What is financial abuse?

The concept of financial abuse has been a big topic of conversation recently, with the Australian Banking Association’s (ABA) new Banking Code of Practice bringing in a higher duty of care to those working with customers who are considered “vulnerable”, including those who might be victims of financial abuse.

In conversation with Mortgage Business’s sister title Wellness Daily, financial adviser and author Helen Baker explains the meaning of financial abuse, and how she works to identify it.

According to Ms Baker, financial abuse often revolves around whether or not an individual has access to, and control over their own financial situation.

In simple terms, Ms Baker describes financial abuse as “demonstrating a restriction on people's independence.”

Key signs that financial abuse are taking place within a relationship include one party being in sole control of another’s access to finances, or one party “restricting whether [the other] can work or study,” she says.

Another flag of this abuse can be “not sharing information,” she states, “making decisions that the other person isn't involved with.”

“Anything that starts to get hidden, the risk is that control comes in from a wrong perspective and starts to dictate some behaviors that may or may not be healthy.”

Ms Baker states that women are typically more susceptible to financial abuse.

“On the basis that we have the issues with gender pay gap, superannuation gap,” she says.

“Men generally still earn more money than women, they still have tended to own those positions of power.”

She adds that social status does not necessarily negate financial abuse.

“I think there's a perception out there that it's the lowest socioeconomic environment that suffers the impact of this, which is actually untrue. You will certainly see the issues of any form of domestic violence including financial abuse occur across all sectors.”

One common scenario that lends itself towards financial abuse is when one partner has a well-paid job and the other stays at home, she told Wellness Daily.

“They've got professions [where] they're earning good money, and the other person isn't working and feels disempowered, there's a lot of issues around that,” Ms Barker says.

Another scenario that can lead to abuse is second (or subsequent) marriages.

“They're having to fund children from their previous marriage, making sure everything's okay, probably gone through a split in terms of how much money they walked away with, trying to rebuild, trying to build the next family.” 

“It's about how you're managing those financial positions as to whether it turns into a form of an abuse,” she states.

Ms Baker has welcomed new legislation that recognises financial abuse as a form of domestic violence. 

While this form of abuse is of course directly related to the financial independence of the victim, “it affects other parts of their wellness as well, such as their inability to feel safe, to feel confident, to sleep well.

“It causes stress and it impacts everything in their life,” she says.

When approaching the concept of domestic abuse with her clients, Ms Baker examines an individuals situation using the Four C’s. She explains: “The first one's being some clarity about the situation. The second one is getting control. Third is certainty and [then the] confidence that comes after that.”

In discussions of a crucial element of their financial situation - control - Ms Bakers asks her clients to consider: “Do I have control over my circumstances? Do I have a backup plan if something goes wrong?”

Ms Baker also provides her clients with information to protect themselves from financial abuse, with a system she calls “the five foundations”.

“The first one is having an emergency fund, so that's there to protect you in case you lose your job or you need money in a hurry for something that significantly happened. The second one is having that spending and investment plan.”

She recommends to “spend less than you earn and borrow less than you can afford so you don't get in over your head and start pushing money away for investments.”

“The third one is around insurances and the fourth is around your Super because everybody has them. Then five is making sure your wills and your power of attorney and all of those are in place.”

When asked how professionals can help clients who appear to be suffering from financial abuse, Ms Baker emphasised the importance of giving sound financial advice, and then directing the client to the appropriate avenues for help.

“I think it's about helping people to realize that they can go and get advice from people. Financial advice is obviously one of the key areas to start from.” 

“The others are situations such as the Lifeline, 1800RESPECT, there's other avenues, The Salvation Army where people can go, depending on what the situation is and what's needed.”

“It's about directing them just like we would if we heard about somebody who is in a domestically, violently, physical relationship, we would be like, "Hey, you need to go and see this person. You're not alone,” she says.

Find out more about Ms Baker's thoughts on financial abuse as discusses the challenges involved with addressing such abuse and practical ways to combat it on The Wellness Daily Show.