We’ve partnered with OneVue to share episodes from their Secrets of Money Masters series. In each story we see how financial planners have worked with their clients to navigate difficult circumstances and identify and mitigate behavioural biases in their financial choices.

The average Australian family has come under a lot of financial pressure over the last decade of so.  With household debt doubling over the last 12 years, both parents working has become the norm, creating logistical challenges for many couples. As families become more indebted, this can lead to disagreements about household finances that have become the single greatest predictor of divorce. So perhaps it should come as no surprise that over a third of marriages in Australia now end in divorce.

The impact of timing for divorce today can also lead to much more serious financial impacts for separated singles. The average age of marriage has increased to 32 years. With the average lasting for just 12 years, the stakes for a mid-life divorce are high. When divorcees are in what should be the peak earning period of their lives, they are finding they’re facing huge financial challenges on top of the emotional toll presented by split or blended families.

For women it is even more challenging. After interruptions to their careers to care for children and other family members, many instantly fall below the poverty line post separation. In fact, Griffith University research shows that women are typically in for at least eight years of financial ‘pain’ post-divorce, with substantially less disposable income, and significantly lower contributions to super in the years immediately following separation.

The financial, mental and physical health cost to the family unit as a result is enormous.

Nina’s story

While Nina is not at risk of poverty, her post-divorce finances present her with a number of immediate and longer-term challenges and choices. In her early 50s, Nina has recently divorced after several years of separation and raising her three children (now young adults) as a single mother.

She is a professional photographer and owns her own business where she rents a studio near her home. She has recently sold her family home in Chatswood as the final component of her divorce settlement and now has a sizeable sum  that she must work out how best to invest.

Nina is now faced with choosing her next housing option and must decide between renting and buying another property. She must consider having adequate space for her children, some of whom still live at home, at a price she can afford. Nina has also faced the challenge of mental health issues with two of her three children as a result of what was a very difficult divorce, which will be a big influence in her decision making.

Nina’s long-term dreams are to be able to retire by age 65 and hopefully find another life partner. She needs to sort out her best investment strategy as well as ensuring she and her children have adequate insurance cover.

Nina: Behavioural Science Observations 

Professor Sharyn Rundle-Thiele from Griffith University is a behavioural scientist. She offers insights into the behaviours, preferences and biases she observes in Nina and comments on how these may impact her financial choices.

“Based on current observations, Nina is unlikely to even pause to think about an alternative to her automatic response to buy another home, let alone properly evaluating her options. This could be a very costly mistake, given the financial pressures and costs attached to the path she’s headed down.”

Given Nina’s unconscious behaviours, she is going to need to be shocked out of auto pilot with some hard financial facts and the potential impact to her family if she is to make a good decision from here.”

Nina’s observed biases

• Siloed thinking – she’s on auto-pilot, repeating behaviours she was taught by her parents based on the deeply ingrained belief it’s the path to security and the ‘good life’.
• Confirmation trap bias – she has eyes only for information that reinforces her siloed thinking, like the 1.7% growth rate she quotes, which she uses to reinforce her thinking
• Impact bias – because retirement and potential need for insurance seem a long way off, she’s completely underestimated their potential impact on those she loves.

The Secrets of Money Masters series partnered with AIA and financial adviser Brad Fensom to take a closer look at Nina’s situation, their ambitions and have an expert panel provide insights and alternative ideas to help Nina – and other Australians in similar situations – achieve their retirement goals. You can watch the series here and hear more insights from the panel of experts.