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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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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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Using Mindfulness practice to help reduce financial stress

Financial freedom

Using Mindfulness practice to help reduce financial stress.

Mindfulness has been a big buzzword for several years.

The cabin-fever worry of the COVID pandemic reinvigorated mindfulness as a solution too. Mental health organisations, major news outlets, universities and of course meditation programs  were discussing the merits of mindfulness as a way to deal with COVID stress.

In recent years, mindfulness stress-reduction programs have emerged as a key plank in corporate wellness programs too – the new gym-at-work, except for the mind.

Mindfulness programs, run by external trainers and delivered in-house to stressed-out employees are in hot demand as employers seek to curtail the impacts of a big range of lifestyle and mental health issues that lead to costly absenteeism and its sneakier sibling, presenteeism.

There is little doubt mindfulness practices – which range from yoga to tai chi and the most popular recently, mindfulness meditation – work.

Researchers for the American Psychological Association, Daphne Davis and Jeffrey Hayes found many clear benefits from a broad review of prior research into mindfulness.

Davis and Hayes’ 2012 practice review What Are the Benefits of Mindfulness? A Practice Review of Psychotherapy-Related Research, found mindfulness “decreases rumination” (or ‘over-thinking’), improves memory, reduces anxiety and depression symptoms, people to become “less reactive” and more flexible in their thinking.

People who meditate were found to be better at “self-observation” and could adapt better to “stressful and negative situations” and concentrate better after receiving “upsetting stimuli”.

But the issues that worry us enough to interrupt our work and sleep are so mind-bogglingly varied that general, one-size-fits-all mindfulness programs could conceivably frustrate us as we are encouraged to gradually become more mindful across every areaof life.

Wouldn’t it make more sense to apply targeted mindfulness practice to one or two areas of life? Maybe the ones that stress you out the most?

Think about that: don’t we need distinct mindsets to resolve relationship issues, compared to say, problem-solving our career stagnation, compared to finding the calm and patience to cope with a major health scare or crisis, compared to the action needed to reign in our ballooning credit card debts?

One of the biggest issues stressing out employees is something not often associated with mindfulness meditation: financial stress.

The American Psychological Association’s Stress in Americansurveys consistently report high rates of financial stress. In 2020 it found that 73 per cent of Americans with a household income of under $50,000 reported money was a significant source of stress.

It’s not a one-off result. 73 per cent of all Americans rank their finances as the No. 1 stress in life, according to new Capital One CreditWise survey.

Another survey by Thriving Wallet, a project backed by Arianna Huffington’s Thrive Global and Discover, found that 90 per cent of Americans said financial considerations have an impact on their stress levels

In Australia, it is estimated at least 2.44 million people are suffering financial stress, with about a quarter of women in financial stress, compared to 14 per cent of men.

The numbers come from AMP’s 2019 Financial Wellness report, which found that financial stress has affects more than personal lives.

“While many people think money worries are a personal issue, our research shows being financially stressed spills into your working life, increasing absenteeism and impacting productivity,” said AMP Director of Workplace Super, Ilaine Anderson.

The report estimated that financial stress costs businesses $31.2 billion a year in lost revenue.

While one solution AMP suggested was financial goal-setting, given the amount of distress and discomfort money causes us, could there be other answers too? What if mindfulness practice could dramatically change not only the way we view our money problems, but lead us to concrete actions that solve some of them?

Andrew Fleming, Founder of Financial Mindfulness,says mindfulness practice can help with obvious but hard-to-control problems like overspending in two ways. The first is to help you stop re-living the kind of fantasy in which it’s somehow okay to continue living beyond your means.

“You become more aware of the situation not as you want it to be, but as it really is,” he says.

“The second thing it does is to create calmness, less emotional reactivity and a balanced mind, so you can deal with the ups and downs of life. Then you are better equipped to deal with whatever situations you face, with calm focus and clarity.”

So mindfulness may not directly improve your financial circumstances, at least not straight away, but it is capable of quickly reducing the pressure you feel about money – which is by definition your sense of financial stress.

Fleming says practicing techniques like meditation can go further too, putting you in a frame of mind to find solutions to stubborn problems with their personal finances.

“Most people from when they wake up to when their head hits the pillow mind are constantly switched on, moving from task to task to task all day long. When the mind is constantly switched on, it’s inevitable stress will occur.

