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Money and relationships

Money and relationships

Money and relationships.

Many elements can lead to relationship tensions and even breakdown.

One of the most difficult to change can be disputes or differences over money.

Perhaps strangely, often ‘opposites’ attract when it comes to money and relationships.

“You’ll often see a spender/saver dynamic in a couple,” says Lea Clothier, a Behavioural Money Coach.

The reason for this can be based on deeply set value systems. Money can be tied to, for example, freedom, security or success.

“Money can represent all three to us, but we often have a dominant main value system around it,” says Ms Clothier.

Value systems and money

Understanding the underlying values in your relationship will give us insight into our behaviour and what is happening when there is tension over money.

Someone who sees money as a means to freedom is likely to be more of a spender, Ms Clothier says.

They are also less likely to stick to or use a budget (which they find restrictive). They may enjoy spending money on experiences and enjoying life.

On the other hand, someone who sees money as all about security may use their money more restrictively.

They are likely to be more savings-focused, manage money more tightly, and stick to a budget.

‘For these people, having a cash reserve gives them peace of mind and reduces financial anxiety,’ Ms Clothier says.

Those who see money as a measure of success may display their wealth through their choice of career, the car they drive, and the clothes they wear.

They may have big financial goals and see money as the tool to achieving these, Ms Clothier says.

Money is likely to be at the centre of or influence many of their major life decisions.

Conflict over money

Conflict can happen in partnerships and relationships when people have conflicting money values.

Imagine a relationship where one person is freedom-focused and the other security-focused.

The actions one person takes could be seen to compromise the other’s need for freedom or security.

Where money values are fundamental to us and clash with someone else’s equally strongly held beliefs, conflict seems inevitable at some point.

Understanding each other’s values around money can help reduce conflict and diffuse conflict.

“Many couples don’t manage money together as a team,” Ms Clothier says.

Getting ‘on the same page’ financially means both are taking an interest in finances in the relationship. Ideally, both also have an active role.

Ultimately a shared household spending plan is a great idea, so both partners work together towards joint financial goals.

Keeping some financial independence is also a good idea, perhaps in the form of having a small amount managed separately, so each can choose to spend independently of common money goals and actions.

But this should be transparent: any habit of hiding money will undermine trust.

Financial stability, relationship stability

Financial stress and financial instability are leading causes of stress globally and often contribute to marital and relationship breakdown.

Improving our sense of financial security and stability provides peace of mind and invariably helps to steady many partnerships, Ms Clothier says.

“It can create a platform for individuals to pursue their dreams and for a couple to achieve shared goals,” she said.

Financial stability is also the foundation for a stronger financial future and makes goals and dreams more affordable.

Financial stability is created through two essential elements: communication and cash flow, Ms Clothier says.

Money is a very emotional topic, which can make communicating about it difficult.

Learning to be open and transparent about money matters and communicate clearly about them is essential to remove the tension that money often causes in relationships.

Managing cash flow is the foundation of all financial plans.

“It’s about being mindful of every dollar that flows into your life and intentional with the very dollar that flows out,” says Ms Clothier.

When we have a system and process in place to manage our cash flow and ensure we are spending less than we earn, paying off debt as quickly as possible and building a cash buffer, we can begin to focus our attention on growing our wealth investing it.

Many people go straight to the investing part, only to find they are building on a shaky foundation.

If you are doing this, seek some help getting your fundamentals right – improving your cash flow situation to spend less than you make.

The dealbreakers of money and relationships

A major dealbreaker regarding money that will undermine a relationship, perhaps surprisingly, is poor communication.

Even worse is lacking transparency – which to a partner can quickly erode that most important element in any partnership: trust.

This applies to all stages of a relationship – including the beginning of one.

A partner with an undisclosed historical debt is a partner with a burden that can harm a relationship.

Hiding purchases and spending habits and having secret stashes of money will also destabilise a relationship.

Teamwork and shared responsibility regarding joint finances are essential. It’s constructive, but its absence is a big negative.

Working together on a joint budget, a spending and saving plan builds a sense of partnership – and trust because the goals are shared. Both partners can enjoy the feeling of achievement that comes from successful planning with structure and clarity.

If there’s debt, work out a debt management plan either together or with complete transparency.

“Lacking a plan means that our finances often control us, rather than us controlling it,” Ms Clothier says.

“It also means we are less likely to achieve our goals and dreams because we don’t have the means or method to achieving them.”

Another huge dealbreaker is procrastination.

So many typical money milestones fall on a particular date, so that that avoidance can be very costly.

So don’t put off paying the credit card bills or the insurance – that will create tension in a couple and family.

This also applies to investment. The saying goes: the best time to invest is yesterday and the second-best time is now.

Some regret over financial behaviours and decisions is inevitable and painful, but communication over shared goals can help prompt action rather than avoidance.

Another look at communication

In countries where the cost of living is high, money is one of the most emotive regular topics we face.

Shame, guilt, fear, anxiety, jealousy – all big emotions – are all common around money.

We can feel anger, too and even slip into useless or even damaging fantasies over finances.

