What financial stress is telling and not telling
Traveloka recently concluded a wellness survey with Singaporean respondents and uncovered that 51% of the men named financial stability as the top stressor. In Hong Kong, Cigna’s 2020 360 Well-Being Survey revealed that only 15% expected to be able to maintain their current living standards. Before you rush to attribute the dismal findings to the pandemic, we like to point out a 2018 Northwestern Mutual study where 44% of Americans stated that financial concerns were their number one stressor. Financial stress seems to be an evergreen and widespread problem.
What is financial stress?
The Merriam-Webster dictionary defines stress as a state of mental tension and worry. Psychologists explain that stress is an outcome of one’s perception, “… if we perceive it to be a threat, then it’s a threat. Consider a ride on a roller coaster, for example. For one person, this is a fun and fantastic thrill. For another person, it’s a scary and stress-inducing event.” 1
In the same line of reasoning, financial stress is therefore the anxiety and worries arising from how one views his or her financial matters.
So… when do people really feel the financial stress?
Individualized perceptions about financial matters mean that there is a disconnect between objective and self-reported wellbeing. UK’s Financial Conduct Authority (FCA) illustrates this disconnect in an article co-authored by Jeroen Nieboer, a technical specialist in the Behavioural Economics and Design Unit and Karthik Raghavan, an economist. They point out that people who have not started to save for retirement may not stress themselves over it, simply because they do not think about it. Supporting their views is a 2021 Forrester survey 2 conducted with over 1,000 Singapore online adults to understand their financial well-being. 45% reported their current financial situation as being comfortable and stable, despite having outstanding long-term financial challenges such as planning for retirement.
Financial stress is most likely to be experienced if acute financial pressure is felt, be it due to a crisis or an unplanned transition that causes an unfavourable change in the level of income and/or debt 3. Hence the stress, although commonly reported among people with low incomes, is directly associated with salient and immediate stressors such as being unable to pay the latest utility bills or cope with debt repayment. A high-income household may have a sizable pool of savings to fall back on and can fend off the financial pressure but when the savings run out, financial stress is inevitable.
How to reduce the chance of experiencing financial stress?
Raising financial literacy will help people avoid bad financial decisions, reducing the chance of financial stress, but it is not a realistic expectation. Firstly, financial knowledge does not translate into behaviour. Secondly, literacy needs to evolve with life stages. Beyond having the fundamental knowledge of compounding, inflation and diversification, which countries worldwide are already struggling to educate, people will need to grapple with more advanced concepts such as asset classes, volatility and waiting periods to be able to plan for their retirement days.
Engaging a financial advisor will help people make informed decisions to reduce current and future financial stress, but this approach is far from running like clockwork. The distrust for advisors, rampant inconsistencies in advice quality and structural arrangements that do not facilitate holistic advisory for the masses, suggest that relying on the advisors is a hit-or-miss solution.
A hybrid approach that blends self-directed learning and solutioning with assistance from the financial advisors, stands the highest chance of success in reducing individuals’ and households’ current and future financial stress. Self-directed apps such as Upwise by Metlife are effective in reaching out to people who are already facing some financial pressures and experiencing stress. These people are motivated to learn and adopt measures that reduce their pain quickly. However, the gap between objective and self-reported financial wellbeing means that people would need external help to foresee their future financial stress if they do not act today. For them to accept help however, we need to help them not only to see but also to relate emotionally to their hidden problem.
At 360F, we develop an intuitive scoring system, 360-HappiU®, to forecast individuals’ and households’ financial satisfaction based on their personal values and aspirations in the holistic context of life and market risks. On a scale of 1 to 100, the higher the score, the more likely the individual can fulfil his or her multiple financial aspirations and maintain the desired living standards in good and bad times. The lower the score, the more likely the individual will suffer financial stress at some point in the future.
Who can help?
The employers and even platforms that contract gig workers have strong incentives to help their workers manage current and future financial stress. Proactive engagement, quality decision making and alertness at work come together with workers who are not distracted by financial stress. The best way to show care is perhaps not in the form of occasional care packs or incentives but by giving their workers the means to cope with stress, or better still, to prevent the suffering.
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