“Mindfulness is a maintenance tool to help develop clarity of thought to create space in the mind for new ideas and innovations, new ways of changing or improving current circumstances.”

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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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Why women suffer more from financial stress

Mindfulness and the Sunk Cost Bias

Why women suffer more from financial stress.

Recent studies have found women feeling considerably more financially stressed than men – but why?

In the United States, a recent study of 10,500 employeesby Salary Finance, found more than half of women born between 1981 and 1996 (millennials) are worried about not having enough to retire. In comparison a third of millennial men have the same beliefs.

The study found similar disparities between men and women in Generation X: 44.8 percent of women born between 1965 and 1980 are worried about money issues most or all of the time, while 36.1 percent of men feel the same.

In Australia, NAB’s Australian Wellbeing reportshowed financial anxiety rose, probably due to coronavirus, in 2020. Women were more worried than men.

According to the research women were more worried than men about raising money in a hurry for an emergency, children’s education and rent or mortgage costs.

The most fearful group of all were women over 65.

It’s been happening for years. Back in 2014, the Australian Psychological Society reported “personal financial issues” were a major source of stress for 53 per cent of women but only 44 per cent of men. The APS found three main causes of stress amongst Australians (in order) were personal finance, family issues and personal health.

AMP’s study found the main financial stressors in people’s lives are (in this order), bad debts, home loans, retirement, supporting the family and budgeting.

In the United States, Californian company Financial Finesse found 55 per cent of mothers earning less than US$60,000 reported “high” or “overwhelming” levels of financial stress. Male parents of a similar age group and income level were 40 per cent less likely to feel as bad.

While there are often only small discrepancies between men and women around financial values and stressors, women almost always report more negative feelings about money, even if only marginally.

One explanation for women’s financial stress is historical and current pay inequity. On average Australian women in fulltime work earn 17.3 per cent less than men ($277.70) according to the Workplace Gender Equality Agency. That gap has “hovered between 15% and 19% for the past two decades”.

In the US, the difference is starker: women on average are paid a third less.

At the same time, women traditionally have had more responsibility for the day-to-day running of the home, such as domestic duties and childcare. In recent times though, generally speaking, women’s involvement in financial decision-making – and sharing costs – in relationships has increased.

One could speculate shouldering more financial responsibility while still earning less and doing more than men at home might be a factor in women’s higher levels of financial stress. There is also evidence that risky behaviours with money, such as impulse spending, are linked to feelings of stress, guilt, boredom and anger.

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.

Seeking help around our finances and feelings of financial stress eventually becomes essential.

The help required will vary for individuals. It may be practical financial support, or learning budgeting skills, or seeking assistance to manage the stress of money worries.

One solution for some sufferers of financial stress is to become financially mindful.

Financial mindfulness, is an active process of paying attention to your finances, financial behaviours, attitudes and beliefs around finances. It is keeping awareness of your thoughts, feelings, actions and financial environment in mind so that you can make better financial choices.

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How to stop spending too much at Christmas

How to stop spending too much at Christmas

How to stop spending too much at Christmas.

Christmas is by far the busiest time of the year for shopping and many of us deal with the pressure and financial stress of the annual retail frenzy with an increasingly popular new behaviour – self-gifting.

If you’re not familiar with the concept of self-gifting, you might be just a bit in denial. Think of it as December retail therapy: we all know that feeling – we are out shopping for Christmas gifts and we see a sexy new gadget, T-shirt with a funny slogan or a stylish home accessory in a store and realise the person it would be a perfect present for is actually ourselves. So, we buy it, you know, as a treat!

Retail therapy sounds nice – we fool ourselves it’s ok because it’s a type of therapy and we are told: “Therapy: Good!”

Retail therapy is of course popular all year round, especially after a shocking week at work, or an argument with our partner, or when we’re just feeling the blues.

But is it therapeutic if we buy non-essential to just manage predictable and recurring stress? Or is it really impulse spending?

Spending money impulsively can make us ‘feel better’ and ‘more alive’. But it can be a serious problem if this is something we begin to do regularly, especially with expensive items, as a way of coping. And let’s face it, jobs and relationships – and life in general – can be stressful for extended periods. New COVID-19 lockdowns are also very stressful especially on the eve of Christmas.

