Measuring Financial Wellbeing
The Melbourne Institute: Applied Economic and Social Research, along with colleagues from the Department of Finance at The University of Melbourne (UoM), are collaborating with Commonwealth Bank Australia (CBA) to develop and analyse scale measures of the financial wellbeing of CBA’s customers and Australians generally.
The collaboration is developing its outcome measures (“scales”) of financial wellbeing with data from customers’ financial records and self-reported data from customers. The scales will help CBA, other organisations and policymakers to design policies, products and services to improve Australians’ financial wellbeing.
Researchers have previously considered various aspects of financial wellbeing, but no definition or metric has been universally adopted. In addition, no financial wellbeing scale combines objective data from customer records with self-reported information from personal responses.
In August 2017, CBA conducted an online survey of nearly 6,000 customers that asked about their financial wellbeing and their financial and personal circumstances. The CBA/UoM team obtained consent to link the survey responses to CBA customer records of people’s financial positions and financial transactions and is using these data to develop many novel measures of customers’ financial wellbeing.
The team is quantitatively analysing the combined survey and customer-record data to study how household circumstances, economic events, and personal behaviours affect financial wellbeing.
Developing a short form version of the Commonwealth Bank - Melbourne Institute Reported Financial Wellbeing Scale, Technical Report 5, March 2020
Improving the Commonwealth Bank of Australia - Melbourne Institute Observed Financial Wellbeing Scale, Technical Report No. 3, February 2019
In a first-of-its-kind analysis, Commonwealth Bank of Australia (CBA) and the Melbourne Institute: Applied Economic & Social Research (MI) developed two related yet distinct multiitem scales of Australians’ financial wellbeing: The CBA-MI Reported and Observed Financial Wellbeing Scales. The CBA-MI Reported Financial Wellbeing Scale, which is formed from people’s self-reports of their financial outcomes, has exceptionally strong measurement properties. However, the first version of the CBA-MI Observed Financial Wellbeing Scale, which was formed from bank-record indicators of financial outcomes, was coarser and more skewed than the Reported Financial Wellbeing Scale. This report describes an improved version of the Observed Financial Wellbeing Scale that is the sum of outcomes from categorical bank-record measures of customers’ payment problems, frequency of low liquid balances, net spending, ability to raise funds for an unexpected expense, and savings balances. The revised scale has twice as many outcomes than the first version, is more reliable, and differentiates finely across all levels of financial wellbeing. We conduct correlation and multivariate regression analyses of the Reported and revised Observed Financial Wellbeing scales to examine their associations with personal and household characteristics, external conditions, and financial behaviours. Key positive characteristics or behaviours such as income, home-ownership, and good savings habits and negative characteristics or behaviours such as unemployment, difficulties with housing payments, or needing community support, are correlated with both scales in intuitive ways. Observed Financial Wellbeing is also strongly related to people’s financial attitudes, capabilities, and behaviour, such as balancing savings and spending and having regular savings. The associations with several financial behaviours, including people’s savings habits, spending restraint, credit card management, and preferences not to live on credit are much stronger than the associations with income. These characteristics can each be changed in positive directions to improve people’s financial wellbeing, regardless of levels of income and wealth.
Using Survey and Banking Data to Understand Australians' Financial Wellbeing, Technical Report No. 2, July 2018
This report provides a first-of-its-kind view into the state of financial wellbeing in Australia. It comprehensively analyses two innovative measures: the Commonwealth Bank of Australia (CBA) and Melbourne Institute (MI) Reported Financial Wellbeing Scale of self-reported financial outcomes and the CBA-MI Observed Financial Wellbeing Scale of bank-record outcomes. It examines how these scales vary among Australians with different personal characteristics, household structures, economic and social resources, capabilities, financial attitudes, financial behaviours, banking relationships, and other characteristics. The analysis uses a conceptual model that identifies household and personal characteristics, external conditions, and financial behaviours as determinants of financial wellbeing. It examines self-reported measures of these characteristics from an on-line survey of 5,682 CBA customers as well as financial measures of these customers from bank records. The report uses the survey and bank record data to identify characteristics of customers that are associated with high and low levels of financial wellbeing and with differences in self-reported and bank-indicated financial wellbeing. It finds that income, wealth, and other resources are associated with financial wellbeing, but it also finds that financial attitudes, capabilities, and behaviours have strong associations.
