Are your finances in ‘intensive care’ or ‘at the GP’?
Word clouds used to diagnose money health reveal conditions ranging from ‘delusional’ to ‘complacent’. Rob Stock reports.
Abrain-storming chart on the boardroom wall of the Commission for Financial Capability reveals the state of Kiwi personal finances.
Left up during a media briefing this week, the chart included a ‘‘word cloud’’ describing the mindsets, habits, and conditions of three distinct groups of people: those failing with money, those coping, and those thriving.
The research behind the data comes from thousands of in-depth interviews, carried out to help the taxpayer-funded commission hone tools to help lift public capability with money.
Each of these groups has been given a category: ‘‘intensive care’’ for those whose finances are critically poorly, ‘‘in the ward’’ for people who are not struggling dayto-day but aren’t really prospering, and ‘‘GP visits’’ for people who only need occasional check-ups to stay financially healthy.
Intensive care
Around 14 per cent of us are in financial intensive care, and it’s miserable, with the majority desperately worried about their debt, and feeling hopeless about their lives.
Stressed, unrealistic, denial, hopelessness, and regret are all in the word cloud for those in intensive care.
Some of those words, like restricted and conflict, are open to interpretation, but there’s no doubt that people in intensive care have a lower median income ($30,000), and fewer assets than those in the other groups.
Income is not, however, a strict determinant of category, says acting retirement commission Peter Cordtz.
But having too little money makes it harder to make good decisions.
However, he says: ‘‘There’s a large body of evidence showing those on lower incomes living hand-to-mouth do make worse decisions because of the toxic stress of their situations.’’
Just a third were saving into KiwiSaver, and only a third were homeowners. In all, 63 per cent rarely, or never saved, leaving them with nothing to fall back on in a crisis.
Financial adviser Liz Koh says: ‘‘People find themselves in financial situations, both good and bad, for a variety of reasons, some within their control and some not. There are people in the intensive care category who I know would strongly object to the labels of denial and unrealistic.’’
‘‘While luck may have a small part to play in where we each end up, there are many other things, such as circumstances of birth, psychological or mental health issues, education, employment, traumatic events such as divorce, redundancy or the sudden death of a family member, illness and so on.
‘‘The labels shown here imply that attitude is everything and it’s not. It is only one aspect.’’
But for those in intensive care, she says: ‘‘These people need specialist help to get on the road to recovery and may need the equivalent of a blood transfusion or major surgery to restructure their affairs from the ground up and get things flowing smoothly. This might require selling off assets in order to reduce debt, debt consolidation, finding ways to inject more income and taking the scalpel to expenses.
‘‘A sense of hopelessness and stress is a fair representation of this grouping, and sometimes counselling is needed to overcome the depression and anxiety that is present. The key message here is that when things seem hopeless and financial goals are so far away, it’s best to focus on small successes to bring back a feeling of optimism. Keep your goals attainable and very short term, and celebrate your success as you achieve them. Get whatever expert help you can, preferably from reputable not-forprofit organisations offering free advice.’’
In the ward
Arrogance, ignorance, delusional, denial and ‘‘sophisticated defence mechanisms’’ are all characteristics of the 35 per cent of people whose finance are ‘‘in the ward’’.
This is a group of people who are not all facing the world as it really is, either falsely optimistic, believing they are doing better than they are, or harbouring ‘‘deluded schemes for salvation’’ that will save their finances.
They have a lot more to work with than those in intensive care, with median incomes of $50,000, and half owning homes, and there are fewer (roughly four in 10) struggling with hopelessness, or labouring under chronic worry about debt. In all, 71 per cent saved regularly.
Koh says: ‘‘In this category are people who just don’t pay attention to their financial affairs.
‘‘They have the potential to do well if only they would set some goals to start with, then put in place a plan to achieve them. A higher degree of financial capability would help them get ahead.
‘‘The message for this group is take charge of your situation and improve your own financial wellbeing. Physical health and wellbeing is achieved through diet and exercise, both of which require discipline. A similar approach is required for financial health and wellbeing.’’
GP visits
The first two groups could learn a lot from the last group, but good money attitudes and habits are going to be a lot easier to cultivate on higher incomes.
The median income for the 51 per cent of people included in this group was $70,000. Seven in 10 owned homes, and 95 per cent were saving regularly.
The word cloud included the phrases: ‘‘enjoy managing’’, ‘‘follow trusted advice’’, ‘‘experiences not spending’’, ‘‘visualise future’’ and ‘‘deferred gratification’’.
The long-term Dunedin Study into the life outcomes of a cohort of children born in the 1970s shows that the ones who were able to defer gratification ended up with better health and higher wealth in later life, than those who didn’t.
But they are also advice followers, and are better able to visualise their futures.
The CFFC word cloud also contained a word many in intensive care, and in the ward, may suspect is important in a successful money life: Luck.
Koh says: ‘‘You could say some people have all the luck and find themselves in a very comfortable position. But it’s not just about luck. It’s well known that lottery winners mostly lose their windfall fortunes within a few short years.’’
The risk people in this group face is complacency.
‘‘Life is just too comfortable and the GP checks are just a formality. They could achieve so much more if they put their mind to it.
‘‘My advice to these people is to think hard about what money represents to them and to prioritise what they spend it on so as to get the maximum enjoyment from what they have. The challenge is to achieve peak financial fitness, not just financial wellbeing.’’