Financial Stress

<html><body>
GUEST OBSERVER
People who have a financial shock are at greater risk of depression and a raft of other physical and mental health issues.
Public hearings for the <a href="https://financialservices.royalcommission.gov.au/Pages/default.aspx" target="_blank">Financial Services Royal Commission</a>, which resumed this week, are bringing to light some questionable practices in the sector – from lending beyond people’s means, to giving the <a href="https://www.propertyobserver.com.au/http://www.abc.net.au/news/2018-04-19/banking-royal-commission-live-blog-cba-westpac-anz/9674830" target="_blank">wrong financial advice</a> and <a href="https://www.propertyobserver.com.au/http://www.abc.net.au/news/2018-04-16/banking-royal-commission-financial-planners/9662166" target="_blank">charging for advice</a> that was never given.
Unaffordable home loans, poor financial advice and unmanageable consumer credit may have serious consequences for many Australians, beyond bankruptcy and debt. Financial loss can have catastrophic effects on mental health and relationships, and even physical health.
Spiraling down
Some of the most well-established consequences of major financial losses involve mental health. <a href="https://www.propertyobserver.com.au/https://www.ncbi.nlm.nih.gov/pubmed/2230754" target="_blank">One study</a> of people who lost their retirement savings due to bank fraud found markedly elevated rates of depression and anxiety, and increased use of anti-anxiety medications.
Similar findings of high rates of depression and anxiety have been shown to follow <a href="http://npc.umich.edu/publications/u/2011-23-npc-working-paper-revised-dec-2011.pdf" target="_blank">mortgage foreclosure</a> and <a href="https://onlinelibrary.wiley.com/doi/full/10.1002/hec.2983" target="_blank">rising unemployment</a>.
A more recent study of “<a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3874451/" target="_blank">recession depression</a>” followed around 10,000 Americans over 50 years of age at the time of the 2008 stock market crash. During the last three months of that year, retirement accounts lost one-third of their value on average. Study respondents who were financially exposed to the crash reported substantially higher levels of depression and consumed more anti-depressants than their peers.
Financial and housing distress also increase the risk of suicide. Economic crises are associated with <a href="https://journals.lww.com/co-psychiatry/Abstract/2010/03000/Economic_crisis_and_mental_health_.9.aspx" target="_blank">increased suicide rates</a>, especially in countries with weaker labour market programs.
These rises are <a href="https://www.propertyobserver.com.au/https://www.ncbi.nlm.nih.gov/pubmed/25054280" target="_blank">greater among men</a>, tied particularly to home repossession and debt for younger men and long-term unemployment for older ones. <a href="https://www.propertyobserver.com.au/https://www.ncbi.nlm.nih.gov/pubmed/26082406" target="_blank">One study</a> attributed a 57% increase in men’s suicide in Ireland to recession and austerity between 2008 and 2012.
Economic crisis also has implications for behaviour towards loved ones. Although it may paradoxically <a href="https://theconversation.com/fewer-births-and-divorces-more-violence-how-the-recession-affected-the-american-family-34272" target="_blank">decrease rates of divorce</a>, research indicates it may <a href="https://link.springer.com/article/10.1007/s10995-014-1469-0" target="_blank">increase child maltreatment</a> and intimate partner violence. One study revealed a link between foreclosure rates and <a href="https://www.propertyobserver.com.au/https://search.proquest.com/openview/538d3645dafadc71ce096aa98f44cf15/1?pq-origsite=gscholar&amp;cbl=18750&amp;diss=y" target="_blank">domestic violence calls to police</a>.
Crises may also ensure there are fewer loved ones to start with: <a href="https://www.propertyobserver.com.au/https://www.ncbi.nlm.nih.gov/pubmed/21592423" target="_blank">birth rates decline during recessions</a>.
Shortening life
<a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3874451/" target="_blank">Several studies</a> have noted a link between economic shocks such as <a href="https://www.sciencedirect.com/science/article/pii/S0277953616302957" target="_blank">foreclosure</a> and poor physical health. And a <a href="https://www.propertyobserver.com.au/https://jamanetwork.com/journals/jama/fullarticle/2677445" target="_blank">new paper</a>, published this month in the Journal of the American Medical Association (JAMA), shows that negative wealth shocks can endanger life itself.
