towards others because of my financial position”
      • There has been an 8.25x increase in those Distressed during COVID19 times from pre COVID-19
      • A 290% increase for always feeling isolated
      • 151% increase in those always finding it hard to ‘wind down’
      • Worry, feelings of tension and agitation increased
      • Increases in people who always or sometimes “experienced conflict with a loved one about money matters”.

The other key findings from the Financial Mindfulness FSI Report were:

      • A large proportion feel worried (89%), overwhelmed (79%), and downhearted (82%) about their financial situation
      • 69% of people say financial stress has negatively impacted their relationships
      • 64% experienced conflict with loved ones
      • 50% could not meet all of their weekly expenses
      • 77% of people are distracted because of financial concerns
      • 62% of people are having difficulty sleeping
      • 50% of people ate, drank, smoked more due to their financial situation.

“The Financial Stress Index (FSI) is a comprehensive measure of the financial factors and biopsychosocial consequences of financial stress developed by Financial Mindfulness,” says Dr Nicola Gates, Consultant Clinical Neuropsychologist at Financial Mindfulness.

“A worrying result has been the significant escalation of people always acting aggressively towards others and the negative impact on relationships in general.”

The company’s Founder and CEO, Andrew Fleming says “Financial stress was a significant problem before the COVID-19 pandemic, but we now can see the increased damage it is having on individuals and work productivity.”

“It is staggering to see how much financial stress is impacting mental and physical health, relationships and work.”

“We developed the Financial Stress Index (FSI) to understand financial stress at a granular level in order to build a solution. Our solution is the Financial Mindfulness App, a personalised program which reduces financial stress,” Fleming says.

The Financial Mindfulness FSI is a leading indicator on financial stress and will be reported every six months to measure changes in Australians’ financial stress levels.

*Data compares user responses in the periods August 2019 to February 2020, with March to August 2020.

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Stressed about your finances or your mortgage

yahoo finance logo

Stressed about your finances or your mortgage.

Financial Mindfulness was covered in Yahoo Finance

Yahoo
Yahoo

If you’re experiencing financial stress, you’re dealing with two distinct issues: the money problems, and then the stress itself.

While Headspace has rolled out meditations specifically to help tackle financial stress, a new app has gone one step further to try and tackle both issues at once.

Developed with neuropsychologists, mindfulness and financial experts, the Financial Mindfulness app comes off the back of two years of research and aims to help people reduce financial, credit card and mortgage stress by addressing the way the stress itself is handled.

“The way we deal with particular stressors impacts everything that comes after,” said Financial Mindfulness founder and CEO Andrew Fleming.

Worrying obsessively with money can lead some to start seeing life as just keeping ahead of their financial problems. “Inevitably, that exhausts us.”

“When financial stress is reduced, we get some peace of mind, our relationships improve, and we are more engaged in our jobs.”

But can the Financial Mindfulness actually help me with my finances?

Just because the app is primarily aimed at tackling the ‘stress’ of financial stress doesn’t mean that app is light on financial guidance.

To improve users’ ease of mind and change habits, it uses a mix of financial literacy, goal-setting, and positive reinforcement to help develop new behaviours for better money management.

“Financial Mindfulness also has the ability to measure users levels of financial stress and then measure changes in those levels,” Fleming told Yahoo Finance.

“There has never been a solution available like this to ease the heavy burden of consumers’ financial stress.”

The app is available in the App Store and Google Play in both Australia and the US and offers two free learning modules: ‘Paying Bills’ and ‘Stress Management’.

You can access the rest of the modules, such as ‘Managing Credit Cards’, Managing Mortgages’ and ‘Unexpected Expenses’ for a one-off payment of $1.49 per module.

More than 20 modules are in the pipeline – expect to see ‘Managing Money in Relationships’, ‘Loss of Employment’, ‘Divorce & Separation’ and ‘Under-Earning’ before long.

