Transcript: Super Informed Radio episode six

Super Informed Radio episode #6: Can financial stress impact how we budget?
April 2017

Disclaimer: What you're about to read is of a general nature and doesn't take into account your personal financial situation, needs or objectives. We recommend you seek financial advice before making any decisions about your super and consider the relevant UniSuper product disclosure statement.

Lyndon: Well, hello there and welcome to another episode of Super Informed Radio. My name is Lyndon.

Rob: I'm Rob.

Marta: And I'm Marta. And this month we're talking all things budgeting.

So have you ever found setting up a budget a bit daunting, upsetting, intimidating or just too plain hard? It's no secret that in our nation, where there's a rising household debt crisis, even the weekly grocery shop can seem a bigger challenge than usual.

Rob: That's right. So to explore this topic further in today's episode, we have Sarah Blessing, Senior Communications Consultant here at UniSuper, with us. Sarah recently had the opportunity to chat with a UniSuper member about this very subject. Welcome to Super Informed Radio, Sarah.

Sarah: Thanks, Rob. It's a pleasure to be here.

Lyndon: So, Sarah, you spoke with UniSuper member Gregory Mowle, he’s a lecturer from the University of Canberra, about this growing concern around how we budget and the psychology around planning, if any, that underpins it.

So, I mean, we're constantly reading in the media about how household debt is fast becoming a developing problem and that how we budget and plan now can have some big impacts on our future livelihood. You chatted to Gregory about that sort of stuff?

Sarah: Yes, I was lucky enough to speak with Gregory, who has a long-standing career in financial counseling. And he applied this experience to his research into the role that financial literacy plays in decision-making.

Lyndon: Cool. Alright. Well, let's take a listen to the interview and hear some of Gregory's insights.

Sarah: A lot of the work that super funds are doing, you know, there's a huge lack of engagement, and there's super gap with women and all of that, and lots of funds, including ourselves, setting up financial literacy programs to try and help close the gap, if you will, and increase engagement.

Do you have an opinion on how that can best be addressed with, you know, financial literacy, for want of a better term?

Gregory: Yeah, I certainly do. And, in fact, when I sort of started this, this thesis journey a few years ago now, I was sort of coming from the pedagogical approach as to how education is delivered.

So a couple of points I make there, first is that people do want to learn about money. You know, here's a strong desire to say, "Yeah, look, I really want to learn how to budget better," or, "I really want to learn more about superannuation," you know? I get asked if "I want to be in a conservative fund or a high risk," you know? And, "I don't understand, but I really want to learn more."

Gregory: So people do want to learn more about finances.

What I'm discovering through my research is that, you know, people don't...well, actually, most people don't have time, you know, to be reading a lot of resources, you know, be sort of trawling through a lot of web pages, and, you know, to be presented with a booklet, you know, on...whether it's on superannuation or whether it's on how to budget. I mean, I'm sure that they recognise the effort that's gone into the content, but they're saying, "Look, I just don't have time to read," or "Just looks a bit boring," because there's a whole lot of text.

And so originally, with the thesis, I was thinking, "Okay. Well, I'll give some recommendations back about how education should be presented or should be delivered," which I'm still going to do. But what I've found is that if people don't want to read, whether it's brochures, pamphlets, or webpages and you say, "Okay. Well, I'm going to put on a seminar. And we're going to have a really knowledgeable presenter up there, you know, talk about a topic."

Now, people like that idea. They say, "Okay. At least that gets me out of reading."

But if it's a large-ish group, and when I say large-ish, like, even more than about 12 people, suddenly, someone like the presenter may say, "Now, look, people know the difference between, you know, defined debt and defined contribution don't you?"

You know, half the room is sitting there thinking, "I've got no idea what you're talking about, but I'm not going to put my hand up and say I don't because then I'll look really silly because of it."

Sarah: I hear you.

Gregory: And this is the research coming from the pedagogy of delivering education, which is that small group learning is the most effective way, so probably up to a maximum of 12 people. And also, what works is rather than having a sort of expert or someone who's, you know, seen as an expert, you know, talking at the participants, what also works is what's called peer learning.

And again, this is from my days at the Smith Family, which is that we had great success in running financial literacy workshops, again, to a small group. And, you know, rather than me coming in and saying, "Well, I'm going to talk to you about budgeting," because they may look at me and say, "Ah, Gregory," you know, "you don't know the struggles," you know, "of being on a sole income."