The researchers examined mortality due to any cause in a sample of 8,714 adults who were representative of the US population. Study participants were aged 51 to 61 at the start of the 1994-2014 study period, and were followed every two years.
The sample was divided into three groups. One group, representing 67% of the sample, maintained continuous positive wealth over the 20-year period. A second, “asset poverty” group (7%), began the study with zero or negative net household wealth. The “negative wealth shock” group (26%) experienced at least one two-year period in which their household wealth dropped at least 75%.
People in the negative wealth shock group had a 50% higher death rate than those in the positive wealth group, after statistical controls were applied. By the end of the 20-year period, more than half of the former group had died, compared with less than 30% of the latter.
Death rates for people who underwent wealth shocks were comparable to those of people who began the study with nothing, or less than nothing.
Several other findings of the study stand out. First, women, ethnic minorities, and people who were divorced, widowed or never married at the start of the study period were especially vulnerable to negative wealth shocks.
Second, the risk of death due to negative wealth shocks was especially bad if it involved the loss of a primary residence.
Third, the risk was equally severe regardless of people’s initial net wealth: being richer before the shock was not protective.
How does it happen?
The JAMA study reveals the striking mental and physical health effects of negative wealth shocks, but it does not directly enlighten us as to their causes. Other research points to some answers.
As we have seen, one direct cause of elevated death rates among people who experience abrupt loss of wealth is suicide.
A less direct cause is a reduction in the use of health care. People who experience sudden loss of wealth <a href="http://www.nber.org/papers/w15843" target="_blank">visit doctors and dentists less</a> and reduce their adherence to treatment regimes, such as prescription medicines.
Relatedly, economic downturns in societies and households foster a variety of unhealthy behaviours and choices. <a href="http://www.nber.org/papers/w16638" target="_blank">Fruit and vegetable</a> consumption declines and fast food consumption rises. People may also <a href="http://www.nber.org/papers/w18660" target="_blank">increase alcohol use</a>.
In addition to health effects caused by unhealthy behaviour, economic losses can have adverse consequences via short-term and chronic stress on the body. Stress contributes to depression, which has downstream implications for physical ill-health and premature death. But it can also contribute to physical damage to the body.
One <a href="https://www.propertyobserver.com.au/https://www.ncbi.nlm.nih.gov/pubmed/26773705" target="_blank">recent study</a> followed up older Americans over a five-year period from 2005-2006 to 2010-2011 that bridged the 2008 Great Recession. As part of the study, two biomarkers of stress response were assessed.
Systolic blood pressure is an indicator of heart function and predictive of chronic disease and premature death. C-reactive protein is a marker of inflammation, produced by the liver, that is associated with risk of coronary heart disease, cancer, diabetes, stroke and premature death.
<img src="https://images.theconversation.com/files/215545/original/file-20180419-164001-fw51vu.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="">
High systolic blood pressure (the top number on the reading) indicates a greater risk of chronic disease.<a href="https://www.shutterstock.com/image-photo/human-check-blood-pressure-monitor-heart-1065979691?src=pRbwE1cva97U5Kmv5Fsnxw-1-28"> </a>
The researchers found that both of these biomarkers rose among adults who suffered greater losses of wealth over the study period. They provide the best evidence to date of how major macro-level economic shocks have physiological effects on our bodies and “get under the skin” to impair health.
Positive wealth shocks?
Negative wealth shocks evidently have an assortment of dire consequences. But what about positive wealth shocks, where people receive sudden gains. Do these windfalls produce an equivalent assortment of positive effects on health?
Surprisingly, perhaps, the evidence for such effects is weak and inconsistent. <a href="https://www.propertyobserver.com.au/https://www.ncbi.nlm.nih.gov/pubmed/24677260" target="_blank">Lottery winners</a> appear to reap modest increases in “subjective well-being” (formerly known as “happiness”) but little if any improvement in physical health.
 