And most of this happens in one place – inside our heads.

Learning to be open and transparent about money matters and communicate clearly can remove significant triggers for tension and disagreement.

It’s important to remember that a lot of financial behaviour is habitual.

“Most of us don’t bring much awareness or mindfulness to what we do with our money on a day to day basis,” Ms Clothier says.

Our money habits, particularly negative, can be detrimental to our finances and cause conflict in a relationship.

If you or your spouse notice some unhelpful financial behaviours, it’s important not to launch into judgement, blame or attack. Instead, offering support to see what is driving the habit or behaviour is more beneficial.

It’s important to explore – with honesty – if there are ways that one or more bad money habits, we have either individually or as a couple could be reduced or replaced with something healthier.

Suppose money is a source of regular conflict in your relationship. In that case, it may pay to consult with a financial counsellor, money coach or financial adviser who could support you to get back on the same page with your finances.

Often, they can provide perspective, an objective view, great support and practical tools to work together and master the art of managing money as a couple.

It’s important to note again that money challenges can reveal significant underlying issues, such as the need for security, freedom, or success.

Suppose the behaviour of one or other partners in a relationship is controlling or obsessive in pursuit of these values, leading to major relationship clashes. In that case, marriage counselling or couples therapy might also be helpful.

 

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What to do if lockdown has caused me financial stress

What to do if lockdown has caused me financial stress

What to do if lockdown has caused me financial stress.

Right now, millions of Australians are under public health orders to stay at home in an attempt to reduce the spread of the Delta variant of the Covid-19 virus all around the country.

More than half of all Australians face this uncomfortable but necessary reality, and it is producing feelings including loneliness, fear, worry, depression, and stress.

The unprecedented – and extended – interruption to normal life has worn so thin that for many, it’s starting to feel like a depressing new norm.

Uncertainty and fear were defining characteristics of the pandemic from the outset.

The uncertainty isn’t something we can do much about: nobody has a crystal ball.

Fears are a little more tangible. We fear for the health and safety of our families and ourselves.

Thankfully, there are plenty of official and expert resources to help people deal with their mental health during the pandemic.

Here’s a great government link with plenty of advice and links to specific types of support.

The respected Black Dog Institute has produced 10 tips for managing anxiety during Covid-19.

We suggest you use these links if you need them.

People also fear for their finances, and this isn’t just a ‘first world problem’; it’s real and much deeper.

While some of us are saving because we are not going out, the lockdown means many people cannot get to work and have lost hours, and therefore, their wages are reduced. In mid-August, it was revealed 150 child care centres closed – all have staff, and all those staffs lost wages.

In 2020 Australia experienced negative wage growth due to the pandemic-led economic downturn.

Or even worse, some have lost their jobs. This is acknowledged by the government’s latest round of Covid disaster payments.

Everyone losing wages or their job will experience financial stress, sometimes at an acute level, and if these changed circumstances persist or worsen, the financial stress will likely become chronic.

Fearing for our financial security shakes us to our core; for many of us, it feels like it’s about our very survival, even a matter of life and death.

Financial stress has moved from a fringe issue to a serious, even core problem. It is acknowledged by the likes of the Black Dog Institute’ managing financial stress during lockdown.’

‘Mental and financial health can be a vicious cycle,’ says Black Dog. ‘Financial instability can lead to poor mental health, which can make taking action to protect your financial situation harder.’

‘When people are under pressure, they may start drinking more or avoid talking to family and friends, which can make it even harder to cope.’

This blog looks at financial stress during Covid lockdowns – why we feel stressed, what we can do with financial fears, and what practical steps we can take.

Why do we feel financial stress during lockdowns

Hamish Ferguson, a Director at Vision Property and Finance, says it’s important to acknowledge that feeling financial stress during a lockdown is to be expected.

“Lockdowns introduce unpredictability into our lives. One of the requirements of effective cashflow management is being able to predict both your future income and expenses.”

There is a saying that in the absence of good information, people will make poor decisions.

There is a lot of emotion in the community, and at times misinformation spreads. This poor-quality information can affect people who give it too much attention, and some will either not look after themselves or spend too much money thinking that this is an excellent way to reduce stress.

‘Many of us will spend more money when we have higher levels of emotion,’ Mr. Ferguson says.

‘It is quite clear that emotion levels in society are higher, so this will produce binge spending or emotional spending at a higher level.’

What can we do about our financial fear during a lockdown?

Practicing mindfulness is not just about sitting down to meditate, though that is recommended.

Mindfulness is actually about paying attention to thoughts and feelings and is said by experts to resemble curiosity as a state of mind.

So be curious about how your spending patterns are changing and where your money is going.

That helps us achieve financial mindfulness, which is simply 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.

‘One of the strategies that many professionals will suggest is to break down the information we receive into what we know to be true and separate it from what may or may not be true,’ says Mr. Ferguson.

This can help us to focus on more reliable information.

Another strategy is to focus on verbalising things we can be thankful for when stressed or anxious. For example, are you safe at home, and do you have good home-cooked meals and a relatively comfortable environment where you live?

