Money matters in times of change: financial vulnerability through the life course

1. Context
2. The study
3. Key findings
4. Points to consider

Context

Life transitions and events can impact adversely on finances, but material and emotional support at times of financial vulnerability can reduce the risk that these events become sources of financial hardship or persistent disadvantage.

The study

This research explored the ways in which life transitions or events can lead to financial disadvantage. It identified the needs of financially vulnerable people around four specific transitions and events, gathered information about the level of financial exclusion they were experiencing, and captured the strategies that people employed to navigate through those periods of financial difficulty.

The methodology was a mix of in-depth interviews and focus groups with 48 individuals from Melbourne and regional Victoria, in Australia. Recruitment and collection of primary data took place between May and October 2010, and the analysis was conducted against the background of a review of international research on the subject.

Key findings

Four specific transitions/events are considered in this research:

1. Moving from school to work. Most participants had left home and did not rely on their family for support. Going without was the most common strategy used to deal with a shortage of money.  Positive relationships with family and peers, teachers and service providers were more likely to be sources of personal satisfaction than money.
2. Being out of work. For these individuals, social relations and networks have a significant effect on the level of financial difficulty being experienced, depending on the level of material and emotional support available.
3. Becoming a single mother. This created a constant need to balance financial considerations with maternal/carer responsibilities. Participants were aware of the benefits of long-term financial planning but lacked the resources to save for retirement, and budgeting was concentrated on fulfilling immediate needs.
4. Retiring and ageing. In this case, socio-economic background was the main variable differentiating participants.  Those on government pensions were more likely to focus on having the income to pay for the essentials. Those with other assets were more likely to cite access to clear and transparent information as a key financial need.  Participants were keen to offer suggestions on how to improve the provision of financial information for seniors.

The study identifies insufficient and/or unsteady income as the main trigger of financial vulnerability:

• Financial limitations mean that most participants have to make many financial decisions on a day to day basis to meet the most pressing financial needs - such as rent, transport and childcare costs that cannot be postponed;
• Non-material resources such as education, support from friends and family, and good physical and mental health play an important role in times of transition;
• The most common strategy adopted by respondents who are struggling is ‘to do without’, often resulting in social exclusion;
• Most participants in the study lacked assets they could draw on in a financial emergency, and also lacked access to appropriate financial information.

Overall, financial limitations can have long-lasting effects throughout life, not just at the time of the transition or event, and women are more likely than men to be financially vulnerable throughout life.

 The research led to a set of key recommendations:

• Public policies should improve incomes and facilitate asset accumulation; employment policies need to be better integrated with the income support system to reduce financial vulnerability and maximise opportunities for individuals’ social and economic participation.
• Financial information needs to be accessible and relevant to the individual’s life stage: there is an excessive amount of generic financial information in the market which can make people feel overwhelmed.
• Access to fair and adequate financial products and services should be universal. Priority should be given to improving access and availability of fair and basic financial products such as loans, insurance and basic bank accounts .
• Hardship responses and policies should be promoted and access facilitated, across all sector: financially vulnerable groups struggle to pay for essential services such as electricity, transport and telephones.

Points to consider

• Methodological limitations: The recruitment approach to seek financially vulnerable people means that the sample is composed of those with low incomes, with most either receiving government income support, being in part time and/or casual work, or job-seekers.  Therefore the findings cannot be generalised to the whole population.
• Generalisability/transferability: Findings and recommendations are most relevant to the Australian market. However, indigenous Australians and newly arrived migrants are under-represented in the sample.
• Relevance: The study provides an overview of the difficulties faced by people managing on low incomes, but does not provide any in-depth insights in relation to broader financial capability.

Full report

Money matters in times of change - full report