However, recipients of bequests experience few psychological or physical benefits, perhaps because the windfall is often anticipated and tempered by a sense of loss.
Evidence that the psychological and physical benefits of windfalls are smaller than the costs of negative wealth shocks exemplifies a well known phenomenon. “<a href="https://en.wikipedia.org/wiki/Loss_aversion" target="_blank">Loss aversion</a>” refers to the principle that losses loom larger than gains in our minds. It has been used to explain the value we attach to things we own, and the emotional toll we suffer when a possession – such as a foreclosed home – is lost.
Where we sit relative to ownership appears to be critical in this regard. A <a href="https://www.sciencedirect.com/science/article/pii/S0277953617305415?via%3Dihub" target="_blank">recent study</a> showed people who own their homes outright have seen health benefits from the wealth windfall due to rising house prices in Australia. These benefits spring from their investment of effort in exercise and weight loss.
However, rising house prices have had a negative effect on the physical and mental health of renters. For people who have won the generational lottery of home ownership there is some uplift, but for those who have lost there is a greater pain.
Nick Haslam, Professor of Psychology, University of Melbourne
This article was originally published on The Conversation.
</body></html>

j.ballantyne1990-6AQqhLzZaK

Losing wealth and losing health

<html><body>
EXPERT OBSERVER
Most agents - so the story goes - get into real estate because they love property and they love helping people. And the chance to earn a small fortune is pretty alluring too. 
But within just a few short months, they are destined to hate both houses and people - and be broke - burned out by psychotic vendors, ungrateful landlords, feral tenants and disgruntled buyers.
Why does it happen like this? What is it about real estate that brings out all the crazy people? And why does your agency seem to be the one that attracts them as clients?
A look at neurological and behavioural research provides some clues that indicate maybe it is not individual agents or offices that attract the unstable or unbalanced, but that the stress involved in buying and selling property is enough to make pretty much everyone feel unhinged.
<a href="http://www.researchhistory.org/2012/06/16/maslows-hierarchy-of-needs/" target="_blank">Maslow’s hierarchy of needs theory </a>argues that human psychological wellness is served by the meeting key needs. Until we feel secure at the base levels, we cannot move towards more enlightened behaviour. 
<img src="https://corelogic.com.au/sites/default/files/styles/media_crop/public/2018-04/2018-04-09-realestatecrazy.gif" alt="">
 Shelter is one of our basic physiological needs according to Maslow. What does that mean for agents? It means that when humans feel their “shelter” is uncertain, they they feel their very survival is threatened on a subconscious level and are in a constant state of anxiety. Property is a key part of the second layer of needs – part of our safety and security. When property is insecure, this makes us feel endangered and unsafe. 
Selling a property is to walk headlong into these feelings of anxiety and distress that often refuse to be reasoned away. But so too is the feeling triggered for buyers who can’t find a property, or tenants struggling in the search for something suitable to rent. 
Want to know why your vendor is shouting at you? Or a potential buyer just slammed down the phone on you during the negotiation? It’s not because they’re nuts. It’s because subconsciously, there’s a voice telling them “You’re not safe. You have no shelter. You’re in danger!” and that anxiety is affecting their behaviour in a way that can’t always be rationalised away.
This is because new research from <a href="https://www.psychologytoday.com/us/blog/the-athletes-way/201603/how-does-anxiety-short-circuit-the-decision-making-process" target="_blank">neuroscientists at the University of Pittsburgh</a> has identified that anxiety disrupts the decision-making regions of your brain which can make it physically impossible to think clearly in some highly stressful situations, which in turn is likely to affect your behaviour. 
The study found that anxiety affects your prefrontal cortex – the front part of your brain responsible for understanding rules, the consequences of risk, problem solving and decision making. In doing so, it also affects our ability to regulate our emotions and control behaviour. 
