New research shows almost two million Australians are suffering from moderate or severe levels of financial stress.

Financial advisers told The New Daily a lack of financial literacy has led people to make costly mistakes compounded by easy access to cheap credit.

Self-proclaimed experts on social media have also muddied the waters with contradictory and often misleading advice.

And a popular culture that rewards instant gratification and conspicuous displays of wealth has only added to the hip pocket pressure.

Based on a survey of 2100 Australian employees conducted between June and July, the latest research comes from financial services firm AMP.

Weighted to reflect the total national workforce, the research found that 1.8 million Australians reported severe or moderate financial stress in 2020, which was broadly in line with findings from previous years.

Describing financial stress as “a systemic issue in Australian society”, AMP said the number of employees reporting severe or moderate financial stress had remained above or close to two million in each of the four years it had conducted the survey since 2014.

This is not only placing immense strain on the individuals directly affected, but also eroding the living standards of all Australians by weakening productivity growth.

AMP estimates financial stress is costing the economy $30.9 billion every year in lost productivity, “due to employee distraction and absenteeism”.

This is because “those severely and moderately financially stressed are ineffective at work for approximately 7.7 hours a week, and absent for a further 1.2 hours a week through sick days”.

Much of it comes down to poor financial literacy.

Where are we going wrong?

Centaur Financial Services managing director Hugh Robertson says a lack of awareness and understanding is a key driver of financial stress, because it means people are unable to recognise whether they’re in a good financial position, which leads to poor choices.

Many Australians also “bury their head in the sand” when it comes to dealing with their finances, he said.

And even people earning above $100,000 a year are stressed – AMP puts the figure at one in 10 – because they compare themselves to others and often spend no time working out their goals and how best to achieve them.

“And there’s an information overload from social media, friends, family, Google, where people are really just uncertain,” Mr Robertson said.

“So you’re combining low levels of financial literacy with the fact that it goes into the ‘too-hard basket’. And when people do want to [deal with it], there’s an information overload.”

On top of this, Mr Robertson said popular culture fails to reward financial discipline. People want things today and are less willing to wait, he said.

And this spending can then develop into a self-fulfilling prophecy.

People stray from their plan and make an impulse purchase, then feel guilty about it, and then spend again to make themselves feel better.

“It’s kinda like when you’re trying to lose weight,” Mr Robertson said.

Factors outside our control

Beyond Today Financial Planning director Antoinette Mullins also highlighted a failure to live within our means as a major cause of financial stress.

But because house prices and living costs are continuing to rise while wages are stagnating, Ms Mullins said in today’s economy “it is easy to want a lifestyle above your means”.

“And credit is so easily accessible,” she said, noting the rapid expansion of the nation’s buy-now-pay-later industry.

Ms Mullins said the second major cause of financial stress among her clients was not having an emergency cash fund for when things go wrong, such as a car breaking down or a water pipe bursting.

To reduce stress, she recommends keeping between three and six months’ worth of living expenses in a savings account that is separate from accounts with dedicated goals.

(For example, you might have an account dedicated to saving for a house. Having a separate emergency fund makes you feel less bad about dipping into your savings when things go wrong.)

As for Mr Robertson, he said the key was to take action as soon as possible.

Firstly, take inventory of your situation. Work out the current state of your finances and write down your goals. Then seek advice or conduct your own research on how best to achieve them.

“I think the reason for stress is that people are uncertain about their financial positions,” Mr Robertson said.

“So for me, I would say the way to get around stress is to actually sit down and map out your plan so that you can have a bit more confidence – especially if you’re in a relationship, because then you can work as a team.”

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AMP’s seven tips to improve financial wellness

1. Take action – use reliable sources of information to clue up on key financial drivers, such as superannuation, debt and cash flow management, insurance and investment principles
2. Set goals and put a plan in place to achieve them – this helps us stay motivated and engaged with our finances
3. Create a budget that works for you – this will help you identify where there’s room for improvement
4. Consider rolling your debts into one – this makes debt easier to manage and, if done well, can reduce fees and interest
5. Set aside emergency cash – not only does this provide peace of mind, it reduces the need to borrow at high interest rates if things go wrong
6. Don’t be afraid to seek financial advice – if you are struggling to make repayments, you can seek assistance from your provider by claiming financial hardship. And you can also talk to a financial counsellor free of charge by calling the National Debt Helpline on 1800 007 007.

The information provided in this article is general in nature and does not constitute personal financial advice.

The New Daily is owned by Industry Super Holdings