Data on impulse spending is contradictory – with one survey showing Aussies claim to have reduced our impulse buying while another shows that more than three quarters of us impulse buy when we shop via mobile. So it’s helpful to define it: when react to temptation by mindlessly spending money we haven’t budgeted on.

According to a poll of 1003 consumers by US website creditcards.com, five out of six Americans admit to impulse buying. One in five people had spent more than US$1000 on impulse, which rose to one in three for people earning over US$75,000.

Seven strategies to manage your impulse buying

  1. You are much less likely to buy on impulse if you plan your shopping trip therefore write a shopping list before you go.
  2. Avoid sales (or nominate an item you want and don’t break that agreement with yourself). A price discount is a real trigger for impulse spenders often buying things they don’t need.
  3. Don’t shop when you are emotional.
  4. Remind yourself of your longer-term financial goals before you spend.
  5. Wait a day before you purchase non-essential items.
  6. Make a budget for spending on ‘extras’ or treats and stick to it.
  7. Eat before you leave home to shop, this avoids spending extra money on food items as you will not be hungry during shopping time.

It’s not a huge leap to switch from a default state of mindless impulse spending to one of financial mindfulness– which means having awareness and paying attention to your finances and financial behaviours.

Working through complex and difficult problems that may trigger impulse buying is of course not easy. But let’s not forget what a hugely painful thing financial stress is. Ask yourself honestly, is your impulse buying adding to your financial stress? It’s a question worth pausing to consider honestly.

Financial worries are now accepted as a leading cause of stress in people’s lives throughout the western world.  Impulse spending therefore just compounds the problem.

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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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The real cost of gift-giving: financial stress – part 3

The real costs of gift-giving: Financial stress

The real cost of gift-giving: financial stress – part 3.

In ancient history giving gifts began as part of the ritual of worship and over the centuries it has morphed into a show of appreciation. In the age of mass consumerism gift-giving has become an expensive habit too, especially in holiday season.

While most of us worry about money to some degree, gift-giving has costs we usually bear without much complaint; giving is a respected value, it feels good and it’s accepted as a cultural obligation. Besides, we have special labels for people who don’t play along with gift-giving: who wants to be labelled Scrooge or the Grinch?

Let’s take a look at one specific festive custom: the excessive expectation everyone will have a present for everyone else who arrives on Christmas Eve or Christmas Day – whether they are young nieces and nephews, twentysomethings, cousins, partners of relatives.

Even exes in attendance get a gift. It’s probably no exaggeration to say half the gifts exchanged in these situations are politely put in a cupboard when they arrive home – and forgotten. The obligation to provide a pile of gifts – of appropriate value – across extended families can add tension to what is often already awkward family gathering. It almost certainly adds to seasonal financial stress.

Never mind that in the affluent West that many of us take months to repay debts incurred at Christmas time and in Black Friday and Boxing Day sales. So, at least reasons to buy expensive gifts are out of the way after Christmas, right?

Wrong. February and March tend to have the most weddings in Australia, which means wedding costs and wedding gifts for guests. February and March also have a lot of birthday spending, as those are the second and third most common months to have a baby. From there, the retail calendar kicks in: with gift-giving the norm in Easter, then for Mother’s Day – not to mention birthdays and anniversaries for the rest of the year.

Another type of gift-giving that is anecdotally growing is also worth noting: buying ourselves gifts and treats for our birthdays or just ‘getting through hard times’ such as COVID, often just because we see appealing items in big seasonal sales.

So, how can we avoid the financial stress that comes from adding new debt to existing debt, and the symptoms and impacts of that financial stress?

Some of us at some point have completed a budget (even if we can’t always stick to it) and humble enough to get financial advice to try and do better. We are not clueless.

But without an overhaul in our thinking, choosing gifts will remain stressful for many people. There can be a huge array of options and a nagging temptation to show our appreciation – for ourselves and others – by over‐spending.

If you have tried every trick to rein in spending on gifts it could be time to try something new – using mindfulness with your finances, also known as financial mindfulness. Mindfulness is described as moment‐by‐moment awareness.

Take the example of a teenager who “needs” for a sleek iPhone 10 as a gift, if not the newest flagship Apple phone, an iPhone 12 Pro Max. An iPhone 11 Pro Max will set you back at least $750 and a Pro Max 12 starts from the mid $1500s and rapidly goes up beyond $2000.