So when you’re in the middle of an auction, pushing a vendor to accept the highest offer, when you’re negotiating with buyers who’ve missed out on numerous other properties, when you’re asking someone who has lived in a home for 40 plus years who has been prevaricating to sign the sales agreement – these are all times when our stress responses are in full flight and in fact, our brains are actively incapable of making a good choice or monitoring our behaviour.
But it doesn’t have to be like this. There are things real estate agents can do that can alleviate the stress their customers feel which will in turn improve the behaviour they demonstrate toward you. These include:
1.    Let people know what to do in case of an emergency
Every time you get on an airplane, the crew runs through the safety demonstration. You’ve seen it a million times, but it is based on the fact that in the event of an emergency when your brain is flooded with cortisol and you literally can’t think, you’ll revert to something that has been drummed into you. 
It’s a great approach that more agents could take too – because while there’s no way of avoiding the fact that buying or selling a property is stressful, as a real estate agent with extensive experience, you’ve seen everything before – so share that knowledge with your clients. 
Research from <a href="https://www.forbes.com/sites/alicegwalton/2016/03/29/uncertainty-about-the-future-is-more-stressful-than-knowing-that-the-future-is-going-to-suck/#b894b1f646af" target="_blank">University College London</a> identifies that the unexpected is more stressful, than the expected, even if what’s expected is painful. So explain to your clients what the selling (or buying, or renting) process looks like, where things sometimes go wrong, and how you proactively solve those things when they occur. Make sure you know their auction instructions well in advance and ensure they’ve been planned for quietly and rationally, so you can remind them of that decision, not ask for a new one. Hope for the best but plan for the worst is the mantra. Make solving the stress in advance part of your procedure. 
This has a two-fold affect – it reassures people that what’s happening to them is normal and it tells them that you’ve got their back and they are in good hands which goes a long way to establishing a relationship based on trust.
2.    Help clients take a break from the stress
What is the most stressful thing about the sale process that is upsetting your vendor? Is it having the property clean in time for each open house? Is it making sure the dog is out of the house? And are there ways that you could give your client a break, even just once – by offering to organise a cleaner, or a dog sitter? 
Research from the <a href="http://www.apa.org/helpcenter/manage-stress.aspx" target="_blank">American Psychological Association</a> identifies that taking a break from stressors can be hugely beneficial, even if it’s just short term. Even a small gesture such as a voucher for coffees and a snack at the local café during the open tells them that you are noticing their behaviour, have empathy for what they’re going through and you’re there to support them. (and you can meet them for a coffee afterwards and let them know how it went).
3.    Encourage mindfulness
Both Persian and Jewish philosophers are credited with the saying “This too shall pass” – so dealing with stressful situations has been going on for millennia. But rather than enduring, modern psychology has identified that being able to visualise what the end result both looks like and feels like in a positive way is hugely powerful to reducing stress.
Sometimes your clients may resist this – if they’re selling a long-loved family home, the idea of leaving may terrify them and increase feelings of sadness. But encourage them to visualise how exciting it will once the hammer has fallen on auction day and they know how much money is coming in, how lovely their new home is going to be, all the things they will be able to achieve as part of their new chapter.    If you’ve outlined your process for selling (or buying) in detail and your clients know what to expect each step of the way, they’ll find it easier to imagine positive outcomes. 
Kylie Davis is the Head of Property Services and Content Marketing at CoreLogic.
</body></html>

Psychotic vendors, ungrateful landlords, feral tenants and disgruntled buyers - why estate agents hate houses and people: Kylie Davis

jrobinson-rf4aSBido9

There are clearly households experiencing financial stress: RBA assistant governor