Being thankful can help to balance the information we are receiving and not just focus on the negative.

An example of the power of positive thinking is that rather than just thinking “I might lose my job”, to say to yourself, “Last time this happened, my employer and the govt worked well together to enable me to keep my job. I don’t have any reason to think that this won’t happen again.”

We’d also suggest turning off the television, or the online and social media news updates, as often as possible.

Constant updates on Covid are not helpful to most people. Information from sources of dubious origin is even less helpful.

‘Sometimes we just need to switch the world off and enjoy the silence,’ Mr. Ferguson says.

He suggests reaching out to people in your community going through similar experiences, for example, work colleagues, family friends.

‘Especially reach out to those people that you see as positive or “glass half full”. They are more likely to help you balance your thoughts,’ Mr. Ferguson says.

What are some practical steps we can take

In a period where our emotions are potentially impacting our financial behaviour, especially in a negative way, it’s time to take a step back and look at the basics.

“Review all spending to ensure you are focusing on needs and not wants. Strip your budget back to bare basics,” says Mr. Ferguson.

He suggests focusing on identifying the real fears or stress points and finding someone to help you work through those.

“Community and communication are very important.”

If you are not budgeting or haven’t reviewed your budget for a while, then it’s an excellent opportunity to do so.

Why revisit my budget?

Instinctively, we know that budgeting allows us to manage money wisely, avoid financial stress, and be in control.

During a lockdown enforced by the government, one thing we don’t feel is in control. That’s not comfortable for many people. Budgeting helps us to get back some sense of control in our lives.

Also, it’s a habit that is always helpful to our financial situation.

Even if you have a budget, here’s a reminder of the main steps to building a budget:

    • Properly determine your household income
    • Begin tracking your living expenses over three months
    • Balance your budget – subtracting all your expenses from all your income
    • Go back and review your expenses – what’s missing?
    • Review your income potential
    • Balance your budget again, this time with nothing missing!
    • Maintain your budget

Remember, most people who try to budget fail to get the benefits of a budget because they cannot maintain the practice.

Maintaining a budget involves several steps too:

    • Schedule a budget practice
    • Make budgeting a game that you win at
    • Review the value of your money and simplify your budgeting
    • Get smarter about your use of credit
    • Get real about planning
    • Experiment with ‘not spending’
    • Nominate a budget buddy and become accountable
    • Become proactive – and stay positive

You can read our complete blog series on budgeting at these links: why budgeting helps your personal finances, how to budget and maintaining a budget.

If you are still struggling with balancing your budget, you can seek support. You could consider contacting a financial counsellor or a budgeting coach for help.

Remember, budgeting is learning a new life skill; it takes practice. And at a time when you may feel worried, uncertain, or even out of control, it will help with financial fear and financial stress.

If you are struggling with your mental health, please seek help:

    • Lifeline crisis support service (24 hours): 13 11 14
    • Suicide Call Back Service (24 hours): 1300 659 467
    • Beyond Blue phone support and online chat service (24 hours): 1300 22 4636 or www.beyondblue.org.au

 

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How to reduce the shock of unexpected expenses

The shock of unexpected expenses

How to reduce the shock of unexpected expenses

Unexpected events are by definition surprising and can cause anxious feelings in most of us.

Where it’s a positive surprise that speaks for itself, positive feelings of wellbeing usually follow.

But where it’s an unwelcome unexpected event, we can be quite shaken.

A flood or fire, a theft, a vehicle accident, or a shock health diagnosis will all create feelings that lead us to think our lives have been turned upside down.

Even something as temporary as a lightning strike taking out the electricity in our street radically changes life for a few hours or even days.

It’s similar if an essential appliance just stops working one day, such as your fridge or hot water system, or if a beloved pet gets sick.

In a day and age where everything has a cost, unexpected events usually mean unexpected expenses.

That means as well as we suffer some level of shock, the same thing can happen to our finances.

‘An unexpected expense is one that you have not planned for or previously known about,’ says Behavioural Money Coach Lea Clothier.

Even some positive surprises come with costs, such as pregnancy or when a marriage proposal gets accepted.

An unexpected windfall can radically change our financial reality, too, though that isn’t the subject of this blog.

Here we want to look at those unexpected expenses that can threaten to derail our financial plans and create financial stress.

‘It is possible to reduce the shock of unexpected expenses and the financial stress they cause,’ Ms. Clothier says.

Dealing with a sudden financial shock

If an unexpected circumstance means you owe money and can’t see how you can pay all or even some of it, the first essential point is to communicate this to the person or organisation you owe it to

‘Putting your head in the sand like an ostrich may be a temptation when faced with acute financial stress, but it won’t work,’ Ms. Clothier says.

‘Doing that could cause you more financial stress with penalty payments and fees,’ she says.

If it’s a problem, you pay to fix it; avoiding the issue till the last minute could cost you more.

Think about that: would you rather book a plumber to look at your faltering hot water system when you know it’s playing up, or call one out at 6 pm on a Sunday when they can charge whatever they want?

