Financial wellbeing is what’s good for a person in the financial domain of life.
It’s about more than just having money — it’s about feeling secure, stable, and confident in your financial situation, as well as being able to effectively manage your finances, stick to your financial goals and afford to do the important things in life.
The problem is that these outcomes are not as straightforward to measure as the amount of money someone earns each month, or is able to squirrel away in a savings account. This is why we’ve teamed up with Wagestream to create the FinWell Index.
The FinWell Index started with a review of the academic literature, including an examination of the many hundreds of existing measures, scales and questions examining different aspects of a person’s financial situation.
One of the main conclusions of this research is that, to truly understand financial wellbeing, we need to consider what a person’s financial skills and circumstances allow them to do. We call this their financial capability. For example, you could earn quite a high income, but you might find it difficult to control your spending, and have next to no financial resilience should you unexpectedly lose your job.
The other main conclusion from this body of research is the importance of how a person’s finances makes them feel. It might be that, despite your earnings, you feel unsatisfied with your financial situation, or that it causes you to regularly lose sleep due to worrying about it. This is the subjective aspect of financial wellbeing.
The FinWell Index is built from 15 questions, organised around 5 categories pertaining to these two core insights of financial capability and subjective financial wellbeing. To construct the final FinWell Index, we put these 15 questions to a representative sample of the UK population and ‘indexed’ the national average score to 100.
Some of the most striking early findings relate to gender, age, and household composition. It turns out that men have significantly higher levels of financial wellbeing than women, and this - as the chart below shows - is particularly the case when it comes to their subjective financial wellbeing (i.e. satisfaction with their finances, losing sleep due to worry, and feeling guilty about finances).
In the past, we might have expected those in older age to have amongst the lowest levels of financial wellbeing. But as the chart below shows, this is no longer the case. One of the most important findings in the FinWell Index is that scores increase significantly with age. The people with the highest levels of financial wellbeing across the UK are those who are over 75 and retired.
A person’s housing situation is also an important factor. Owning your house outright is associated with significantly higher levels of financial wellbeing than any other category of housing situation, with those renting from a local authority or housing association reporting low levels of financial wellbeing.
Over the coming months and years we will be tracking the changes in people’s financial wellbeing over time.
We will also be looking to work with any organisation that is interested in understanding more about the financial wellbeing of their employees. So get in touch if you are interested in exploring this opportunity with your organisation.