Sarah: Of course.

Gregory: But, you know, we'd actually go back to the group and ask the group to share their top tips about the way that they manage finance. And amongst all that sharing, you know, some great techniques came out, you know, and made the participants feel valued. I often responded from criticism I hear about lower income people saying, "Well, they just need to learn how to budget." I'm saying, "No, they know how to budget. They're the experts at budgeting because they have to."

Sarah: Telling them they just need to budget better, they're scrimping every penny and every dollar is allocated to something. So I think I'm quite sensitive to those sorts of, particularly with women, women are often paying all the bills in a household anyway. So, yeah.

Gregory: That's exactly right. So the problem is not a financial literacy problem. It's actually a income problem.

Sarah: Time and income. Yeah.

Gregory: Time and actual income, that's right. So in terms of how financial literacy is delivered, I mean, I really value the sort of effort and enthusiasm which is put into the creation of financial literacy resources. But, you know, there's only so many ways that you can, you know, present content on budgeting.

It's not the content. It's not the resource. It's about making sure that, first of all, people turn up to hear about the topic, then that they're engaged with the learning, and then that they will go away and actually put into practice what they've just heard.

And so, if I was giving advice to, you know, developers of financial literacy resources, I'd say a couple of things. One is that you need what's called a call to action at the end, to say, "Okay. Here's what you're going to do next." And then you've got to offer some support.

Can I share a quick story here, Sarah?

Sarah: Of course. Yeah.

Gregory: Which is that...so in most financial literacy courses we use to run, at some point we used to tell people as to how to get a copy of their credit file. So we'd show them on the screen the mycreditfile.com.au website and talk about, you know, what it does, you know, what your credit file it used for, and as to why it's important to get your free copy of your credit file, just to make sure that you don't get a surprise payment default.

And in the first versions of the workshop, just a little after that, we'd say, "Okay. So what you need to do is, if you want a free copy, you need to go to the website. And here's the form that you download, and then you send it back to Veda Advantage."

So just a simple thing like that, to say, "Well, unless you also follow up support and assistance..." you know, people just won't do it. So, you know, I mean, the super funds, for instance, may look like I know that they put on seminars, you know. But you've got to think about, "Okay. You know, people walk out and they complete the feedback form saying, 'Yes, I had a great time because the biscuits were really good,' and whatnot."

But really, I mean, you've got... What's important is did the participants act on the information that was delivered? And I suppose better investment in sort of research and follow up has to be done, as well.

Sarah: Absolutely. And, I guess, when you talk about obstacles, there's no shortage of those in super. Let's face it.

So kind of a similar, but maybe not as related, in some of the other research that I've read about your research or some of the articles I've read, you talked about... And it talks a little bit, I guess, to the time issue, where you talked about the frugality blind spot, and how people go out of their way to save money on small purchases like fuel and things like that, but don't comparison shop as much on bigger purchases like credit cards and mortgages.

And I just wondered whether you uncovered any insights into the psychology behind that, and wondered whether do we see that people are more likely to question costs in relation to purchase decisions that they feel more comfortable making or more informed about.

Like, for example, with a mortgage, more people might feel less equipped to make those decisions and then become overwhelmed, and avoid making the decision completely. Have you found any themes or...?

Gregory: Yeah. Yeah, that's exactly right. And because, you know, people will devote more time in sort of topics that they believe that they're more an expert in or that they, you know, can actually get across.

So, you know, people think, "Well, look, I actually know that this service station, in a couple suburbs away, that their petrol is always," whatever, "10 cents a litre cheaper." So they can see that it's tangible. It's close by. And it's something easy which they can say, "Yes. I've gotta handle that."

But in the world of mortgages and, you know, you have someone saying, "Well, look, do you want to have a redraw facility? Do you want to have an offset account?" You know, "Do you want a fixed or floating rate?" Or, "Do you want it half and half?" You know?

You know, it's the human nature to be looking at the person thinking, "Well, I've got no idea what they're really talking about, but I'll just nod my head and just go with whatever it is that they're going to be recommending." So it's sort of beyond their sort of range and scope and capabilities at that particular moment.

Sarah: Yeah.