It’s essential to assess the priority of the expense properly, Ms. Clothier says.

‘Can it wait until next month? Is there an alternative option?  Can I arrange a better payment option? Do I need to spend this amount on it? Is there a less expensive option?’

Another crucial point to make here is to avoid the temptation to borrow quick and expensive credit when faced with the debt.

We strongly advise against borrowing money to pay a debt too often that creates disempowering financial situations known as debt traps or debt spirals.

Debt spirals can lead to a life of chronic, debilitating financial stress.

So, look at all other options before borrowing to pay a debt.

It is possible to arrange a payment plan for most debts – if you contact your creditor and are very clear about what you can and cannot do.

‘Communicate with the creditor or person you owe the money to. You may be able to negotiate a payment plan or way to help you manage the expense,’ says Ms. Clothier.

Getting past an unexpected expense is likely to mean a change to your other spending for a month or so, maybe longer, as you shift money around.

To do this, you may need to cut back on spending in the short term.

If you don’t have access to cash reserves to cover this expense, and you’ve determined that the expense must be taken care of, then you’ll need to review your budget to see where you can make some changes to try and cater to this expense.

‘Review your budget – where can I cut something this month? Is anything in this not absolutely essential?’ Ms. Clothier says.

‘Can any other expenses be put off for a month?’

Before you decide to borrow money, determine if you can raise money some other way, for example, selling something of value you don’t need/use anymore?

As a last resort, you may consider asking for a temporary increase in a credit limit you already have.

Unexpected expense or unplanned expense?

This is another crucial point on this subject.

Sure, acts of God can’t be accounted for – even though most can be covered in a way that won’t financially ruin you. We’ll return to that.

But many unexpected expenses are better described as unplanned expenses. Or costs we just didn’t think through or forgot entirely.

It’s important to get honest with yourself on this point. Is there any way you could have seen this expense coming? Or was it genuinely impossible to have predicted it?

Once you start to keep better track of your expenses, you will begin to see many of these are just one-off future expenses.

Where people go wrong with unexpected expenses

The primary way we go wrong on future expenses is by regularly putting aside small amounts for more one-off significant expenditures.

‘People are often surprised by unexpected expenses such as a wedding, Christmas, holiday or even home maintenance pr repair costs,’ Ms. Clothier says.

Rather than looking ahead and thinking through what might or could happen and putting aside a regular amount towards these, people get blindsided by big bills that break their budget.

Many people take an “it won’t happen to me” approach and plan for the unexpected.

They don’t think about what could crop up financially if something were to go wrong with their health, possessions (home, car, and other assets) rather than brainstorm what could potentially go wrong and work towards creating a cash reserve or buffer that would cover this,

Borrowing to cover unexpected expenses is a significant way people make the wrong choice. That includes using credit cards.

‘Turning to high-interest credit options (such as credit cards) to manage expenses can add pressure or strain on future cash flow as it creates new ongoing expenses (i.e. the expense of paying the credit card back, plus the interest),’ Ms. Clothier says.

Another way is that they may try to ignore the expense or try the ostrich approach of burying their heads in the sand, hoping it might go away.

If you know you’re going to have problems paying unexpected expenses, the sooner you can speak to the creditor, the better.

There are often options, including payment plans, etc., that can be arranged if we are upfront and willing to work with them to find a solution within our budget.

How to stop unexpected expenses derailing us in the future

‘Having a plan or strategy to manage unexpected or emergency expenses can significantly reduce your financial stress,’ says Ms. Clothier.

It can also support you to stick to a budget, save and build wealth for the future. Failing to have a safety net or plan can be very stressful if you are faced with a surprise or unplanned financial obligation

Being able to develop and maintain a cash reserve is a great way to manage.

This is all about planning.

Once we start to pay much better attention to our finances, we plan ahead naturally and learn to put money aside if it is possible.

We also realise there are even ways to put money aside for things like fire, flood, or health emergencies – by taking out insurances to protect against these expenses

It’s a valuable exercise to make a list of all of the so-called unexpected expenses you’ve experienced. It might look something like this:

    • Medical expenses;
    • Prescriptions;
    • Doctor/Dentist bills;
    • Unplanned school fees;
    • Kid’s expenses such as sports, activities, trips, and other expenses;
    • Vet bills or animal care;
    • Membership Renewals / Subscriptions;
    • Car Maintenance, Registration;
    • Home maintenance and repairs;
    • Weddings;
    • Gifts for celebrations, birthdays + parties;
    • Talk of interest rates going up; and
    • A family member starting to become unwell.

‘There are also likely to be other predictable expenses that you can add to your list that are more specific to you,’ Ms. Clothier says.

How many of these could not have been predicted?

Estimate the cost of these expenses. Estimating the costs of upcoming expenses will help you make a plan for managing them.

Review your bank and credit card statements to see what irregular expenses pop up, or research what the cost might be if you were to face these expenses in the future.

Build these expenses into your budget or spending plan.

When you go to do next month’s budget or spending plan, review this list of items to see how and where you can incorporate irregular expenses into your budget.

