Under-earning and financial stress

At a time when basic living costs are dramatically rising, with inflation set to hit 7 per cent this year, how much we earn comes into sharp focus.

With costs continuing to rise, we are forced to ask ‘do we earn enough’?

The most basic of all budgeting logic tells us to track our in-comings – most obviously our salaries and wages –against costs.

If outgoings exceed in-comings we are in trouble.

It hasn’t gotten that bad for the majority of Australians just yet, but when that crucial gap narrows, the narrowing gap between what comes in and what goes out creates anxiety and financial stress.

There is a very real perception for thousands of Australians – even hundreds of thousands – that they are under-earning.

Years of low wage growth actually back this up.

Since March 2009 wage growth has weakened and tended to lag behind inflation, effectively creating a real wage cut.

Does under-earning really exist?

‘Under-earning’ – that some people earn less what they’d like to earn – might sound like an odd idea in a free market.

The market tells us that we earn what the market decides, right?

It’s true to an extent, but that equation arguably does not apply to many circumstances.

Some of these are created by structural and systemic pay gaps. Such gaps are well-established and supported by research and evidence.

The best example is the gender pay gap. Currently, Australia’s national gender pay gap is 13.8% per cent, meaning on average women earn $255.30 less for the same work as men each week.

The gender pay gap also leads to a gap in superannuation which makes retirement for some single or separated women a frightening prospect.

There are other recognised pay gaps, for example government research shows Indigenous households earn 69 per cent of non-Indigenous households.

Another factor missing in the equation that is supposed to say ‘the market pays what people are worth’ is our own propensity to undervalue ourselves.

Once we dig into it, this is a chronic and widespread issue and a major cause of unnecessary financial stress.

But for now, let’s acknowledge that most negotiations around worth and value are ‘two-way’ streets. There is a buyer and a seller and both come to an agreement before a contract is signed.

Alongside under-valuing themselves the ‘under-earner’ may display a number of related behaviours that could be reasonably be described as self-defeating. We will come back to that.

Obviously not everyone under-values themselves. Many people have a clear idea of this and are happy with what they get paid.

Certainly, some people over-value themselves too. They might be under the misapprehension they are under-earning when they are not.

It’s important to note too, that a lot of people who experience financial stress are adequately paid.

Their financial stress could be caused by any one of many issues including: the current cost of living crisis, an inability to stick to spending limits, compulsive shopping, excessive gift-giving, being hit by unexpected expenses, unemployment. The list is long. We cover these issues in our regular articles.

What is under-earning?

It’s important to acknowledge too that under-earning is not solely an issue for people impacted by systemic pay gaps, and that pay gaps may be only part of a suite of issues facing the under-earner.

Chronic self-defeating behaviours and beliefs play a part for many.

The American author and financial therapist Barbara Huson uses the phrase someone who makes less than she needs or desires despite efforts to do otherwise’ to describe under-earning.

She says under-earning has seven recognisable signs:

    • Financial chaos (especially debt problems);
    • Vagueness about money;
    • A sufferer underestimates their worth;
    • An anti-money attitude;
    • Self-sabotage;
    • Putting others ahead of their own needs; and
    • Craving comfort.

One worldwide peer network addressing under-earning has a more complex definition: ‘While the most visible consequence is the inability to provide for one’s needs, including future needs, under-earning is also about the inability to fully acknowledge and express our capabilities and competencies. It is about underachieving, or under-being, no matter how much money we make.’

That network is characterised by peer-run meetings which gather in person and online to specific help sufferers address and recover from under-earning.

One of its core documents, ‘symptoms of under-earning’ lists some traits that may be familiar to under-earners:

    • We undervalue our abilities and services and fear asking for increases in compensation or for what the market will bear;
    • We feel uneasy when asking for or being given what we need or what we are owed;
    • We do not follow up on opportunities, leads, or jobs that could be profitable;
    • We begin many projects and tasks but often do not complete them; and
    • We compulsively reject ideas that could expand our lives or careers, and increase our profitability.

