This publication is developed by Commonwealth Bank of Australia and the Melbourne Institute. The original publication can be found here.
For a long time, in Australia and elsewhere, achieving a common understanding of the dimensions and measures of financial wellbeing has been problematic. Despite the huge body of research on its various aspects, no definition or metric has been consistently adopted.
Much of the difficulty stems from the complex and multi-faceted nature of financial wellbeing. Financial wellbeing involves outcomes with a time dimension, including outcomes that occur now, in the future, and under uncertainty. It also involves many motivations, including responsibility, enjoyment, control, and security. Financial wellbeing also depends on context and the types of social support that people can draw on.
In search of a common definition and metric
Use of many different definitions and research methodologies has given rise to an equally varied range of findings – even about the same groups. Such differences have meant that no two sets of findings are truly comparable. This has limited our ability to gain a true understanding of where different groups might stand relative to each other; or whether, when and by how much the financial wellbeing of groups or individuals is changing. Most research has also relied solely on self-reported data, without including objectively observed measures, another inherently limiting feature.
Transparent methodology and verifiable values
When you consider these variables, it’s not surprising that there are also inconsistencies in the way much financial wellbeing research is reported or ‘scored’.
In the absence of a consistently agreed, universally applicable benchmark, measures of convenience and public digestibility are often favoured over those linked to careful, holistic definitions of financial wellbeing. Further, there is often little or no transparency about how various scores or values are arrived at, so they are difficult to test or replicate.
Opaque scoring and variations in how financial wellbeing is reported not only make it difficult to compare different studies. It can also throw the accuracy, applicability and practical utility of some research into question, with potentially serious implications. For example, it may discourage consumers, government, financial institutions or other groups from targeting areas most likely to make a difference to financial wellbeing – or encourage them to focus on areas that are not.
A new approach to better capture the dimensions and complexity of financial wellbeing
The findings summarised in this report are based on a new approach that we believe overcomes the problems associated with past research. Underpinning it is our own definition and our own research methodology.