<html><body>
GUEST OBSERVER
<h1>The number of Australian's with no savings has increased.</h1>
If you needed A$2,000 in a hurry where would you get it? <a href="https://www.csi.edu.au/financialresilience/" target="_blank">70% of those we surveyed</a> said they would ask friends or family, although almost half said that it’s very or fairly unlikely that their social connections could help.
This is just one of the takeaways from our <a href="https://www.csi.edu.au/financialresilience" target="_blank">new report</a>, funded by NAB, that shows financial resilience is declining in Australia. Large numbers of Australians are struggling to meet expenses, pay bills and manage or recover from financial shocks despite two decades of <a href="https://www.rba.gov.au/chart-pack/au-gdp-growth" target="_blank">GDP growth</a>, <a href="https://theconversation.com/income-inequality-ticks-down-as-the-rich-see-their-incomes-fall-abs-83883" target="_blank">declining income inequality</a> and <a href="https://www.csi.edu.au/financialresilience" target="_blank">increasing financial capability</a>.
And while more adults in Australia are reporting regular social contact, and fewer are reporting needing community or government support, the number of Australians needing support but not receiving it has increased from 3.2% to 5.3%.
<iframe style="border: none;" src="https://datawrapper.dwcdn.net/RhNx5/9/" frameborder="0" width="100%" height="400"></iframe>
The problem is especially acute for those on low incomes. A recent <a href="https://www.sprc.unsw.edu.au/research/projects/a-new-healthy-living-minimum-income-standard-for-low-paid-and-unemployed-australians/" target="_blank">report</a> found most low-income households are unable to afford a minimum and healthy standard of living, with their incomes falling short by between A$9 and A$89 a week.
In this week’s <a href="https://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/6530.0Main%20Features72015-16?opendocument&amp;tabname=Summary&amp;prodno=6530.0&amp;issue=2015-16&amp;num=&amp;view=" target="_blank">Household Expenditure Survey</a>, the Australian Bureau of Statistics found that two in every five households are experiencing at least one indicator of financial stress. In households with incomes in the bottom 40%, this ratio increases to one in two.
<iframe style="border: none;" src="https://datawrapper.dwcdn.net/TzNNI/1/" frameborder="0" width="100%" height="400"></iframe>
People on the lowest incomes <a href="https://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/6530.0Main%20Features72015-16?opendocument&amp;tabname=Summary&amp;prodno=6530.0&amp;issue=2015-16&amp;num=&amp;view=" target="_blank">are</a>:
<ul>
<li>12 times more likely to be unable to raise A$2,000 in a week for something important</li>
<li>Five times more likely to be unable to pay a utility bill on time</li>
<li>Ten times more likely to be unable to heat their homes than the highest income households.</li>
</ul>
The lowest income households are also more likely to be socially isolated than the highest income group. For example, they were at least ten times more likely to be unable to afford a special meal once a week or a night out once a month.
<iframe style="border: none;" src="https://datawrapper.dwcdn.net/US8vA/3/" frameborder="0" width="100%" height="400"></iframe>
As you can see in the above graphic, the proportion of Australian adults who are financially secure has decreased significantly between 2015 and 2016, from 35.7% to 31.2%. One in eight Australians (12.6%) now experience severe or high financial stress, up from 11.1%.
In practical terms financial stress may mean a combination of limited or no savings; difficulties meeting everyday living expenses, managing debts and raising funds in an emergency; no direct access to a bank account; no access to appropriate and affordable credit and/or low levels of social support.