These steps shift your focus to planning for these unexpected expenses instead of being surprised by them.

KEY POINTS

    • Don’t borrow to pay off an unexpected expense.
    • Don’t bury your head in the sand.
    • Talk to the person or organisation you owe money to – asap.
    • Are your unexpected expenses just unplanned costs?
    • Develop a plan for unexpected expenses.
    • List all possible future/irregular expenses.
    • Build these costs into your budget.
    • Consider whether insurances may be necessary.
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Why you need to stay mindful with your use of ‘buy now pay later’ services

Buy now pay later

Buy now pay later.

Popular new payment services like Afterpay, Openpay, Zip Pay and soon, Paypal’s ‘Pay in 4’ – collectively known as ‘buy now pay later’ services – perform something of a trick in the minds of consumers.

The trick results in people walking out of a store with a television, a carry bag of clothes, and high-end vacuum cleaners before they have fully paid partially switches off a healthy fear of debt.

But like credit cards, they are a form of credit – basically a loan – and with the real potential to increase financial stress in users.

With buy now pay later services, the consumer can purchase items with only paying the first instalment of the purchase value, then paying the remaining instalments in the future over the next 6 – 8 weeks. It’s like a cross between a layby service and credit cards but you get the product or service now.

The appeal of BNPL payment services

Buy now pay later is attractive for the buyer because the buyer had to only pay a portion of the item before they could take it home.

This appeal combined with clever marketing has become hugely popular.

In one recent Afterpay ad, Hollywood actor Rebel Wilson tells her on-screen boyfriend Afterpay is like eating a whole tub of ice cream at once but spreading the calories over six weeks.

This brilliantly captures the allure of the ‘instant gratification’ culture that is not just popular with millennials but with many people in nearly all age groups.

Afterpay boasts on their website they let customers get what they want when they want it, increasing average order value by up to 40%.

It is estimated one-in-five Australian consumers use a buy now pay later service, with over six million active accounts. The Reserve Bank of Australia says Afterpay is most popular with 3.4 million accounts, ahead of Zip Pay with 2.5 million.

The value of purchases made nearly tripled in Australia between 2017-18 and 2019-20, from just over $3 billion to over $9 billion.

Retailers love the services because they give the appearance of a new, cool, easy option when paying for your shopping – one that lets you walk out with products after spending just a quarter or one-fifth of its value.

How BNPL taps into the psychology of consumer spending

Buy now pay later have cleverly tapped into the consumer spending psychology and convinced shoppers to open their wallets – even though they don’t realise that is what they are doing.

Deferring payments is a relief to consumers, a positive feeling that reduces the pain of paying cold hard cash and even the nagging ‘I shouldn’t be doing this’ feeling that comes with using credit cards.

According to Dr Carey Morewedge, Asst. Professor at Carnegie Mellon University, the ‘pain’ of paying feels like it is reduced when using a buy now pay later service because we actually equate an imagined ‘pool of resources’ to having more cash.

M2P’s fintech blog explains the idea in an article titled ‘Factors and Psychology Behind the Great BNPL Allure’.

The larger your resource, the greater will be the inclination to make costlier purchases. For example, when shopping using BNPL, you feel like spending a small fraction of money from a large reserve with no immediate deadline.

So, the pain of paying becomes dramatically less with BNPL.

Whereas drawing a few currency notes out of your pocket seems like you are consuming a large portion of the available fund. Thus the pain of paying in immediate cash payment is more significant.’

Of course, buy now pay later providers know exactly what they are doing.

If a consumer cannot meet their end of the deal – and repay the full price within the agreed number of instalments, they are hit with late fees and charges, which vary depending on the fine print in the terms and conditions of each BNPL service.

It’s a very different mindset to using credit cards, which were first launched in Australia in 1974 and have peaked in usage in the past decade.

In 2020, there were 14.8 million consumer and business credit cards in Australia – more than one for every adult.

As credit card use has declined, the card companies have tried various marketing ploys to boost the use of their services, such as loyalty points schemes to 0% balance transfers.

But because so many people got into trouble with the complex and expensive interest payments on credit card companies, providers go out of their way to make it clear how repayments work.

According to Illion, Millennials under the age of 30 are twice as likely as their parents to fall more than two months behind in their credit card payments, suggesting they have greater difficulty balancing spending and debt, regardless of their credit limit.

The perils of buy now pay later services

The perils of credit card misuse are now well-known and widely understood. But the perils of buy now pay later are still developing as they are relatively new.

Afterpay, Zip pay, Openpay and equivalents remain relatively unregulated compared to the banks – meaning the gloss has not yet come off the services.

The perceived ‘win: win’ does not consider that our spending behaviour sometimes doesn’t make sense – for instance, how we can spend money based on our need to distract or ‘feel’ better rather than our need to stay within our limits.

Who could say they have never spent without thinking through all the consequences of a purchase? Probably none of us.

While it is entirely human to do so, it is the definition of mindless spending.

According to the Australian Financial Review, in 2020, Afterpay made $70 million from late fees, representing 20 per cent of its revenue.

