You want to be happy, don’t you? Love, health, attitude, and money contribute to happiness. So if you could improve your financial wellbeing score, you are one fourth of your way to happiness.
Definition
Financial wellbeing is a state of being able to fully meet your financial obligations, feeling secure about your financial future, and being able to make choices that allow you to enjoy life. Financial wellbeing is having financial security and having choices.
Survey
Consumer Financial Protection Bureau (CFPB) surveyed over 5,000 adults on financial wellbeing. The sample was in proportion to U.S. population with respect to age, race, ethnicity, income and poverty level. The scale consisted of 10 questions. The individual’s responses to the items were then converted into a single score.
Questions | Response Options |
1. I could handle a major unexpected expense. 2. Because of my money situation, I feel like I will never have the things I want in life. 3. I can enjoy life because of the way I’m managing my money. 4. I am just getting by financially. 5. I am concerned that the money I have or will save won’t last.
| · Describes me completely · Describes me very well · Describes me somewhat · Describes me very little · Does not describe me at all |
How often does this statement apply to you? |
|
6. Giving a gift for a wedding, birthday or other occasion would put a strain on my finances for the month. 7. I have money left over at the end of the month. 8. I am behind with my finances. 9. My finances control my life. | · Always · Often · Sometimes · Rarely · Never |
Findings
The U.S. adults scored an average of 54 on a scale of zero to one hundred.
Other key findings and characteristics that correlated with higher financial wellbeing score include:
- Employment status and income level
- Education: Bachelors’ degree or higher
- Higher levels of confidence in financial management
- Age: ages 65 or older
- Physical health: excellent or very good health
- Liquid savings of $5,000 or more
- People who had uncontrolled debt scored lower
Employment Status and Income
People who were employed, have job security, and higher level of income all corresponded with higher scores.
Higher Education Contributes to Financial Wellbeing
Higher education is generally associated with better jobs hence more income and more job security. The Bureau of Labor Statistics reports that college graduates earn a median income of $1,198 compared to $730. Unemployment rate for individuals with a college degree is 2.2% compared to 4.1% for individuals with a high school diploma.
Confidence in Financial Management
Regardless of higher education, taking greater control over finances, improving financial skills and money management habits corresponded with higher score. So, improve your financial skills by learning to budget and set goals. Work on cultivating rich habits that will increase your financial freedom and security.
Financial Wellbeing Increases with Age
Young adults score lower because as they start their career, their income is still catching up to the rising expense of housing, transportation, utility, food, etc. They’re simply not making enough money to cover all the expenses. The financial wellbeing score increase with increasing income. Therefore, adults 65 or older scored significantly higher. And perhaps people become more educated on financial literacy as they approach retirement. All these factors improve with experience and age and contribute to overall improved financial wellbeing.
Physical Health
People who had excellent or good health scored higher in financial wellbeing. It goes without saying that people with ailments and sickness would incur more medical expense that they may not be able to keep up with. I also believe that as women are more present in the work force, It is good to know there is no difference between the genders.
Liquid Savings
An average financial wellbeing score for someone who has liquid cash of $1,000-$4,999 was 52 (median score of 54). Most noteworthy, the individuals with liquid savings of $5,000 and above scored significantly higher (59 and above).
While the general guideline for emergency fund is to save three to six months of expenses, this may be an unattainable goal for many. Therefore, saving a minimum of $5,000 can absorb the shock of temporary unemployment, medical cost, or some other unforeseen emergency. Consequently, one should strive to save $5,000 in liquid cash to improve their financial wellbeing.
Debt
Finally, group of individuals who were denied credit or had challenges with the creditors scored significantly lower in financial wellbeing survey. The lesson is to avoid debt, especially credit card debt. Cultivating good money habits, saving early in life and career, and stocking money away for emergencies can mitigate excessive debt and financial distress.