When you dig deeper into the data you see this is not a problem of behaviour or financial literacy. The decline in financial resilience has occurred despite a significant improvement in the proportion of people with moderate to high levels of financial knowledge and behaviour (from 50% to 55%).
This includes a knowledge of, and confidence using, financial products and services. And a willingness to seek financial advice and engage in proactive behaviours like saving, budgeting and paying more than required on debts.
<iframe style="border: none;" src="https://datawrapper.dwcdn.net/u21Ej/3/" frameborder="0" width="100%" height="400"></iframe>
This leads to the conclusion that the cause of the decrease in financial resilience is due to a decline in external resources. This means people having enough money to meet living expenses and manage debts, and having access to a bank account, appropriate credit, insurance and being able to access social and community supports when needed.
We can see this by looking at data on savings.
More Australians are saving (up to 60.2% in 2016 from 56.4%). However, as you can see in the chart below, the total amount of savings has declined. Only one in two people had three months or more of income saved (a drop from 51.9% in 2015 to 49.5% in 2016). And people with savings of a month or less increased from 27.3% to 31.6%.
<iframe style="border: none;" src="https://datawrapper.dwcdn.net/Xxy7t/5/" frameborder="0" width="100%" height="400"></iframe>
More Australians are budgeting, too. With 51.6% following a budget in the latest survey as compared to 49.1% in 2015.
The data also shows us that an inability to access appropriate financial products and services affects a large number of Australians. This was mainly driven by increases in the number of people who only had indirect access to a bank account (from 1.2% in 2015 to 2.7% in 2016) and increases in the number of people who had no access to appropriate credit (20.2% in 2015 compared to 25.6% in 2016).
Appropriate and affordable credit is important to assist people who cannot draw on savings when they experience financial shocks, such as the sudden need to replace a washing machine or fridge, or to fix a car needed to get to work.
<iframe style="border: none;" src="https://datawrapper.dwcdn.net/rJeuR/2/" frameborder="0" width="100%" height="400"></iframe>
As we can see, stories of economic growth and declining income inequality aren’t capturing the whole picture. It is important that we don’t overlook the large number of people and households in Australia who are experiencing high levels of financial stress, who are struggling to pay the bills and meet basic living expenses.
Our research shows that large numbers of people and households are not prepared, or adequately supported, should a financial shock (such as an increase in interest rates or a recession) materialise.
<img src="https://counter.theconversation.com/content/84053/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">While most people have strong social support; more appropriate, affordable and accessible financial support from the government, communities and financial institutions is required. This is along with appropriate mechanisms to help identify people most at risk and to cross refer where required.
<a href="https://theconversation.com/profiles/kristy-muir-158422" target="_blank">Kristy Muir</a>, Professor of Social Policy / Research Director, Centre for Social Impact, <a href="https://theconversation.com/institutions/unsw-1414" target="_blank">UNSW</a> and <a href="https://theconversation.com/profiles/axelle-marjolin-161212" target="_blank">Axelle Marjolin</a>, Researcher at the Centre for Social Impact, <a href="https://theconversation.com/institutions/unsw-1414" target="_blank">UNSW</a>
This article was originally published on <a href="https://theconversation.com" target="_blank">The Conversation</a>. Read the <a href="https://theconversation.com/income-inequality-may-be-declining-but-financial-vulnerability-is-increasing-84053" target="_blank">original article</a>.
</body></html>