The Australian Securities and Investment Commission also found that one in five buy now pay later customers were regularly missing payments.

An alarming half of users aged under 29 had taken out other loans to pay their buy now pay later debts.

How to use BNPL payment services safely

Just because buy now pay later services are relatively new, and the mixed impacts don’t make them bad news for everyone.

Andrew Fleming, Founder and CEO of Financial Mindfulness, says; ‘the way to avoid trouble with these payment services is the same as using any type of credit.’

‘Budgeting and sticking to your budget is key to ensure you do not get into trouble with BNPL products, but it also relates to any type of credit product, impulse spending is not wise’ he said.

‘Understand the product properly, including the fine print. Use BNPL services following your spending budget.’

‘The line between safe and unsafe use of these services is the difference between spending according to your budget and ‘reckless spending and not paying on-time’, he said.

You’ll have to decide for yourself what constitutes reckless, but it’s safe to assume that putting everyday shopping on instalments is not sensible.

To make the most of buy now pay later services, the optimum state of mind is one of financial mindfulness, which we define as ‘having awareness and paying attention to your finances and financial behaviours’.

But you have to hand it to the Founders of Afterpay, who discovered early the behaviour change with Millennials preferring to engage in cashless and credit-free spending lifestyles.

They have become a huge success story. The company was started 7 years ago and recently sold to Twitter founder Jack Dorsey’s Square for $39 billion making it the largest deal in Australian corporate history.

Buy now pay later
Buy now pay later
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Lowering financial stress and stress in general

Lowering financial stress and stress in general

Lowering financial stress and stress in general.

Financial stress is debilitating; it can add a layer of unwelcome, even toxic, distraction to everyday life.

It can affect our relationships and our productivity at work; plenty of research shows this, including research commissioned by financial mindfulness.

But people under financial stress don’t need research to confirm it, anyone under financial stress knows how it slows us down and makes everything that bit harder.

Financial mindfulness is a tool for reducing personal financial stress using mindfulness, goal-setting, and financial literacy.

“It’s useful to remember financial stress is a type of stress – and it’s helpful to look at what stress actually does to us,” says Dr. Michael Takagi, a Melbourne clinical neuropsychologist.

It’s also important to remember there are a variety of well-practiced stress reduction techniques which we can use to help address financial stress too.

Stress and financial decision-making

Stress can have a profound impact on us, Dr. Takagi says.

When it becomes chronic, it can adversely impact our lives in many ways, including our sleep, cognitive functioning, physical wellbeing, and overall health.

“Imagine trying to make a complex and impactful decision when you are sleep deprived, your scatterbrained and not able to focus, you have a headache, and your back is sore, and you feel rundown and exhausted,” Dr. Takagi says.

“It is not a recipe for good decision making.”

In the short term, we are more likely to make decisions that alleviate our immediate need for relaxation and help us to feel better, so-called retail therapy, buying expensive takeaway meals, drinking, or even gambling.

Doing those things to try and ‘feel better’ can add to our financial stress.

“In the long term, we are less likely to delay gratification and less likely to make the decisions that are necessary for long-term financial stability,” Dr. Takagi says.

Stress management techniques can help us reduce our overall stress levels, reducing the adverse side effects of stress, which helps us make better financial decisions.

Valuable activities for stress reduction

In general, exercise is among the best options, Dr. Takagi says.

The specific type of exercise is less important than ensuring you regularly do it. As an example, gardening can be a good option that people may not consider exercise.

While gardening doesn’t usually raise the heart rate, many people find it useful – you’re outside, getting fresh air, and exerting yourself.

These activities produced stress-reducing brain chemicals such as serotonin, dopamine, and endorphins, where you exert yourself.

“Going for a walk with a friend is another excellent option; you’re exercising and socialising at the same time,” Dr. Takagi says.

Socialising with a trusted friend produces stress-reducing brain chemicals such as oxytocin.

Similarly, team sports, going to the gym, and running are all good options.

The primary considerations should be enjoyment and a degree of physical exertion, which produce the feel-good natural highs of dopamine and serotonin.

“If you enjoy doing something, you’re more likely to make it a part of your routine,” Dr. Takagi says.

Including someone else can help too – you’re more likely to exercise if there’s someone to do it with you, keeping you accountable with the bonus of that important social aspect.

Mindfulness is also an excellent stress reduction technique, particularly with stress caused by financial stress.

Mindfulness has been shown to stimulate all the ‘happy’ brain chemicals, especially serotonin and (when we stick to a regular practice) dopamine.

The anti-stress benefits of positive routines

Stress reduction techniques and activities do not have to take a huge part of the day, and they can change, Dr. Takagi says.

This could be incorporating a morning walk into your routine a few days per week, a 10-minute mindfulness session before you start your day, or a 5-minute progressive muscle relaxation session before you go to bed.

“The most effective stress management techniques will vary from person to person and vary on when they are most effective during your day,” says Dr. Takagi.

“Identify the stress management techniques that are most effective for you (e.g., breathing exercises, mindfulness, walking) and then work on incorporating them into your routines,” he says.

