Linking financial well-being, financial functionings, financial capabilities & financial agency adapted from human development and capability approach

Indigenous Financial Exclusion, Capability and well-being

Longitudinal research in Australia defines financial exclusion as existing where individuals lack access to appropriate and affordable financial services and products (Connolly 2014). Financial exclusion also applies to organisations such as non-profits, social enterprises and micro-enterprises (Burkett & Drew 2008). Straddling issues relating to both individual capability and market functioning, such exclusion comprises well-being for individuals, families and communities, often reinforcing wider social exclusion and disadvantage.

Indigenous people are two and a half times more likely than other Australians, to be financially excluded. They are also the only community group consistently associated with financial exclusion, even in urban areas (Chant Link and Associates 2004). However,

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Vinita Godinho

Graduate School of Business & Law

academic literature on Indigenous financial management is limited in Australia (Gerrans, Clark-Murphy & Truscott 2009; Worthington 2013).

Population-wide longitudinal studies on financial exclusion and capability (see The Social Research Centre 2008, 2011 and Connolly 2013, 2014) consistently demonstrate a sizeable gap in Indigenous financial capability outcomes vis-à-vis mainstream Australia, yet cannot fully explain why this gap persists. Table 1 below shows the extreme disparity between levels of financial exclusion and financial literacy in the Indigenous population compared to the Australian national average.

Measure National Average Indigenous Source Financially Excluded (combined) 17.2% 43.1% (Connolly et al. 2012) Financial Literacy Score (FLS) Mean FLS 83.1 Mean FLS 63.9

(The Social Research Centre 2008) Financial Knowledge & Numeracy (combined) Mean score 91.9 Mean score 70.7

(The Social Research Centre 2011)

Does not seek information on financial matters

50% 62% (The Social Research Centre 2011)

Does not seek advice on financial matters

10% 22% (The Social Research Centre 2011)

Table 1: Comparison of financial exclusion and literacy levels between Indigenous Australians and the national average

These studies show that when compared to national averages, Indigenous people are more likely to struggle to make ends meet, require emergency assistance from Centrelink, spend more money than they receive, and miss regular expenses (such as loan repayments or bills) which increase costs due to penalty fees. They are less likely to feel ‘in control’ of their finances or to seek information/ advice on financial matters, and more likely to exhibit a

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Vinita Godinho

Graduate School of Business & Law

‘risk-taking’ attitude towards financial matters (eg. prefer use of credit card over saving-up, purchasing to impress others etc.). Other studies (National Indigenous Money Management Agenda 2007) also show that they lack confidence in dealing with mainstream financial institutions, and are less likely to know their consumer rights or complain, as compared to non-Indigenous consumers.

The underlying causes of Indigenous financial disadvantage are multi-faceted. The ubiquitous lack of physical access to banking and financial services in rural and remote Australia, has disproportionately impacted Indigenous people (McDonnell 2003b). Although research on the specific banking needs of Indigenous people is lacking, studies (Westbury 1999; McDonnell & Westbury 2002; McDonnell 2003a) highlight specific challenges faced by Indigenous consumers in accessing affordable financial products and services.

These include lower literacy and numeracy, cultural barriers, language difficulties, lack of trust in mainstream banks and preference for face to face services, which can lead to reliance on expensive informal providers (Urbis Keys Young 2006; National Indigenous Money Management Agenda 2007). Lower employment opportunities and income status make them less likely to be targeted by providers’ marketing efforts. Financial institutions also have limited information on Indigenous borrowers, and are unaccustomed to dealing with their unique circumstances and needs (McDonnell 2003a). Many Indigenous people may choose to self-exclude (McDonnell 2003a), and evaluations of financial education programs reveal difficulties in recruiting and retaining participants (Australian Securities and Investments Commission 2011).

Albeit these different strands of literature have varied focal points, there is general agreement that the shared experiences, circumstances and cultural beliefs of Indigenous people, have

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Vinita Godinho

Graduate School of Business & Law

influenced their money management practices. There are also calls for more ‘culturally appropriate’ financial products, services, and education (Saunders & Piper 2011; National Indigenous Money Management Agenda 2007). Enhancing Indigenous financial knowledge is a priority for the Australian Securities and Investments Commission (ASIC), particularly by targeting the younger generations through the formal education system (Australian Securities and Investments Commission 2014). Research (Russell, Yoosuf & Cattlin 2011) suggests that Indigenous financial exclusion should not be viewed in isolation of the broader cultural, historical, political and economic issues that impact Indigenous Australians,

especially those living in remote communities. Understanding their financial capabilities must be preceded by understanding how Indigenous people themselves view money, and its meaning within their lives.

Existing global frameworks for understanding financial capability (Kempson, Collard & Moore 2005) position it as a multi-dimensional concept encompassing knowledge, skills, attitudes and behaviours. However, there is no specific global framework for understanding financial capabilities within Indigenous, or culturally and linguistically diverse (‘CALD’) populations. Existing research on financial capabilities has focused on the dominant majority in Western-type societies, despite studies revealing lower levels of financial capability amongst specific population segments including minority ethnic groups (Lusardi 2008; Kempson & Whyley 1999) and those from culturally and linguistically diverse backgrounds (Connolly et al. 2012; Connolly 2013).

Studies focusing on Indigenous well-being highlight multi-dimensional factors across economic, social and cultural domains are required to achieve Indigenous well-being (Cape York Institute 2005; Australian Bureau of Statistics 2010; Jordan, Bulloch & Buchanan

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Vinita Godinho

Graduate School of Business & Law

2010). Past policies have left many Indigenous Australians trapped in ‘passivity’ - this ‘negative’ capability (Cape York Institute 2005) has destroyed skill, pride, purpose, the sense of achievement and fulfilment, dignity and hope i.e. the very capabilities that Sen and

Nussbaum believe embody a life worth living.

Empowering Indigenous people to find their own solutions enables a balance between economic development and maintaining Indigenous cultures, identities and values (Cape York Institute 2005; Hunter & Jordan 2010; Jordan, Bulloch & Buchanan 2010). Despite overall low levels of internet access and usage, some remote Indigenous communities have thrived by proactively using technology to create local content, preserve their traditional culture and present their own identities in a positive manner (Kral 2010).