How our finances affect our wellbeing

When we think of wellbeing, we often picture a healthy-looking person drinking a smoothie while doing yoga—or something equally one-dimensional. However, Real Wellbeing encompasses more than just our physical health. 

A crucial part of our wellbeing involves our standard of living. 

But what exactly does “standard of living” mean, and why is it important to our overall wellbeing? We examine how our finances affect our wellbeing. 

Standard of living and financial wellbeing  

So what is our standard of living? It’s our ability to afford essentials, such as food, housing and medicine. It’s also how our financial circumstances support our lifestyle, including the opportunities we have and how comfortable we feel in our environment. Essentially, our financial wellbeing is the expectation of how much money we need to afford the life we want to live. 

If we’re satisfied with our standard of living, we have a sense of security and control, which is vital to our overall wellbeing. In partnership with Deakin University, Australian Unity has been tracking the wellbeing of Australians for more than 25 years through the Australian Unity Wellbeing Index. This research has identified standard of living as being one of the seven key life areas—or factors—affecting wellbeing, along with relationships, health, community connectedness, personal safety, achieving in life and future security. 

Standard of living also forms part of the “golden triangle of happiness”, along with our relationships and a sense of achieving in life. 

We typically feel satisfied with our standard of living when we:

• have the ability to meet our financial obligations 
• can make financial choices or purchases that allow us to enjoy life 
• feel secure in our financial future. 

“When I think about standard of living, I think of the ability to have shelter, to make ends meet, and how not having enough money impacts on your life,” says Kate Lycett, lead researcher of the Wellbeing Index.

“If you have financial safety—if you know you can handle a shock—it gives you the capacity to lean into the other things: relationships, a sense of purpose, the things that give you real joy. That’s why having enough money matters. It’s foundational to everything else.”

The importance of financial wellbeing

Wellbeing Index research shows that household income plays a significant role in our wellbeing. 

For example, in 2023 the Wellbeing Index found an income-based divide emerging in the golden triangle of happiness. Households earning over $101,000 reported higher satisfaction across standard of living, achieving in life and personal relationships than those on lower incomes. 

Furthermore, throughout the history of the Wellbeing Index, there has been a direct correlation between household income and overall wellbeing. 

Why? Well, when we’re in control of our finances or feel as though we’re “on top” of things, we are able to dedicate time and energy in our lives to the things that make us happy. 

As Kate puts it: “Every year we do the survey, we see that people who are struggling financially—so those on low household incomes, for instance, and those experiencing unemployment—have some of the lowest levels of wellbeing. This is most likely because if you don’t have enough money to participate in society, it can be very challenging to find a level of wellbeing.” 

But it doesn’t have to be like this. In 2020 the Wellbeing Index reported a jump in the wellbeing of low-income households? Why? Well, that was the year the Australian Government doubled the JobSeeker payment from $550 to $1,100 a fortnight.

“For those struggling to even pay for necessities such as rent and food, this would have been a huge relief,” Kate suggests.

Yet in the second year of the pandemic, this positive uplift was reversed and households earning $60,000 or less reported low wellbeing once again. Kate says this was most likely due to the Australian Government’s decision to reduce the JobSeeker payment to around $620 a fortnight.

“Lifting people out of poverty is likely to make a big difference to their wellbeing and will pay for itself in reduced costs to the public health system, as people who aren’t living in poverty have far fewer chronic health issues and better mental health,” Kate adds.

“Of course, for children these benefits of growing up in a household that can make ends meet are vast, as these children are much less likely to experience poverty in adulthood—breaking the cycle.”

Investing in what money can’t buy

They say that money can’t buy happiness, but understanding its crucial role in our wellbeing can help to protect us from life’s changes and reduce the stress caused by financial instability. 

“Being able to pay for those things that people need is becoming more and more challenging. So that means to be able to put a roof over your family’s head, to be able to put food on the table, to pay for medicine when you need it, to pay for the basics,” says Kate.

So, if the Australian Unity Wellbeing Index shows that household income is strongly linked to personal wellbeing—and if cost-of-living pressures continue to affect Australian families—how can we invest in our wellbeing in the face of these economic realities? 

Kate suggests that if standard of living is a concern, then investing in the two non-financial golden triangle factors—achieving in life and relationships—may provide a solution. 

Of course, trying to ignore financial realities while investing in relationships and personal achievements is easier said than done. But, Australians consider themselves a resilient bunch and the Wellbeing Index shows that investing in things money can’t buy may be one way of offsetting the current financial pressures we face.