In recent times there has been a spotlight put on the concept of financial wellbeing. In this blog post I will discuss this concept further and explain in detail what it means.
Where does the concept of financial wellbeing stem from?
Many countries now agree that more is needed to determine how well a country or society is doing in terms of their overall wellbeing. There has been a shift from the traditional focus on economic statistics to an emphasis on the public’s wellbeing. The concept of wellbeing is made up of several components, however, financial wellbeing is seen to be a significant part of it. In fact, the OECD commenced measuring wellbeing a few years ago through the Better Life Initiative and their framework was formed with the perception that financial wellbeing was a significant factor for overall wellbeing.
There have been numerous reports published on the topic of Financial Wellbeing and its definition. However, they all seem to be saying the same thing at the end of the day, just using different words! I’ve examined the research from many countries on the concept of financial wellbeing and the best description and definition, in my personal opinion, has come from the Consumer Financial Protection Bureau in the United States. With that said, I’ll use their definition to explain to you exactly what financial wellbeing entails.
What is financial wellbeing?
“Financial wellbeing 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”
Coping with a financial crisis and making choices
To clarify, financial wellbeing is not just about looking at your financial circumstances right here, right now. It also takes account of various situations, such as the ability to deal with a financial crisis, should one arise. You may be employed right now, but what would happen if you were out of work sick or laid off? Do you have the financial means to cover you in unforeseen unemployment? If you don’t, do you have someone you could turn to for financial assistance? Believe it or not, having someone to turn to in a financial crisis also forms part of your financial wellbeing. Also important is having the financial means to make choices to enjoy life more. For example, deciding to go for a meal every so often or take a holiday.
Having control of your finances
Another important point is the ability to have control of your day-to-day finances. Lacking control has been shown to create considerable financial distress, in addition to having a negative effect on a person’s financial wellbeing.
Finally, the concept of a high financial wellbeing also involves setting positive financial goals for your future. So, do you have savings? We are not simply talking about your short-term savings to meet regular financial outlays, such as your yearly car insurance or the expense of Christmas. I’m referring to long term savings, those savings for rainy days that may come. Let’s go a little further into the future, how close to retirement are you? Do you have a pension plan in place, either personally or through your employer? If not, this will affect your financial wellbeing in later life.
As you can see, the concept of financial wellbeing is made up of so much more than your financial situation at this moment in time. It examines your present financial situation, in addition to your future financial situation. It is only when you address all factors will you possibly reach a state of high financial wellbeing.