Financial Well-Being … what’s that?

financial-well-beingNo surprise, what the financial industry thinks is financial well being is quite different than what people think it is. On the surface, one would think everybody thinks of financial well-being the same. However, the industry tends to tilt the perception towards goals and/or products towards those goals. But, according to the Consumer Financial Protection Bureau (CFPB), this is just one of the four (4) main elements that came to light!

Thus, the financial industry is concentrating on just one of the four elements real people actually feel are important to them! When you Google “financial well-being,” the results pop up from all sorts of different financial services companies. But they talk about planning steps or a list of different things you should plan for (insurance for various risks, estate plan, retirement plan, etc). Those are things that may help – but aren’t really addressing what people think financial well-being is.

Well-being is defined, however adding the word financial leaves definition wide open – there is no definition of “financial well-being.” Thus, defining what it means is subject to how different financial service providers want to tilt their definition of the concept.

Four elements define personal financial well-being according to the CFPB (quoting):

“Savings and income are part of financial well-being, but we learned that they’re not always the most important part. Instead, when people talked about their own financial well-being, four main elements came to light.

Feeling in control
People who have high levels of financial well-being feel in control of their day-to-day and month-to-month finances. They cover their expenses and pay their bills on time, and generally they do not worry about having enough money to get by. This is not just about having money, they told us, it’s about managing it. Think of this as having financial security, in the present. (my emphasis)

Capacity to absorb a financial shock
Whether they get in a car accident or are temporarily laid off from a job, these consumers have a safety net such as savings, insurance, or family to help stop a shock from turning into a longer-lasting setback. One way to describe this is feeling financial security, for the future. (my emphasis)

On track to meet goals
Consumers with a higher sense of financial well-being tell us they are on track to meet their financial goals. Whether or not they have a formal financial plan, they are setting goals that are important to them, and working toward those goals. Think of this as moving toward financial freedom, for the future. (my emphasis)

Flexibility to make choices
These consumers have the financial freedom to make the choices that allow them to enjoy life, whatever that means to them. Whether that is taking a family vacation, going out to eat, or working less to spend more time with family, these consumers have the financial flexibility to do what they value and what makes them happy. This can be described as having financial freedom, in the present. (my emphasis)

Applying this framework to your own financial life might help you feel more satisfied with the decisions you make too. When you face a financial choice or task, consider how your actions might affect financial security and financial freedom, today and in the future.”


Now, one may try to say that the industry and what people think are the same. I would suggest that outcomes may be better understood if the industry took the same perspective and approach to personal finances the same way people envision their finances. Each person’s situation defines how they perceive well-being. Begin with their perception – and build on that.


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