Though the app only went to app stores this month, Fleming said user testing found financial stress was lowered after just one use of the app.

“Most users said their mood about personal finances also improved,” Fleming added.

“The users were intrigued because they’d never heard of a tool that addresses financial stress in this way.”

Published in Yahoo Finance on 6 September 2019. Credit: Chris Jessica Yun

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Power of Mindfulness over bad financial decision making

Using mindfulness

Power of Mindfulness over bad financial decision making.

If you’ve ever persisted with a dead-end job or loveless relationship or a university degree you regret starting in the hope it will somehow improve, or ‘chased your losses’ by doubling down, you might want to pay attention.

Maybe you’ve endured reading a novel you hated from the first 3 chapters or stayed through a movie just because you bought tickets – despite the fact you would rather be anywhere else.

Have you ever done something similar with money? Plunged money into a stock, a small business or tried your hand at Foreign Currency trading, something you didn’t understand? Hung onto that car for too long when it’s cost you a fortune already?

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 often risky course of action not based on the likely outcome, but because we don’t want to ‘waste’ what are unrecoverable costs and time – aka the ‘sunk-costs’.

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 at worst ego, politics and emotional decision-making can cause people to double or triple their financial losses, causing huge financial and emotional stress for individuals and their families.

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 apparent madness?

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 in 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.” Mindfulness does have some power over bad financial decision making!

In 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) concluded their findings.

They wrote, “are hopeful in suggesting 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.”

They concluded: “In this light, mindfulness may help to lessen the grip of automatic thoughts, affective reactions, and behaviour patterns.”

Research into the specific benefits of mindfulness is ongoing but it seems clear that a regular mindfulness practice can have powerful positive effects on dysfunctional decision-making around money and reduce financial stress.

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Financial stress behind mental health insurance claim spikes

financialmindfulness red Color

Financial stress behind mental health insurance claim spikes.

New research reveals that financial stress is a hidden mental health trigger for Australians to submit insurance claims, part of a trend alarming the life insurance industry.

The financial stress burden faced by Australians is, according to analysis by Rice Warner, a major factor in the escalating numbers of mental health-related claims that insurers are wrestling with.

In a report commissioned by an Australian start-up, Financial Mindfulness, to examine the viability of a program to reduce personal financial stress, it was estimated that well over half of mental health-related insurance claims are due to financial stress.

“It is not unreasonable to assume that 60 % of mental health claims have financial stress as a primary or secondary contributor,” Rice Warner consultant Heather Brown wrote.

Other research also commissioned by Financial Mindfulness in July 2017 found that Australians under financial stress suffered severe impacts on their mental and physical health and relationships.

While musculoskeletal conditions are the biggest category of claims for both IP and TPD claims, it is widely acknowledged that mental health is the fastest growing cause of insurance claims. Many agree because decades of stigma is lifting.

Rice Warner’s Group Insurance Claims Experience Study, a huge research project into 140,000 claims across 16 superannuation funds from 2011 to 2014, revealed another stunning finding, about the leading causes of IP claims in particular.

Mental health issues were the leading cause of IP claims during most Australian prime child rearing and career-building years (25 to 45 years). IP insurance premiums are worth an estimated $4.1 billion in annual premiums.

The types of insurance most affected by mental health claims are Total and Permanent Disability and Income Protection. 20% of all IP claims are due to mental health issues or suicide, while the figure was 15% for TPD.

According to Financial Mindfulness Founder and CEO, Andrew Fleming: “The trend of mental health insurance claims lead us to believe that this is the number one issue facing the life insurance industry.

What is the major reason behind mental health claims? Financial stress.

“Financial stress is having a major impact on Australians mental health.

Recently we announced our results from a detailed survey on Financial stress which highlighted the severity of the problem.”

More than one in three Australian’s surveyed (38%) worried about money “all the time”.

Those who identified as being financially stressed, said anxiety (66%), depression (64%) and social isolation (55%) were the consequences of financial stress.