By Paul Conway, BNZ Economist
The filthy lucre. Root of all evil. Can’t buy happiness. At least since biblical times, the role of money in contributing to our wellbeing has been much maligned. But the fact is, having enough financial resources has a material positive impact on life satisfaction and wellbeing.
As much as income and wellbeing are connected, our satisfaction with life also reflects many other influences. As Robert MacCulloch recently wrote in the New Zealand Herald, Kiwis are, overall, generous, volunteer in community activities, trust others and enjoy the support of friends and family. These attributes contribute to an overall sense of “happiness” and “life satisfaction” in New Zealand that is among the highest in the world.
It is also undeniably the case that having our finances in order and saving regularly makes us feel good. New Zealand does much less well on these drivers of wellbeing and is an outlier in the cross-country relationship between average incomes and life satisfaction. The overriding message is that while there is much to like about New Zealand life, Kiwis work long hours per capita for relatively modest incomes.
This link between our finances and our wellbeing is apparent in BNZ’s Wellbeing Index. Estimating this Index for the second time shows that New Zealanders living in high-income households have higher wellbeing compared to people living in low-income households.
On the flip side, financial stress, which is all too common in New Zealand, is especially prevalent among people living in low-income households. Overall, around 30% of people who completed the BNZ wellbeing survey experienced a specific instance of financial hardship in the previous three months. The most common form of hardship was not having enough money for an emergency. On top of that, a full 60% of people surveyed fear they will not have enough wealth to fund a desirable lifestyle in retirement.
As well as people on low incomes, BNZ’s Wellbeing Index shows that women and young New Zealanders are also more likely to experience financial hardship and to report below-average wellbeing. For all these people, financial stresses and strains are just an every-day part of Kiwi life.
Low incomes and insufficient wealth are the underlying causes of this disagreeable situation. Average incomes in New Zealand have been relatively low for decades, given our longstanding Achilles heel of weak productivity growth. Kiwis also struggle to save, and the debts held by households and firms are relatively large.
Fixing these issues by lifting productivity and increasing savings will require a great deal of ongoing effort. The Government’s focus on creating a “productive, sustainable and inclusive economy” and using wellbeing as a basis for fiscal decisions is a good start. However, much remains to be done within the public and private sectors and across workers.
Financial hardship and stress can also be reduced by improving the capability of New Zealanders to make informed judgements and effective decisions about the use and management of money. This is the aspiration behind BNZ’s purpose of encouraging customers to “be good with money so they can do great things with it”.
While New Zealanders report higher wellbeing than their incomes would suggest, it is important to confront the reality that the financial situation of many Kiwis is a serious concern. If this situation continues, persistently low incomes risk dragging down broader aspects of our overall wellbeing. For many reasons, New Zealand is a great little country in which to live. Just imagine if it was a great little country where strong income growth was the norm, households were resilient to negative events and a desirable lifestyle in retirement was something to look forward to.
See the full report here.
 Robert MacCulloch: New Zealand’s dark side shaded by the happiness paradox.
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