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Australians are making long term changes in their spending behaviour to minimise the impact of COVID-19 on their finances, according to CoreData research presented at The Financial Planning Association’s (FPA) keynote event held earlier this month.
‘Uncovering the Value of Financial Planning Advice’ held on 3 September brought together key players in the financial planning profession to discuss the importance of financial planning and how to ensure more people have access to quality, affordable financial advice.
The virtual event was moderated by award winning journalist Helen Dalley, with Paul Clitheroe AM (Money expert and Chair of Financial Literacy Macquarie University), Alan Kirkland (CEO of consumer advocacy group CHOICE) and Dr Pamela Hanrahan (Adviser to the Hayne Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry in 2018) as special guest speakers.
According to the survey[1] findings discussed at the event, four in five Aussies took action to protect their finances to minimise the impact of COVID on their personal finances. The top five actions included: reduce discretionary spending (63.5%), reduce spending on essentials (47.8%), cancelling memberships (36.7%), seeking additional work / jobs (16.9%) and applying for financial support / loan (12.8%).
Yet despite these actions, more than twice as many households are in a fragile financial position now, compared to before COVID.
When it comes to spending patterns, Australians are making long term changes and may take more than a year (or never) to get back to their pre-COVID spending levels.
Particularly on memberships and subscriptions such as gym, streaming services, while 30% of Australians expect to start spending again within next six months, over 20% said they might either need more than 12 months or may never go back to the same level.
On other discretionary items and activities such as eating out, social activities, nearly half are committed to returning to normal with six months, and almost 20% within 12 months.
Marisa Broome CFP®, FPA Chair said: “We’re experiencing an extraordinary and life changing moment in history. It’s affecting every facet of our lives. Our health, our work, our emotions, our friendships, our travel plans, our life plans and of course our financial circumstances.
“Money plays such a critical role in our ability to live the life we want. Especially in the face of challenging and unplanned circumstances.”
Universal access to financial advice
The event saw financial experts and advised clients talk about the importance of financial advice and the support of a professional financial planner to unlock dreams and manage the unprecedented times for everyone.
Mr Clitheroe pointed out that the current framework meant advisers were restricted to only being able to help high net worth individuals and other relatively well-off consumers who could afford to pay for advice.
“That satisfies [roughly] the top 10 or 20 per cent of the population of Australia. What do we do for the other millions of people who want to talk about everything from their credit cards, to investing a hundred dollars, to talking about [whether they should] put a thousand dollars in super or [towards paying off their] mortgage? That remains the challenge.”
His views were echoed by Ms Broome who confirmed that financial advice is both hard to access and expensive to pay for. It is beyond the reach of most Australians.
“We at the FPA want to change this. We want more Australians to seek financial advice but to do that they need to be able to access it and afford it. I passionately believe that helping Australians to build their financial capability and understanding is critical not just to them individually but to the nation,” she added.
Mr Kirkland from CHOICE argued that customer-centric financial advice needs to start with a good understanding of the customer’s needs and aspirations and their financial capability, and then exploring the different ways of providing that advice.
“It’s about really assessing when advice as provided by a financial planner is actually the right approach for a person and if it is, whether they need one-off advice or ongoing advice. Because sometimes, good advice is about giving people the skills they need to make decisions themselves through their day to day life,” he explained.
CoreData research further confirmed that of those who acknowledged they need help to strengthen and protect their financial position post-COVID, affordable advice and support from a financial planner appeared to be among the top three, with one quarter of Australians saying this would help.
The top two requirements for support included: ‘Tips and advice from companies I pay regular bills to on how to reduce bills’ (31.9%) and ‘a website or other free accessible resource that explains what financial services and supports are available’ (27.2%).
The event also featured clients sharing their stories about the valuable experience of working with a financial planner, particularly the intangible benefits of confidence, comfort, peace of mind and empowerment over their financial situation.
[1] n = 1,145 Australians