In a TED Talk, Paul Sunderland, an English consultant and trainer, calls under-earning an “inability to earn what we really deserve… despite the desire, the effort, the opportunity [and] the qualifications”.

He says it is about ‘turning our backs on money’ and he details why he believes under-earning is ‘an addictive process’ for some people.

That suggests an obvious point: have we checked the boxes against a belief that we are under-earning?

    • Do we have the desire to earn more?
    • Are we properly trained?
    • Have we taken or do we seek opportunities to earn more?

If we cannot meet these conditions, under-earning could be circumstantial. Otherwise, there’s probably more to it.

The psychological aspect in financial stress

Let’s take a step back and look at some key elements of financial stress, which is what Financial Mindfulness deals with.

That could help clarify the link between under-earning and deeper issues for many.

From what our experts have found through years of research and helping clients, financial stress:

    • Involves our thoughts about money and finances;
    • it is related to money worries;
    • involves our emotions, especially fear;
    • arises in relation to stressful situations, such as loss of employment;
    • has a significant impact on our mental and physical wellbeing;
    • can cause sleeplessness;
    • can lead us to feel downhearted; and
    • can affect our relationships and behaviour.

It is clear from the above list that a lot of financial stress has a psychological impact.

This has been one of the building blocks of the work Financial Mindfulness has done in measuring financial stress and developing a solution.

We need to emphasize here that we are not providing a tailored solution for the issue of under-earning.

But we are acknowledging its impacts on many people suffering financial stress who may be interested or benefit from a solution such as Financial Mindfulness.

The relevance of the psychological aspect to financial stress is where certain types of under-earning become clearer.

As Mr Sunderland noted: why would people turn their backs on obvious opportunities to make more money and effectively block themselves from receiving it?

When dealing with financial stress and/or under-earning, it’s important to acknowledge our behaviours with money.

If you’re someone who has avoided budgeting, that is a red flag that you may be avoiding how money really functions: as a system of exchange for agreed value.

What to do about under-earning?

The first step in dealing with a problem is to accept that it exists.

Ms Huson says being ‘scared’ by the prospect of doing something to earn more money is a sign you need help with this issue – though she advises getting enough support as you step outside of you comfort zone.

Overcoming structural and systemic pay gaps are difficult, it takes a clear-headed, well-planned approach to do it even in the best of circumstances.

But the reality with some pay gaps is that your organisation may be unwilling or unable to see a pay gap even exists. In that organisation it will be difficult to overcome the under-earning on your own.

Other organisations make pay equality a priority and see it as an organisational strength. We’d suggest researching these organisations and targeting them with your resume.

The peer group we referred to earlier also uses a combination of approaches including:

    • Peer support;
    • Sharing and shame reduction around money;
    • Addressing compulsive shopping and overspending;
    • Goal-setting;
    • Establishing a vision;
    • Accounting for time; and
    • Create an earning plan.

Overcoming under-earning

Overcoming under-earning may require pushing through to make changes in our circumstances – for instance retraining and upskilling. But it can also be more complex.

In some instances, additional help may be needed, such as a money behavioural coach or even a therapist.

But the steps are likely to include:

    1. Being clear whether we are under-earning – and to what extent – by connecting with peers;
    2. Acknowledging gaps in our skills and qualifications and taking the appropriate actions;
    3. Understanding whether we are being held back by being in the wrong job;
    4. Learning more about our own beliefs around money;
    5. Deciding to earn more and committing to action in pursuit of this goal;
    6. Getting comfortable with the fears these decisions and actions bring up;
    7. Honestly confronting our financial stress and stressors;
    8. Properly valuing and respecting our own time: it is as precious as anyone’s; and
    9. Addressing self-sabotaging behaviour with money and improving our financial skills;

It’s important to acknowledge that overcoming under-earning may not be a linear process. It could involve ‘one step forward and two back’ to re-set and realise your earning power.

It could be as simply as being braver with the rates you charge. But it could also involve loss of employment, which in itself can be a devastating life event, but one that leads to an empowering transition.

This could be a quick or slow process, but as with all financial change, once we commit it is life-changing.