Financial Wellbeing

Understanding financial well-being

Stress about money and finances may have a significant impact on Americans’ lives. Nearly 72% of adults report feeling stressed about money at least some of the time and nearly 25% say they experience extreme stress about money.

The American Psychological Association (APA) recognizes financial stress as the leading cause of unhealthy behaviors like smoking, weight gain, and alcohol and drug abuse. Other behaviors linked to financial stress are gambling and overextending credit balances. Each time an individual turns to these temporary stress relievers, the APA concludes that the stress returns and often at even greater intensity.

Financial well-being defined

There are many definitions for financial well-being, but the definition that seems to capture it best might be these:

Financial well-being is a state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future and is able to make choices that allow them to enjoy life.

Financial wellbeing is about feeling secure and in control. It’s about making the most of your money from day to day, dealing with the unexpected, and being on track for a healthy financial future. In short: financially resilient, confident and empowered.

People who experience financial wellbeing are less stressed about money. This, in turn, has positive effects on their overall mental and physical health, and on their relationships.

It’s more important now than ever to help your colleagues, customers and community to build financial wellbeing. MaPS can help your organisation to start or continue developing ways to do this.

Other definitions may include feeling in control financially, the capacity to absorb a financial set-back, being on track to meet financial goals, or having the flexibility to make choices with your money.

Financial wellbeing is known by many names – like financial literacy, wellness, confidence or resilience – but put simply, it’s about having a good relationship with your money.

How to improve financial wellbeing

There are multiple aspects to financial wellbeing. We break down the UK’s general financial wellness into five key areas:

  • Receiving a meaningful financial education
  • Saving regularly
  • Using credit for everyday essentials
  • Accessing debt advice, and
  • Planning for and in later life.

And here’s why these aspects of financial wellbeing are so important. Before the pandemic:

  • 11.5 million people had less than £100 in savings to fall back on.
  • 9 million people often borrowed to buy food or pay for bills.
  • 22 million people said they don’t know enough to plan for their retirement.
  • 5.3 million children didn’t get a meaningful financial education (Financial Capability Survey 2018).

How we measure financial wellbeing

These statistics offer a strong indication of how financial wellbeing (and generally financial literacy and financial capability) is faring in the UK. Improvements in financial wellbeing can be shown in either a decrease or increase in these key statistics. We survey the nation regularly to keep informed of changes in these personal finance areas.

Why financial wellbeing is important

A financially healthy nation is beneficial for individuals, communities, businesses, and the economy.

Financial stress – and its knock-on effects for mental health, relationship breakdown and physical health – can have severe consequences for individuals, organisations and communities. The economic impact of Covid-19 has affected the mental health of some individuals, exacerbating a nationwide problem.

Over the period 2020–2030, a key role for MaPS will be to widen the range of leaders committed to improving financial wellbeing in public, private and voluntary sector organisations.

How financial wellbeing benefits businesses and employers

Employers benefit from financial wellbeing

People who enjoy good financial wellbeing are more productive at work. If they are not, employers suffer too. In 2018, 11% of UK workers reported they had experienced a fall in productivity at some point over the preceding three years as a result of their financial situation.

Businesses also benefit

If people don’t fall behind with bills and payments, businesses have healthier profits and cash flow and don’t need to write off debts. People who have financial wellbeing are more likely to spend sustainably.

The economy also benefits from the future focus of people who enjoy financial wellbeing

When people can set aside money for their future, it can be invested in businesses and potentially boost the productive parts of the economy.

How your frontline services build financial wellbeing

Your organisation may already be helping people with their money and building financial wellbeing. For example:

  • Does your organisation offer your colleagues workplace pensions or signpost to discounts and debt advice in your employee wellbeing strategy?
  • Do your customers/service users ask for help with bills, filling in benefits forms or opening letters?
  • Does your organisation signpost to help with money, such as local credit unions, budgeting tips, pensions information or debt advice services?
  • Do you help people with stress or health issues caused by finances?

If you help people manage their money and pensions, you are already helping to build financial wellbeing. It may form only a small part of your role or your organisation’s mission, but it’s so important to the people you help that they know they can come to you for help.

Financial distress

Let’s take a look at what financial distress may look like. Here are some questions to ask yourself that may indicate warning signs of financial distress.

  • Are you withdrawing loans against your retirement savings?
  • Are you having preventable medical issues that could have been avoided, but you didn’t go to the doctor because of cost?
  • Are you asking for payday advances?
  • Are you missing work with unexpected absences?
  • Are you spending time dealing with personal finances while at work?

Keep an eye on your credit score

There are many options available to get your credit score. You may check with your bank, your credit card company or other sources such as Credit Karma® and annualcreditreport.com. One of the most important things you can do to improve your credit score is pay your bills by the due date. You can set up automatic payments from your bank account to help you pay on time, but be sure you have enough money in your account to avoid overdraft fees.

Understand how your credit score is determined

Answering these questions can help you understand how your credit score is determined.

  • Do you pay your bills on time?
  • What is your outstanding debt?
  • How long is your credit history?
  • Have you applied for new credit recently?
  • How many and what types of credit accounts do you have?
  • What does your FICO® credit score mean?

FICO scores generally range from 300 to 850, though industry specific FICO scores have a slightly broader 250 – 900 score.6 Higher FICO scores demonstrate lower credit risk, and lower FICO scores demonstrate higher credit risk.

What’s considered a “good” FICO score may vary by lender. For example, one lender may offer its lowest interest rates to people with FICO scores above 730, while another lender only offers its lowest interest rates to people with FICO scores above 760.

The higher your FICO scores, the better.

The 5 fundamentals of financial well-being

Here are 5 actions you can take to help take care of your financial well-being.

  1. 1. Budget your money
  2. 2. Save for emergencies
  3. 3. Seek guidance
  4. 4. Plan for retirement
  5. 5. Watch your credit score
1. Budget your money

Don’t have a budget? No worries. Here are 4 steps to help you get started. Once you’ve got the hang of it, your finances may be easier to manage and you may have a better chance of achieving your short- and long-term financial goals.

  • Step 1: Figure out your goals
  • Step 2: Calculate your income and expenses
  • Step 3: See what’s left
  • Step 4: Monitor your budget
2. Save for emergencies
  • Expect the unexpected and plan for financial emergencies
  • A good rule of thumb is to have a minimum of 6 months of living expenses in your savings account
  • Accumulating a “rainy day” fund will be a slow process, but every little bit counts
3. Seek guidance

A financial planner may help you develop an overall strategy for approaching your financial goals that not only anticipates what you’ll need to do to reach them, but that remains flexible enough to accommodate your evolving financial needs.

4. Plan for retirement
  • Establish your retirement needs and goals
  • Save early and often
  • Establish the proper retirement savings accounts
  • Stay healthy
5. Watch your credit score

Your credit is only as good as its score and its accuracy. Make sure you pay your bills on time, focus on paying off the high-interest credit card while at least making the minimum payments on your other cards, and check annually for any inaccuracies or fraud that may be lowering your score.