This means getting curious about what works for you. Try something and if it doesn’t help reduce your stress, try something new.

You can maximise the benefits of stress management techniques and activities by incorporating them into a routine and continuing to do that routine.

We need to simplify how we do this, and one way to achieve that is to do positive things at the same time every day.

Many people find it effective to have a stress-reduction routine in the morning while having plenty of energy before their focus is taken up by work.

This could look like some meditation and a phone call to a friend when you get up, or a brisk 15-minute walk, then you begin with a firm foundation for the day.

But if it works best for you to have a stress-reduction routine after work or in the evening, then try and stick with that.

The main point here is to have a routine and try to stick to it. If you miss a day, don’t worry, just start the next day again.

KEY POINTS

    • Financial stress can be reduced in several ways.
    • A program specifically aimed at reducing financial stress is beneficial.
    • Financial stress is a type of stress, and there are many stress-reduction methods.
    • Exercise is one of the best, so is socialising and mindfulness.
    • Experiment and get ‘curious’ about what works for you.
    • Incorporate stress-reduction techniques into your daily routine.
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How can we reduce mortgage stress

Top five reasons people get into mortgage stress

How can we reduce mortgage stress.

Despite sustained, record low interest rates, repaying a mortgage remains one of the most significant financial stressors for many Australians.

According to Moody’s Analytics, 20 percent of all Australian households are said to be under mortgage stress in Australia.

Government figures record just over a third of Australian households has a mortgage.

Considering the size of those mortgages, it’s hardly a surprise that the debt stresses us out.

ABS data shows the average mortgage across Australia is $728,500.

In NSW, it is $939,700 and in Victoria, it is $785,000.

Types of mortgage stress

At this point, it is important to define mortgage stress.

Mortgage stress is a technical term describing spending more than 30 percent of income on mortgage repayments.

That is the type of mortgage stress Moody’s refers to above.

However, another type of mortgage stress goes along with the technical definition and is real and consistently impactful on people.

This is the mental and emotional pressure of financial stress caused by being fearful, even panicking, about what might happen if your household could no longer afford the current mortgage repayments.

Why does mortgage stress happen

In short, the size of mortgage debts – for many Australians, it is the most significant loan they will ever repay.

When households are squeezed into paying over 30 percent of income towards meeting mortgage repayments at a low-interest rate, even the merest hint of a change in interest rates causes physical and emotional stress.

Don’t forget how the emotional significance of owning a home – and the fear for some of losing one – it’s a heavy burden for a lot of hardworking Australians.

As interest rates have remained low, mortgagees have become used to their repayment levels, meaning any increase in interest rates will only exacerbate mortgage stress.

“I think what is important though to realise that whilst most people are currently coping with their mortgage repayments, there is still a lot of anxiety about the future with regards to possible interest rate rises, security of employment and property prices becoming unaffordable or property prices going backwards in the future,” said Hamish Ferguson, Director of Vision Property and Finance.

How can we reduce mortgage stress

There are several successful methods of reducing mortgage stress. They include:

  1. Ensuring you are paying extra on your mortgage to build up a safety net or buffer which can be used when interest rates rise;
  2. Fix your loan if you are worried about rates going up and only have a small weekly surplus to your budget. This way, you won’t have to concern yourself with increased repayments for the time frame you have fixed for; and
  3. Review your expenses. Often when we are stressed, our level of comfort spending increases. We need to be aware of this and monitor our spending on those items that we tend to purchase when we are stressed. Eating out, TV subscriptions, buying gifts for ourselves or others, and upgrading items such as mobile phones, TVs, cars, and fashion.

How can we stop mortgage stress derailing our finances and relationships

What if we can’t eliminate our mortgage stress. How do we stop it from taking a heavy toll on our lives?

Perspective is so important. If we focus on the negative, on the difficulty of financial strain, then our relationships with money will remain challenging.

An example might be rather than saying ‘I don’t have enough money’. Instead, try to say, ‘well, at least I am still able to meet my commitments.

When it comes to relationships and money, transparency and openness are essential.

We can’t stress enough how important it is to ensure you are communicating with your partner and family and not bottling up worries and problems.

Being mindful of money goes hand in hand with good communication.

As we touched on, so much of the mortgage stress equation is about acceptable margins. Small changes – either way – in interest rates can have a significant impact.

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Proving the business case for financial wellness programs

The business case for financial wellness programs

Proving the business case for financial wellness programs.

Financial wellness has been a buzz phrase in the workplace for a few years now – with good reason.

More and more data show how bad for productivity the problem of employee financial stress is.

In Australia, AMP’s 2020 Financial Wellness Report showed 1.8 million Australian workers suffering prolonged financial stress, costing $31 billion in lost productivity.

A survey by salary finance found American businesses are losing $500 billion per year due to employees’ personal financial stress.

Employers want to engage and retain productive employees – yet the day-to-day challenge of trying to pay bills and manage finances is leaving employees stressed and distracted at work, according to PwC.

That’s why blue-chip organisations seek to measure changes in financial stress, as PwC did recently, in its 2021 Employee Financial Wellness Survey of 1,600 full-time employed American adults.