Gregory: It's also to do with people generally tend to have either, like, you know, a short-term focus or a long-term focus, or sometimes a mix of the two. So what I've found with the payday lending clients was that they were literally living from payday to payday, you know? That they couldn't sort of see, you know, beyond, so like, you know, the next sort of month, you know?

So coming back to superannuation because if I had havw, you know, spoken...Well, I did actually talk to the payday lending clients, you know, about their financial future as to what they thought they were going to be doing in, say, five years’ time.

Gee, you know, I could see them stop and pause and think because, you know... I could tell that they never actually...that never crossed their mind, you know, because they were so bogged down in just trying to make it through to the next pay day.

So, you know, this thought about trying to, you know, planning for the long term was just beyond them. Well, not beyond them. I'm not talking about intellectual capabilities. It's just that, you know, when your so bogged down and just trying to, you know, get through the next pay day, and you're sort of wondering as to how you're going to pay the car registration, which is coming in next week. To try and be reacting or responding to a message that they may hear about, "Well, you know, that you've got to have a million dollars in superannuation for your retirement." You say, "Well, gee." You know? Because they're saying, "Well, hang on. I'm struggling to even save, you know, $100 for the next month's phone bill. I don't know how I'm going to get there with, you know, superannuation."

Yeah. So it's just about, you know, if people lives again, that sort of complexity of other problems, not even just financial problems, you know, but problems around relationships and dealing with family issues or children's issues, you know, that they're just trying to focus on all these sort of things which they feel that they can control. But something big like a mortgage and superannuation, they just feel, "Well, I've got no control over that. I've just got to trust as to what people are actually telling me."

Sarah: Yeah. And then their friends' and family recommendations kick in again.

Gregory: Yeah, that's exactly right. You know, because, again, you know, people, you know, with financial literacy, you don't... There's all of these resources saying, "Well, look, you must shop around." You know, talking about a mortgage, "You must shop around for the best deal."

You know, you've got to go into... If you're going though a mortgage broker, you've got to be asking a mortgage broker a whole series of questions such as, you know, "Are you tied to any particular lender? What commission you're going to have?"

You know, this all, it presupposes that, you know, people have the time to be doing that, you know, to be shopping around and to have the power or the sort of freedom to actually do that.

You know, again, the payday lending clients, the credit people say, "Well, I think that they're lending form a payday..." Sorry. "Borrowing from a payday lender because that's their only choice." You know? The can't, you know... The banks won't lend to them because they're on a Centrelink income only or they've got really bad credit. So they just simply have no choice over those sort of matters.

Rob: Gregory Mowle there, from the University of Canberra, speaking with UniSuper's Sarah Blessing. Sarah, you also spoke to Gregory about a couple of other things like payday lenders and bankruptcy. And he revealed some common triggers for financial stress. What did he tell you about this?

Sarah: Yes, Rob. Gregory mentioned that a lack of stability in employment or employment income, as well as the increasing casualisation of the workforce and the prevalence of part-time and contract work makes it really hard to plan a budget.

So if you can't forecast your income, it's obviously going to be very challenging to put money aside for bills and to tell creditors, "This is what I can afford to pay every week to catch up."

Rob: Well, it's certainly an area that sounds like it can quickly overwhelm people once their debts start to build. So, Sarah, if people are struggling with their finances, who did Gregory recommend they should contact?

Sarah: Yeah. He recommended contacting Lifeline's free financial counselling helpline on 1800 007 007. That's a national helpline.

Marta: Excellent. And if anyone listening to this podcast would like to discuss their finances with a qualified financial adviser instead, you can give us a call on 1800 823 842.

Also, if you'd like to read more of Sarah's interview with Gregory, check out the May edition of Super Informed e-news hitting your inboxes this week, where you can read more his financial literacy research as well as get a recap of this year's federal budget.

You can get that in your inbox, as I said, or check out our website, where you can find our free budgeting tool if you want to have a tinker with your cash flow expenses and see how you can start helping in getting your finances in order.

Lyndon: That brings us to the end of another edition of Super Informed Radio. Remember, you can listen to us on any device at any time via the UniSuper website at unisuper.com.au/podcasts or you can subscribe to us on iTunes or SoundCloud.

We hope you enjoyed this episode. We will see you next time.

Rob: Bye.

Marta: See you later.