Conceptions of well-being have changed in recent years, as the links between financial, physical and emotional wellness become increasingly clear.
Summary
The pandemic showed, to devastating effect, that financial well-being includes not only long-term financial security but also short-term financial preparedness. This raises the question of how to comprehensively measure an individual’s financial well-being, in light of the many factors that affect it. To fill this knowledge gap, the authors of this paper developed and tested a financial well-being score based on microeconomic theory. The score, which includes both objective and subjective measures, is comprehensive, in that it considers an array of metrics as well as access to informal financial support networks.
Key Insights
- The new financial well-being score differentiates well across the full spectrum of financial well-being, while aligning with other indicators of an individual’s financial situation.
- Informal financial support as well as both subjective and objective measures are important when gauging financial well-being.
- Financial well-being is particularly low among those who are younger, are single, have low income, are unemployed, are not in the labor force, and have low financial literacy.
- Those who have participated in financial education scored significantly higher on the well-being scale than those who did not.