It found that nearly two-thirds (63 per cent) of full-time employees said their financial stress has increased since the start of the pandemic.

Employees whose financial stress increased due to the pandemic were four times as likely to have experienced a decrease in overall household income and to find it difficult to meet household expenses on time each month.

They were twice as likely to have used short term credit in the last year, to have taken a loan or funds meant for their retirement and even to be considering postponing their retirement.

Of the employees who were more financially stressed, a high proportion (45 per cent) reported that their finances were a distraction at work, a majority (57 per cent) avoided medical treatment because of the cost and an overwhelming number (72 per cent) were interested in a company that cared more about their financial well-being than their current employer.

The United States is of course a different market, but the underlying principles apply to Australia: financial stress affects key metrics and it also worsened in the early stages of the pandemic.

In its 2021 Employee Financial Wellness Survey report, PwC outlined four steps it believes employers should take to strengthen workforce financial wellness.

They were:

  1. Make the business case for supporting employee financial health;
  2. Recognize what’s happening for employees at home;
  3. Leverage momentum to promote good financial habits, and
  4. Implement a technology solution paired with human interaction and guidance.

The second point – what’s happening at home – is a difficult balancing act. It is clearly private, but also incredibly insightful, information.

Insights can be gained without breaching any privacy, by gaining employee permission and buy-in to anonymized data collection. But the need to tread carefully and ethically on this point cannot be overstated.

Leveraging positive momentum – such as employees who have improved their own financial position – is important because it reinforces good behaviour and builds trust. Constructive, positive reinforcement feeds on itself, producing positive results – as good leaders know well.

In identifying that 87 per cent of employees want help with their finances, PwC confirms the principles underpinning the financial wellness movement.

This is a case-by-case, site-by-site problem – but in general, people want tools and online delivery is almost always seen as advantageous today, especially with work-from-home so widespread.

The first item in PwC’s list of four steps – Make the business case for supporting employee financial health – is what we’ll concentrate on here because it sets the groundwork for everything else that follows.

PwC makes an important point at the outset: understand what changes in financial stress might be doing to your workforce.

To do that you have to choose key metrics.

The three PwC suggests are ‘productivity, retention, and physical health’.

Others might include absence rate, job satisfaction, engagement, turnover, career path ratios and the impact of training.

There may be other metrics you find more useful or relevant to your business.

The Financial Stress Index (FSI) provides a tool to track changes in key metrics over time, to provide some insight into what is happening for employees in order to develop effective solutions.

Most significantly, the FSI tracked self-reported changes across a sliding scale of financial stress categories.

Specific and measurable key metrics included in the FSI include:

  • Productivity;
  • Absence; and
  • Physical health.

The FSI provides behavioural insights into financial stress that could contribute to changes in other metrics, such as:

  • Job satisfaction;
  • Career path ratios;
  • Engagement; and
  • And the impacts of training.

They also contained a rich data set that contained insight into what was happening at home for employees and indications of changes in employee mental health.

In March, comparative FSI insights as they applied to Australian survey respondents across three six-month periods were released.

Comparative data was collected on:

  • Effectiveness at work;
  • Time off work;
  • Days lost due to low productivity; and
  • Changes in physical illness symptoms.

All the above data was collected within the context of levels of financial stress.

You can find out more about the FSI here.

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Australians rebounding from pandemic

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Australians rebounding from pandemic

Financial Mindfulness was reported in Money Management on its latest financial stress survey.

Australians assessed as “thriving” financially have rebounded after sliding backwards during the first six months of the COVID-19 pandemic, according to Financial Mindfulness.

The firm’s Financial Stress Index (FSI) showed that 25.8% of 645 respondents were rated as “thriving”, a proportion that was 18.8% pre-COVID, but crashed 2.4% during the first six months of 2020.

The research had also found an almost 10 times increase in those that experienced finance distress due to COVID-19, while 64% of people experienced financial shame.

Andrew Fleming, Financial Mindfulness chief executive and founder, said Government support likely stopped financial stress from spiralling as people became uncertain about their financial position during the pandemic.

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

“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, gross domestic product (GDP) levels increasing and another property boom.”

The proportion of respondents that were “managing” fell from 41.5% in the first six months of the pandemic to 26.1% in the six months from September 2020 to the end of February 2021.

A smaller number of people in chronic financial stress, categorised as “distressed” continued to increase throughout the pandemic, with financial and psychological factors the main drivers.

Those who identified as excessively eating, drinking, smoking due to their financial situation returned to pre-COVID levels.

On average 16% of people often had physical stress relating to their money worries and 71% were distracted because of financial concerns.

Agitation was the most common somatic symptom of financial stress (71%), followed by tension (69%) and inability to “wind down” (65%).

Many took an “ignorance is bliss” approach, either ignoring the situation (57%) or recklessly spending (57%).

66% of people note financial stress had negatively impacted their relationships and 59% experienced conflict with loved ones.

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

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

Published in Money Management on 6 April 2021. Credit: Chris Dastoor