Your financial future could largely depend on which money mindset you fit.
Research on attitudes to saving and debt levels identified five money mindsets that apply to Generations X and Y. The categories indicate that people hold different views on the ease of saving, their sense of ever being debt free and how well informed they feel about financial options. The mindsets are:
1. Financially Insecure Low Income Earner
This group comprises a large proportion of clerical workers and tradespeople, many aged between 40 and 45. People in this mindset believe they shouldnt have to save for retirement, with 89 per cent believing it would be difficult to save enough to retire comfortably anyway. This group had strong insecurity about their financial situation. Eight in ten are concerned about the amount of debt and interest payments they have to make. Virtually all of them believe that they have been 'burnt' in the past, and are therefore careful with their money. They are also likely to feel confident about taking on debt only if they have a constant income stream. Despite all this, they feel well informed about their financial options.
Advice options for this group would likely be around looking at superannuation options in the current SuperChoice environment, and advice to maximise their savings capacity. They are generally not big seekers of professional financial advice as they perceive their needs as relatively simple or do not clearly see how an adviser could assist them.
2. Financially Comfortable Debt User
Representing 25 per cent of those surveyed, this group were mainly in the 35-39 age group with one person households reasonably common. Many work full-time in professional roles earning over $50,000. They are more likely to be tertiary qualified. Compared to the other groups, they are more likely to have shares (56 per cent) and managed investment funds (23 per cent), as well as investments in property other than their own home (27 per cent). With average debt levels of around $150,000, this group seems comfortable managing the use of debt, while making savings and investment decisions. Over half are not concerned about the amount of debt and interest repayments they have to make. Nearly three quarters believe that it is relatively easy to save.
They strongly hold the view that they are well informed about their financial options, and are confident that they will be free of debt.
Advice options for this groups would focus predominantly on strategic issues, particularly ways to minimise tax or better structure their finances. This group would normally be comfortable paying for professional and independent advice.
3. Younger Financially Unsophisticated
There is a strong concentration of this group amongst the 18-24 age group (i.e. Generation Y) and it is less common in the 40-45 age range. They are less likely to be found in managerial or professional positions. These people display real concerns over their debt situation. Eight in ten are particularly likely to feel over-committed on debt. Most feel it will be difficult for them to save for their retirement (despite believing that they should do so and not rely on government pensions).
Despite their fears over their current situation, they believe debt is okay if you maintain the minimum payments. Still, they feel that theyll never be free of debt.
The advice this group seeks centres around 'how do I get started'. Often advice as simple as how to budget, how do I start saving and/or reduce my consumer debts will be the catalyst for seeking a long-term trusting relationship with a professional adviser.
4. Financially Conservative Debt Averse
This mindset applies predominantly to those aged under 35, with many of them in their late 20s. There is a higher proportion of young couples, and there are many with an income of over $100,000 and few with an income of under $50,000.
Their savings averaged $89,000 and they use the full range of savings and investment options. Average debt for this group is $102,000.
These people have rather conservative attitudes in the area of finances. They do not believe that borrowing money is okay just to get something you want. They do not believe they should borrow just to get the things they want now. More than half of them believe it will not be difficult to save enough to retire comfortably upon. They are confident that they will be free of debt in the future. Those with debt are concerned about the amount of payments theyve got to make from their income each month.
Members of this group have an eye on the future and a good basic understanding of money. The advice they need is around maximising the potential of their savings capacity and being shown that there is a difference between good debt and bad debt. Being educated and in well paid positions, they know how to earn money but will only accept advice from those who can clearly demonstrate that they can add value.
5. Threatened Savers
This group is largely aged under 24 (Generation Y), female and living at home with parents in metropolitan areas. Many are students or unemployed.
These people are especially likely to claim that saving is not easy for them. Also, they indicated other attitudes which reflected that they are not yet comfortable with their financial future. Saving is something they would more likely be doing in the future, and they tend to see it as difficult for them to save enough to retire comfortably. Two thirds indicated they would be inclined to use a financial planner. They are relatively more inclined to feel that debt is okay as long as they can pay the minimum payments. However, most are of the view that they will never be debt free.
