What is financial wellbeing?

Financial wellbeing has emerged as a key focus for many HR functions over the past year.

Amid a global pandemic, when many families have experienced a loss of income or financial instability, an emphasis on financial wellbeing makes a lot of sense.

But although many employers have acknowledged that supporting employee financial wellbeing should mean more than simply providing a consistent pay cheque, it’s not always clear to people leaders what a holistic financial wellbeing program should look like.

This article looks at what financial wellbeing means, what has the greatest impact on financial wellbeing and what commonly held beliefs about financial wellbeing simply aren’t true.

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Why is financial wellbeing important?

Financial wellbeing is broader than financial wealth, which is measured by income levels and net worth. Financial wellbeing refers to how people feel about and act with money too.

Humanforce Thrive uses the Centre for Social Impact’s (CSI) definition of financial wellbeing. The CSI defines financial wellbeing as when someone is able to meet their expenses and have money left over. It’s about being and feeling in control of money and feeling financially secure, not only in the short-term but under adverse circumstances and in the future.

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What’s the relationship between income and financial wellbeing?

Studies of financial wellbeing have found that along with health, financial capability and financial inclusion, income is a top influencer financial wellbeing. Importantly, the research finds that it’s not only the amount of income earned that influences financial wellbeing, but what also matters is how stable that income is and how regularly it is received.

Higher income levels are linked with lower levels of financial stress; however, no income group is immune from financial stress. According to EY research, while low-income households are particularly vulnerable to problem debt, 15% of the highest income groups are financially stretched.

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What are the key predictors of financial wellbeing?

Though financial wellbeing typically progresses with an increase in income, research has found that financial behaviours – how people spend, manage debt, save and plan – are the strongest correlates with financial wellbeing.

Studies have also found that active saving and not borrowing for daily expenses emerge as the best predictors of an individual’s financial wellbeing.

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What key behaviours underpin financial wellbeing?

There are five key behaviours required to improve financial wellbeing. They can be summed up as:

• I engage with my finances
• I spend less than I earn
• I manage debt responsibly
• I’m prepared for a rainy day
• I’m securing my financial future

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Can you measure financial wellbeing?

As financial wellbeing has an objective and subjective component, it requires qualitative and quantitative measures, combining income and expenses with behaviours and self-perception.

At Humanforce Thrive, we rely on the CBA-MI scales to measure perceived and observed levels of financial wellbeing. This gives a clear picture of how people feel and act with their money by looking at the following areas:

• Every day (budgeting, spending and managing debt)
• Rainy day (preparing for the unexpected)
• One day (planning for the future)

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What next?

See how earned wage access helps employees build financial wellbeing.