In our article, ‘Financial mindsets of the super wealthy’, we discuss that whilst on the path to financial freedom, occasionally it can be helpful to gain perspective along the way, by considering and then reflecting on the financial attitudes and behaviours of others.
It’s this gained perspective that can sometimes allow us to look inwards and evaluate our own financial attitudes and behaviours, and where applicable, make adjustments.
In this article, instead of focusing on the super wealthy, we look at the financial attitudes and behaviours of everyday Australians as reported in the Australian Securities and Investments Commission’s (ASIC’s) latest Australian Financial Attitudes and Behaviour Tracker (Wave 5).
Australian Financial Attitudes and Behaviour Tracker
The Australian Financial Attitudes and Behaviour Tracker was launched by ASIC in 2014 to track a number of financial attitudes and behaviours among adult Australians. Below are several of the findings from the five main areas focused on.
Financial attitudes – the attitudes towards managing money
Around 6 in 10 Australians feel confident about managing their money, but more Australians find managing their money stressful. Within these overall findings, younger people, including those with children, expressed higher levels of financial stress when compared to other groups that responded to the survey.
In our article, ‘Recognising and dealing with financial stress’, we discuss the fact financial stress can arise at any point in your life. In these situations, it’s important to recognise and deal with financial stress when it does present itself. Furthermore, you may find that financial stress can occur when confidence around managing your money is a little low. As such, getting your personal finances in order can often be a great first step in the right direction to gaining confidence in the management of your money and alleviating financial stress.
Keeping track of finances – approaches to managing everyday expenses
Around 8 in 10 Australians have a budget and 9 in 10 are keeping track of their finances in some way; however, despite these overall findings, checking for unusual or suspicious transactions on either bank or credit card statements was a noticeable exemption for some.
In our animation, ‘Tracking your spending’, we discuss the importance of keeping track of your day-to-day spending habits. Tracking your spending is a great way to make sure your spending is aligned with the budget you have set for yourself, so that you can continue to work towards achieving your financial goals and objectives. It’s also an important means of assessing whether unusual or suspicious transactions have occurred, and where applicable, bringing these to the attention of your relevant financial institution so that they can be appropriately addressed.
Planning ahead – planning for the short, medium and long-term, including retirement and beyond
Around 1 in 2 Australians have a short to medium term financial plan (3-5 years), whilst around 1 in 4 have a long-term financial plan (15-20 years). Furthermore, roughly 2 in 3 Australians reported monitoring their progress in the last six months.
In our article, ‘Running the retirement plan race’, we discuss that financial plans are important individualised road maps devised to help you reach your financial goals and objectives. Along the way, it’s important to assess your progress, and where applicable, make adjustments so that you continue to move in the right direction.
Think about one overall long-term financial plan (where you want to be) that has multiple short to medium-term financial plans (how you are going to get there) within it – and, the markers of progress towards realising your overall long-term financial plan can be measured by reviewing your achievement of these short to medium-term plans over time.
Staying informed – use of information, tools and guidance when needed
Financial institution websites, followed by talking to family and/or friends, continue to be some of the most common sources of information Australians consulted in the last six months when considering bank accounts, credit cards, home loans and personal loans. However, in terms of investments, seeking professional advice was the most common source of information Australians consulted.
When it comes to your personal finances, an important consideration is the power of leverage gained when a team of professionals (such as a financial adviser, accountant, solicitor and mortgage broker) are built around you and appropriately utilised. In our video, ‘Teamwork, leverage and achieving a common goal’, we discuss the importance of recognising where your limitations lie (in terms of knowledge and skillset) and the subsequent circumstances where the benefits of teamwork may be appropriate in achieving your financial goals and objectives.
Ultimately, seeking professional advice in areas of your personal finances (cashflow, debt management, insurance planning, investments, and superannuation) will enable you to receive appropriate guidance that is tailored to your financial situation, goals and objectives.
Financial control – savings behaviour and managing debt
Around 1 in 5 Australians reported that they did not save any money over the last six months. In addition, a small percentage reported that they would not be able to cover three months' living expenses if faced with a sudden loss of income.
Given the rising cost of living (such as electricity and grocery bills), and a relatively sluggish wage growth environment, at present you may have started to feel a slight pinch in the hip pocket when it comes to the availability of surplus income to put towards a savings plan or the repayment of debt. In our article, ‘Household expenditure: Finding surplus income’, we discuss that by completing or reviewing an existing budget, you can gain a better understanding of the movement of your money (inflows and outflows) and areas where surplus income may lie. By itemising your household expenditure and then taking the time to do an assessment of your spending habits, you can see whether adjustments can be made here or there to find surplus income.
In addition, in terms of managing living expenses with a sudden loss of income, it’s important to consider the establishment of an emergency buffer and appropriate personal insurances, so that if such a situation does arise you do not need to rely on other sources, such as credit cards and borrowing.
Financial literacy – level of understanding of several key investing concepts
Less than 1 in 3 Australians report understanding the risk/return trade-off concept and only 4 in 10 understand the investing principle of diversification.
In our article, ‘Diversification fundamentals in portfolio construction’, we discuss the importance of ‘not putting all your eggs in one basket’ and how diversification can be achieved through spreading your funds across different asset classes and markets and regions. Furthermore, we also discuss how your risk tolerance, financial situation and financial goals affect how diversification is applied when it comes to devising an appropriate investment mix to meet your needs within a specified time horizon.
Ultimately, words and our understanding of them can help us to comprehend in a meaningful way the information that we receive and make informed decisions in relation to our own personal circumstances. Although, jargon is prevalent in many industries, in terms of investments, the risk/return trade-off concept and diversification principle are two important things to understand.
Our ideas, thoughts and opinions can invariably influence our financial attitudes and behaviours, which can in turn influence how we manage our personal finances. Sometimes comparing similarities and differences to our own personal circumstances, via gained perspective from others, can allow us to look inwards and see whether there are things that we need to take the time to consider, improve upon or give ourselves a pat on the back for.
Please remember that we are here to help and support you on your journey towards financial freedom. As such, if there is an area of your personal finances (cashflow, debt management, insurance planning, investments, or superannuation) that you would like to discuss then book a time to have a chat with us.