Using Survey and Banking Data to Measure Financial Wellbeing, Technical Report No. 1, March 2018
An enormous research literature has considered and measured various aspects of financial wellbeing. Although several self-reported metrics have been developed, none has been universally adopted, and none harnesses the advantages of linking data from customer financial records with self-reported information from personal responses. This study conceptualizes, develops, tests, and validates multi-item scales of the financial wellbeing of the customers of a major Australian bank using self-reported survey data from the customers that are matched with their financial records. The study develops its scales using Item Response Theory models which produce two distinct, yet related, scales of financial wellbeing:
- a Reported Financial Wellbeing Scale that is formed from responses to 10 questions about whether people meet their financial obligations and have financial freedom, control, and security, and
- an Observed Financial Wellbeing Scale that is formed from five financial-record measures of customers’ financial net positions, spending, and payments.
The Reported and Observed Financial Wellbeing Scales are distinct, both in the sense that they are constructed from different measures and in the sense that they represent different underlying constructs. However, they have a positive (Spearman) correlation of 40 per cent. The Item Response Theory models show that each scale reliably differentiates between a wide range of outcomes and that the components within each scale have similar power to discriminate. We validate the scales by examining how they correlate with characteristics that are conceptually linked to financial wellbeing. Both scales are positively associated with income, home ownership, metropolitan residence, financial windfalls, financial knowledge, thrifty attitudes, and good financial habits and negatively related to poor health and financial setbacks.
Financial Wellbeing Scales
Before using the scales
The Financial Wellbeing Scales are the result of collaboration between the Melbourne Institute: Applied Economic & Social Research at The University of Melbourne and the Commonwealth Bank of Australia. Both organisations have made the specifications of the Scales available for use by others to improve understanding and measurement of financial wellbeing.
If you use or reference the Scales, we ask that you refer to them as the “Melbourne Institute Financial Wellbeing Scales” or “MI Financial Wellbeing Scales” and cite the initial report (e.g., cite Comerton-Forde et al., 2018) with each use. If you use the methodology in a different scale or modify it, we ask that you give your other / modified scale a different name. If you would like to apply to join our Financial Wellbeing Community of Practice to gain and share insights on using the Scales, to connect with a non-competing organisation that is using the Scales or to share your use of the Scales in the interest of research and education, please email melb-Inst@unimelb.edu.au with your organisation’s name and your contact details so we can get in touch with you. By downloading these Scales, you agree that you will only use them for your organisation’s internal, non-commercial purposes (e.g., to monitor the FWB of your customers). If you want to use the Scales to create a commercial product or service for individuals, industry clients and/or practitioners (e.g., to provide individual FWB assessments as part of a bundled service, or to create an FWB score or index to sell to the financial services industry), then please contact us to discuss licensing options.
Neither the Commonwealth Bank of Australia nor the Melbourne Institute shall be liable for any errors or omissions, or for any misinterpretation or misuse of the Financial Wellbeing Scales, including the Observed Financial Wellbeing Scale and the Reported Financial Wellbeing Scale, and the methodology. All information is provided “as is”, without any warranties (express or implied) as to completeness, accuracy or currency and does not constitute financial advice.
Ferdi Botha, Melbourne Institute: Applied Economic & Social Research
Professor John De New, Melbourne Institute: Applied Economic & Social Research
Professor Carsten Murawski, Department of Finance, The University of Melbourne
Nicolás Salamanca, Melbourne Institute: Applied Economic & Social Research
Sam Tsiaplias, Melbourne Institute: Applied Economic & Social Research