“We all have urges that we really, really want a new gadget like an iPhone, including me,” says Financial Mindfulness CEO and Founder, Andrew Fleming.

“It feels good to take it out of the box and start using it. The feeling of having the latest technology makes you feel cool and the children love it. Like anyone else I’ve learned those feelings don’t last long and they certainly don’t improve your life, despite what the ads tell us.

“Always having the latest iPhone won’t make me or anyone else truly happy. In fact always giving in to buying the new iPhone – or the latest of any brand of device – will actually decrease happiness because it will probably contribute to increased financial stress.”

The reason those sentiments feel uncomfortable is because they’re true. Researchers from Washington University and Seoul National University, Joseph Goodman and Sarah Lim, found that giving ‘experiences’ increases the happiness of recipients more than material gifts – even if people are not socially close.

Hence the boom for online companies selling “experiential” gifts: in Australia, RedBalloon; in the UK, Red Letter Days and in the United States, retailers like Cloud 9 Living and Great American Days.

But focusing on experiential as opposed to material gifts is unarguably only half of the answer.

While the research shows a hot‐air balloon ride or chocolate‐making course should satisfy the recipient more than boxed gift wrapped with a bow, if you try to please someone with the dollar value of your gift your debt problems could get worse and that is undeniably a problem.

Ever looked at the cost of sky‐diving, rodeo‐riding or maybe cage diving with sharks? You will spend hundreds, if not over a thousand dollars on these.

Financial stress is irrefutably linked to health problems like depression, anxiety and sleep disorders so it’s not a big leap to see that the expensive gifts you buy – whether material or experiential ‐ could paradoxically lead you to feel less likely to connect with other people.

Most of us know overspending will put pressure on us, but since when did knowing right from wrong stop human beings from making mistakes?

A parent, relative or partner with poor self‐control around money will often buckle to badgering from a child, or give into a yearning to people‐please, and buy that new smartphone, tablet, a holiday or even a car.

A daily mindfulness practice will lead to a more mindful approach to gift‐giving, so we do not drift into autopilot when buying. It’s inevitable this will lead us to confront some fundamental uncomfortable truths about money. “Mindfulness helps to calm the mind and with a calm mind we make better decisions,” Fleming says.

“Sometimes it’s a better decision to treat ourselves to a book or a movie or a massage instead of the latest smartphone.”

It’s important to note mindfulness is no silver bullet – it can however help you begin to change in that area. From there we can make some deep, meaningful changes: when we are forced to face old assumptions about money.

“There’s a big mindset change some of us need to make at times like Christmas, birthdays and weddings: how much we spend on people is not automatically a sign of our value and love for each other.”

Which brings us back to gifts. You can create lasting memories with creativity and your knowledge of a person.

How about home‐made cookies baked with personal messages – each describing why you love the recipient ‐ hidden in the dough? Or a hand‐made recipe book containing meal suggestions from the recipient’s family members?

Maybe get a t‐shirt printed with the recipient’s favourite funny saying or if you have time, plan a surprise outing and put thought into favourite stops and a destination, or even fill a tall jar with inspirational quotes written and printed in different colours.

If you have lots of time, learn the guitar then write someone a song and play it for them. If you don’t have much time, spend a couple of hours hand‐writing a letter telling the recipient what they mean to you. Could any gift feel better and teach about the real meaning of value?

Time is a key resource when it comes to gift-giving; you need to know someone or learn about them to know what might make them happy. And time is valuable. Benjamin Franklin was widely credited with the unforgettable line “time is money” in 1748 (although it’s been shown to have much earlier origins, perhaps even ancient Greece).

We can spend money and time, but where spending too much money might cause you crippling financial stress, spending a lot of time only enhances relationships – especially on children – by creating last memories.

Andrew Fleming says getting our minds to a state where we can see that spending time is just as valuable as money when it comes to gifts isn’t easy. “Everyone thinks they are time-poor.

One tool I know that can really transform how much time I think I have is mindfulness. Using mindfulness when I’m spending money means I make better decisions – no doubt about it.”

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The real costs of gift-giving: Financial stress – part 2

Our Guide to Last minute Christmas shopping guide

The real costs of gift-giving: Financial stress – part 2.

