Protecting consumer financial well-being

HAVING PREVIOUSLY DISCUSSED using plain language for financial consumer protection in relation to disclosing risks associated with complex financial products (China Business Law Journal volume 2, issue 8: Plain language in English and Chinese), this Lexicon column explores an increasingly important aspect of financial consumer protection – the concept of financial well-being – and the question of whether it should be reflected in regulation. It examines the issues by comparing current regulatory frameworks in Australia and China.

THE CONCEPT OF ‘FINANCIAL WELL-BEING’

The concept of financial well-being is expressed in various terms, such as “financial health”, “financial resilience”, “financial fitness” or an absence of “financial stress”. Financial well-being builds on previous concepts developed in the past two decades. These concepts include “financial literacy” and “financial inclusion”.

It is generally accepted that there is a causal relationship between financial well-being and mental well-being and physical well-being. In other words, financial stress leads to mental and physical stress and vice versa. Accordingly, financial well-being is increasingly recognised by policy makers as an important outcome for financial consumers.

The concept of financial well-being, however, is not easily defined. In part, this is because determining an individual’s financial well-being inevitably involves a subjective assessment by that person. Although various objective measures can be adopted to determine financial well-being, such as levels of debt and savings, it is necessary to recognise that a person’s financial well-being is a state or situation that is subjectively perceived or experienced. Indeed, two people with objectively similar financial situations may have significantly different perceptions in respect of their financial well-being. In addition, it is important to recognise that the concept of financial well-being is dynamic and temporal in nature; in other words, it is likely to change over time as a result of a range of factors, including events such as the death of a close relative, loss of employment, economic changes and downturns – or even changes in an individual’s attitudes or beliefs.

Andrew Godwin previously practised as a foreign lawyer in Shanghai (1996-2006) before returning to his alma mater, Melbourne Law School in Australia, to teach and research law (2006-2021). Andrew is currently Principal Fellow (Honorary) at the Asian Law Centre, Melbourne Law School, and a consultant to various organisations, including Linklaters, the Australian Law Reform Commission and the World Bank.