Taking a moment every now and then to consciously reflect on your household finances is important for your peace of mind and financial stability. Yet the idea of thinking about your financial plans and planning is relatively new, at least in the Netherlands. For a long time, the Dutch government – unlike governments in many other countries – was able to provide for citizens in many important areas, such as education, healthcare and pensions. That is now changing. Today, citizens are increasingly expected to take responsibility themselves, making household finance and consciously thinking about financial matters more important than ever. According to Dirk Brounen, Professor of Housing & Household Finance at Maastricht University, there is therefore considerable potential for societal impact in this area. And this is precisely where he sees a role for himself. “I want to make people aware of the value and necessity of taking control of their own finances.”
Dirk Brounen worked for many years as a professor of real estate economics at universities in Amsterdam, Rotterdam and Tilburg. When he joined Maastricht University, he shifted his focus to household finance, a relatively young field in which, together with the partners of his chair – the Ministry of the Interior and Kingdom Relations, the National Mortgage Guarantee, Obvion, the BPD Housing Fund, Vereniging Eigen Huis, ING and Daelmans Vastgoed – he aims to generate relevant knowledge and create societal impact. His goal is to strengthen people’s financial resilience, regardless of whether they are rich or poor. For Brounen, resilience means that people proactively think about their future and make well-informed financial decisions based on that. “I want to help people think about their finances so that they can avoid getting into financial difficulties.”
This ambition is taking concrete shape through the Housing & Household Finance Fund, an endowed fund within the University Fund Limburg. Established in collaboration with several external partners, the fund focuses on housing market issues from the perspectives of households, the real estate market, the financial sector and government. Together with his partners in the fund and fellow researchers at the Maastricht Center for Real Estate, Brounen is exploring issues including sustainability, pensions, inheritance and mortgages. “The basic design of a mortgage is already more than sixty years old, while the world is changing at a rapid pace. Many people, for example, have interest-only mortgages, something banks are keen to move away from. I find it interesting to explore how mortgages could be redesigned to better suit people’s needs.”
The urgency of strengthening financial resilience is partly driven by changes in the support Dutch citizens receive from the government. For decades, natural gas revenues from the Groningen gas field made it easier for the government to finance public services and social programmes, but those revenues have largely disappeared. At the same time, we are facing broader societal changes, such as an ageing population and rapidly rising costs for healthcare and social services. As a result, citizens are increasingly expected to take responsibility for matters such as their pensions, education, supplementary insurance and, in some cases, healthcare and support.
According to Brounen, however, this is easier said than done, because many people are no longer accustomed to arranging these kinds of matters themselves. “A good example is the one million self-employed people in the Netherlands who have to arrange their own pensions. Unfortunately, research shows that they hardly do so. Either because they assume that things will somehow be taken care of for them later, or because they do not know how to go about it. Many people have become spectators because the government took care of things for them for decades.” Brounen himself, for example, is required to participate in the ABP pension scheme and therefore has not had to think about his pension choices for many years. That will change in the future, when he will have to make those choices himself. But that is a difficult decision to make when you have never had to make it before.
The government’s increasingly limited ability to cushion citizens from these risks is making many people vulnerable. Brounen would like to change this by raising awareness of financial responsibility and encouraging people to think actively and in good time about their financial future. “I want to prevent households from getting into financial difficulties as a result of this transition.”
According to Brounen, young people and those with limited financial means are not necessarily the most vulnerable to these changes. “If you are highly educated and have a good income, but make unwise choices now, you can still find yourself in financial trouble ten years from now. You can be wealthy and not financially resilient, but you can also be poor and resilient. This is not a poverty issue.” Brounen even believes that living with limited means can contribute to financial resilience. “You learn to be frugal with what you have and to think carefully before making decisions.”
But what makes it difficult for people to be financially resilient? According to Brounen, a person’s locus of control – the extent to which they believe they have control over what happens in their life – plays an important role. This is something he learned from psychology. “People with a high locus of control tend to work in a structured way, have a lot of discipline, believe in cause-and-effect relationships and like to think about the future. People with a low locus of control are naturally less inclined to take the initiative, are less likely to make plans and often assume that everything will work out somehow. This latter group is considerably more vulnerable because they do not like thinking about their financial future. This also makes them less resilient.” A person’s locus of control varies from one individual to another and is largely independent of age and income. It is, however, an important factor to take into account when considering how to make households more financially resilient.
Brounen’s aim is to help everyone – from those with limited means to the wealthy – become more financially resilient by encouraging them to consciously think about their finances. According to him, this starts with an accessible narrative. “With many issues, it is often unclear what they actually mean for citizens and what will concretely change. We hear often enough that healthcare costs are rising and that we need to cut spending. I think it would be sensible to pause for a moment and explain the causes and consequences, and above all: what can you do about it yourself, and what choices can you make? Should you start saving for your own healthcare, for example, and what happens if you do not?”
“We hear often enough that healthcare costs are rising and that we need to cut spending. I think it would be sensible to pause for a moment and explain the causes and consequences”
Together with the seven partners in the Housing & Household Finance Fund, including government ministries, Brounen is working behind the scenes on both the content of this narrative and who should tell the story. “If the story is shared by a collective, it will probably resonate more strongly. It would therefore be good if not only the government, but also various market players, communicated this message.”
An accessible story is the first step. The next question is how to actually reach people and keep them engaged. With this in mind, Brounen and his partners are developing a tool to make topics within household finance, such as pensions, mortgages and inheritances, widely accessible. “The concept is similar to Netflix, where you can watch and listen to different videos and podcasts containing useful insights, and then move on to the next episode. We hope that this will engage people who have not previously thought about these topics, allowing them to explore the full spectrum of household finance in an accessible and light-hearted way.”
In addition to informing people, Brounen also hopes to motivate and inspire them to take control of their finances. He believes that recommendations based solely on an economic perspective are not enough. “If we want to teach people different behaviours, we economists can tell them that they should do more of this or that, but that is a very unattractive message. I believe it is important to first understand why someone behaves in a certain way, or why they do not, and to identify what matters to them. If we then want to steer their behaviour in a particular direction, we also need to draw on psychological insights and make smart use of marketing communications.”
Brounen therefore believes that the greatest impact can be achieved through a multidisciplinary approach, with patience and empathy at its core. “I prefer to understand and study people, and then subtly give them a nudge in a better direction. If I can do that well over the coming years, I will be very satisfied.”