Income inequality may be declining but financial vulnerability is increasing

<html><body>
<img src="https://counter.theconversation.edu.au/content/64367/count.gif" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
A new study shows two million Australians are experiencing high financial stress which prevents them from coping in difficult situations, for example, in paying unexpected expenses such as a big mobile phone bill or the fridge breaking down.
Adults face these sorts of scenarios frequently. When they arise, people usually turn to savings, a credit card, or a friend or family member to help out.
Our report, Financial Resilience in Australia, funded by the National Australia Bank, quantifies the amount of Australians: experiencing problems paying debts; meeting the costs of living; and accessing appropriate, affordable and acceptable financial products and services.
It also shows some Australians have trouble accessing social support in times of crisis and may have low levels of financial knowledge.
Our research measured financial resilience by the four key resources that support it: personal economic resources (such as savings), financial products and services (such as insurance), financial knowledge and behaviour (including financial literacy), and social capital (having social support in times of crisis, including friends and families).
Many Australians simply don’t have the resources to bounce back. For example, around:
<ul>
<li>One in two adults have limited to no savings</li>
<li>One in two only have a “basic understanding” of financial products and services</li>
<li>One in ten have unmet need for credit and/or insurance</li>
<li>One in five have limited or no social connections</li>
<li>One in 30 stated they needed but did not have access to any form of government or community support.</li>
</ul>
This has implications for the short and long-term impact on individuals and their families.
<h2>Who is most at risk?</h2>
Our research found secure housing, steady income, education, being employed and good mental health are strongly associated with financial resilience.
On average, financial resilience is significantly lower among people who are homeless, living in social housing, are short-term renters or live in student accommodation.
Financial resilience increases with the level of education and, unsurprisingly, people with very low personal incomes fare poorly.
Employment status is a key marker. People who are unemployed, underemployed, not in the labour force and those who only work odd jobs are more likely than their full-time employed counterparts to have lower levels of financial resilience.
People with a serious mental illness are significantly more likely to be in severe or high financial stress, are less likely to be financially secure and fare worse on each of the individual resource groups than people without mental illness.
The gender split in financial resilience is fairly even overall. However, the four components of financial resilience are influenced by gender. Women have lower general levels of economic resources than men, but men have lower levels of social capital than women.
People who were born overseas in a non-English speaking country have lower levels of resilience than those who were born in Australia. Finally, the influence of age on financial resilience varies and is often affected by other factors.
One in four study participants reported difficulties accessing financial services. The barriers are varied, but include cost, trust, poor and inadequate services, and (for a few) language, disability and discrimination.
This underscores the importance of making financial information, products and services more user-friendly and accessible. This will ensure these resources are available and accessible to everyone who needs and wants them in society.
The factors influencing financial security are not surprising. People who own their own homes, have a university-level education and have a personal yearly income of more than A$100,000, for example, have higher levels of financial resilience. However, only 35.7% of Australians are financially secure.
The prevailing attitude around financial problems is that individuals are solely responsible for their situation. Our research challenges this ideas as it shows multiple aspects to financial resilience, some out of the individual’s control.
The below shows how interlocked the different components of financial resilience are and when pieces of the puzzle are removed, the most vulnerable people are at risk.
<a href="/images/2016/08/29/image-20160826-11150-bc398a.jpg" target="_blank">Click to enlarge</a>
<img src="/images/2016/08/29/image-20160826-11150-bc398a.jpg" alt="" width="754" height="407">
<h4>
The jigsaw of financial resilience. The Centre for Social Impact, Author provided
</h4>
At the moment social sector leaders are lobbying the government to scrap proposed budget cuts that will reduce the amount of certain welfare payments. Our research shows these same people have the least resilience to bounce back if they were to lose some financial support.
This is an example of how the government needs to play a more active role in understanding financial resilience and where support is needed. By understanding the often interrelated elements of financial resilience, tipping points and who is most at risk, prevention and intervention can be better tailored.
Rebecca Reeve is senior research fellow, Centre for Social Impact, UNSW Australia and author for The Conversation. She can be contacted <a href="https://theconversation.com/profiles/rebecca-reeve-97205" target="_blank">here</a>.
Kirsty Muir is professor of Social Policy / Research Director, Centre for Social Impact, UNSW Australia and author for The Conversation. She can be contacted <a href="https://theconversation.com/profiles/kristy-muir-158422" target="_blank">here</a>.
</body></html>

