Talking to your clients about their financial wellbeing

It’s no secret that Australians enjoy comparatively high levels of wealth, according to a global standard. However, the average level of financial wellbeing is low. It’s important to engage clients in their own financial wellbeing and provide them with the financial security, freedom, and confidence to deal with whatever direction their life may take.

The difference between wealth and financial wellbeing

Firstly, it’s important to note that financial wellbeing isn’t the same as being wealthy. Wealth is typically measured by how much money someone has and the assets they own, such as shares or investment properties. But the reality is, clients can have these things and still lack financial wellbeing, depending on how they manage their money.

Rather than just a tally of wealth, financial wellbeing should be viewed as:

• keeping up with debt repayments, living costs, and other financial obligations
• having savings and being able to handle unexpected expenses
• being free from financial stress
• having the financial freedom to live an enjoyable lifestyle
• feeling secure and in control of finances – now, in the future, and if life takes an unexpected turn.

The barriers to financial wellbeing

When it comes to creating financial wellbeing, there are a number of factors holding Australians back. For one thing, living costs and property prices are surging. As a result, we now have the fourth-highest debt levels in the world [1], with the average household owing almost $170,000 [2]. While most of this can be attributed to growing mortgages, Australians also have an average credit card balance of $3,260 [3].

It’s no surprise then that we’re saving less than ever before. In fact, as a percentage of household income, average savings are projected to fall to 2.1 per cent by 2020, down from 7.5 per cent five years ago [4].  Even more concerning is the fact that one in four Aussie households are living from one pay to the next, without even $1,000 in their bank in case of an emergency [5].

This lack of financial wellbeing is a major contributor to stress among Australians. An extensive survey conducted in 2017 found that as many as one in three Australians suffers significant financial stress, with impacts on their physical, mental, and emotional health. Compared with their non-financially stressed peers, they are much more likely to experience relationship conflicts, issues with sleep and concentration, and bouts of irritability, depression and anger [6].

Three ways to initiate financial wellbeing conversations

If clients feel they’re comfortable financially, they may not understand why they need to make changes to how they manage money. They may also feel uncomfortable talking about what might go wrong in their lives. But the reality is, unless they’re prepared, even a minor setback can quickly derail their financial wellbeing.

Here are three ways to start a conversation with clients about their overall financial wellbeing in order to pave the way for future discussions around positive changes they can make.

1. Talk through various scenarios of how a client’s financial situation may change in different situations – for example, if they take time off work to care for children or elderly parents, or if they separate from their partner and need to adjust to receiving a single income.
2. Look at spending and saving patterns in detail. This can be a great opportunity to discuss whether a significant portion of their spending is going towards repaying debt, and how much they’re putting aside from each pay cheque to cater for unexpected expenses. It can also be a helpful way to highlight areas where expenses may be higher than they need to be.
3. Provide clients with case studies and examples of what financial wellbeing looks like for someone who is in a similar situation to them – so they can compare how they’re tracking and get ideas for how they can make some changes to their financial behaviours.

Summary

When talking to clients about wealth it is important to have a holistic conversation that encompasses all facets of financial wellbeing. Taking this approach will ensure your client is in the best financial position and well prepared for a rainy day. It will also help build a deep understanding of your client and their goals and to develop a level of trust vital to an adviser-client relationship. 

Kelly Power, general manager, Product at Colonial First State

[1] OECD, Household debt (indicator), 2019

[2] Australian Bureau of Statistics. 6523.0 – Household Income and Wealth, Australia, 2015-16

[3] Finder.com.au, Australian credit and debit card statistics, Nov 2018

[4] OECD, Household savings (indicator), 2019

[5] ME Bank, Household financial comfort report. February 2017

[6] Core Data & Financial Mindfulness. Financial Stress Press Release, September 2017