Who wants to buy something special for their partner, relative, friend or colleague on Black Friday or this Christmas? It’s a thoughtful idea given how tough 2020 has been – with bushfires, then the COVID-19 pandemic, various lockdowns and financial stress coming at Australians in waves all year.

If we are not aware of our underlying financial stress at this time of year, advertising pressure can trick us into an expensive false reality: that our usual safe spending limits don’t apply when it comes to proving our care for others.

It’s sad to think we actually believe that the price of gifts should be in proportion to what people mean to us – and yet our national gift-giving habits suggests we overlook the damaging realities of money stress at the checkout.

Megan McArdle of Bloomberg, argued “there is a higher logic to the gift economy … that mandates we keep giving and receiving objects of dubious value”.

Gift-giving, she wrote, was connected to “an innate human value called “reciprocal altruism” which makes the costs of gifts “a maintenance fee for your relationship”.

There are of course, real problems beyond warm and fuzzy feelings when altruism is all about money.

As well-intentioned as gift-giving is, the Christmas rush to buy gifts is sometimes only ‘generous’ financially; how often is our gift something the recipient really needs and will use?

Often, we believe we are too busy to understand our recipients real wants and needs. When we go into this kind of autopilot thinking, we can’t see that we are setting ourselves up for financial stress and its many impacts on our relationships, our work, and potentially making any existing anxiety and depression worse.

Research by Joseph Goodman (from Washington State University) and Sarah Lim (from Seoul’s Center for Happiness Studies) found people commonly buy material gifts over experiential gifts, despite the fact that recipients often feel happier receiving experiences.

Material gifts are those we can touch while experiential gifts are those that create a memory.

So, gift-giving becomes a stressful problem which we solve with money – by buying the latest expensive gadget, a heavily-marketed ‘luxury’ or some kind of timeless status symbol.

If it sounds mean-spirited to question gift-giving, that’s not the intention here. Only narcissists and debt collectors (and the occasional teenager) believe it’s better to receive than to give.

The problems raised here are not about gift-giving per se, it’s the headless chook race that it can resemble – and the financial stress and strain placed on many of us.

Last Christmas Australians splurged a mammoth A$28 billion on credit cards, according to finder.com.au – over $1,100 for every many woman and child.

Add the costs of Valentine’s Day, Easter, Mother’s Day, Father’s Day, birthdays, weddings and anniversaries and you can see how gift-buying has become a major driver of the retail engine in Western economies.

Of course, it’s a double-edged sword: retail spending is celebrated each year as a measurement of the strength of the economy. But at a personal level, buying gifts for everyone, and without mindful budgetary limits, will likely cause financial stress.

Debt consistently shows up in surveys as a leading cause of financial stress. But it’s now widely known personal money problems consistently show up in research as a major cause – if not the major cause – of stress in general.

The links between financial stress and poor mental health are well known, but recently the physical symptoms are being acknowledged and links to serious physical illness are emerging.

In the United States, the company Four Seasons Financial Education surveyed 511 employees in a national study and found disturbing correlations between financial stress and health problems. The respondents rated their level of financial stress, then the prevalence of health issues between two groups was compared.

People with high financial stress had higher reported incidence of health issues across all nine illnesses identified – heart attack, high blood pressure, depression, anxiety, infertility, gastrointestinal issues and sleeplessness, migraines/headaches and memory loss.

“The greatest disparities were found with anxiety and depression between these two groups,” the study findings said. In the groups with lower financial stress, 19 per cent reported depression and anxiety, but amongst the more financially stressed respondents, 55 per cent were depressed and 68 per cent had anxiety.

When the survey responses were further broken down, into the very highest and lowest levels of financial stress, people under extreme financial stress were five times more likely to have memory loss issues, more three times as likely to report depression and nearly twice as likely to have anxiety.

They were also twice as likely to have gastrointestinal problems.

Debt is a major cause of financial stress and the search for an answer has become a popular google search term in its own right, with variations of ‘how do I relieve my financial stress?’ common.

If you’ve tried all the usual advice and methods, it might be time to investigate a new approach, or at least, new tools to supplement what you are already doing.

In the final part of our series on the real cost of gift-giving, we look at how mindfulness can help reign in over-spending and the financial stress that often comes from increasing your debt burden at this time of year.

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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.