jchancellor-FAypfDUnLy

Two million Aussies are experiencing high financial stress

<html><body>
<img src="https://counter.theconversation.edu.au/content/57114/count.gif" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
When politicians talk about tax and fairness, it’s easy for them to point out undeserved loopholes benefiting the wealthy, or multinational companies. But the elephant in the room is the difference between those who own and those who rent (or have recently bought and have huge mortgages) the house they live in.
The tax advantages of housing offend against justice on every count: they place financial stresses on the poor, they are unequal, and the increase in price is not deserved.
Owner-occupied houses are exempt from income and capital gains tax, and from social welfare means tests. Negative gearing gives investment properties a tax advantage, which is exacerbated by discounts on rates of capital gains tax. Rent assistance given to those on social security (currently a maximum of A$130 per week) is not sufficient to compensate for the difference.
The high price of housing is created by tax inequalities and by supply and demand imbalances created by government failure. At the same time, the government has encouraged banks to borrow hundreds of billions offshore to fund greater mortgage debt – pushing prices higher. Foreign depositors are faced with a low 10% withholding tax (reduced from 15%), and have not been subject to adequate money laundering controls.
And there is not much social benefit in higher house prices to counteract the costs to non-homeowners. Higher prices have not led to a significant increase in supply over time; people do not spend the increase, nor use it much to fund their retirement.
<h2>Defining ‘justice’</h2>
The word justice is used so widely, it needs some definition. While “fairness” is applied more widely, justice can be used to incorporate four sometimes conflicting objectives. Justice seeks, as much as possible to:
<ul>
<li>Contribute to economic equality</li>
<li>Give each person their just deserts</li>
<li>Meet people’s essential needs</li>
<li>Allow for personal liberty by not interfering in people’s lives.</li>
</ul>
Such a model of justice can be used to evaluate tax systems.
For those concerned that justice comes at a cost to efficiency and economic growth – there is considerable evidence to show that the relationship, where it exists, is positive. Giving people their just deserts provides the material incentives so beloved of economists. Evidence from a broad group of countries shows little overall relationship between income inequality and rates of growth and investment. Fairer taxes lead to greater compliance with tax laws. Research has found a significant increase in Australian tax morale between 1981 and 1995, which was explained by reforms that people saw as making the system more just.
<h2>Clouded by politics</h2>
Amid the ongoing debate about tax reform during the last year, many had hoped for some meaningful changes in the coming federal budget.
Instead, the current debate on the tax system, and more recently negative gearing, is concerned with perceptions of political acceptability.
This was also typified by the dismissal of any change to the taxation of housing in the Re:think tax discussion paper:
“Given the central importance of the home for Australian families, there is a strong consensus that it would not be appropriate to tax either the imputed rent on owner-occupied housing or capital gains derived from it.”
“Strong consensus”, whatever that means, is not a good reason if it involves injustice. The argument works the other way: given the central importance of the home, and its place in income and assets, it is essential for housing to be included in our tax and welfare systems. Let’s be the land of the fair go, even if we have to give up some personal advantages.
<h2>Reform options</h2>
Addressing the issue is complicated politically in that around 70% of voters own their houses, and a significant minority have borrowed heavily to get into the market in recent times. If prices drop, they will suffer through no fault of their own, as would the banking industry. With more than two million shareholders, banks are also strong politically.
The Henry tax review did, however, recommend a transition from stamp duties to a land tax, a significant increase in rental assistance and the removal (albeit with a high threshold) of the exemption of owner occupied homes from the means test for pensions.
The greater efficiency, and justice, of land taxes means that they have fairly widespread support from informed commentators. Taxes on property currently raise A$29 billion annually for the states and another A$14 billion for local governments in Australia. If land accounts for 50% of the value of residential housing, the additional revenue would be of the order of A$75 billion. Another A$40 billion might be possible if commercial land was also be included.
Removing capital gains discounts and taxing imputed rents should also be considered. <a href="https://www.tandfonline.com/doi/abs/10.1080/10511482.1994.9521152?journalCode=rhpd20#.VyAWCmR96X0">Research released in 1994</a> found the latter would be both efficient and more equitable in Australia. The advantage of this is that such a system allows for the tax deductibility of mortgage repayments, so would provide compensation for the minority that had recently bought into the housing market. A higher withholding tax on international deposits would also reduce the availability of funds to push up assets, and encourage local businesses by removing some of the artificial support for the currency.
Housing accounts for more than 60% of the value of total assets held by Australians. Translated into imputed rent it amounts to about A$150 billion annually, or 20% of the gross personal income of those who own their homes. If taxed at marginal rates of tax, imputed rents would add about a third to current personal tax of A$190 billion annually.
Anthony Asher is associate professor, UNSW Australia, and author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/anthony-asher-247115" target="_blank">here</a>.
</body></html>

Financial Stress

Editor's Picks

Have something to contribute?

Developments

New apartments

New townhouses

News

Financial Stress

Editor's Picks

Receive the latest news stories to your inbox

Have something to contribute?

Developments

New apartments

New townhouses

News