Human beings have an innate desire to define things. But financial wellbeing is such a deeply personal endeavour that it’s not possible to agree on a universal definition. This is a good thing because it makes financial wellbeing inclusive by design. It means that it is applicable and relevant to everyone and it means everyone can define a future and make a plan to get there. And yet, there are certain things about financial wellbeing that we can, and should, all agree on which will make it easier for organisations and individuals to make progress in this space.
Why is it not possible to universally define financial wellbeing?
Financial wellbeing is, at its core, about organising money around your life so that your money works for you in the way you want and need it to. Because an individual’s hopes, needs, wants, values and dreams are totally unique, it’s not possible to say that financial wellbeing is about one specific thing. That one thing may be radically important to one person and meaningless to another.
But aren’t there universally applicable quantitative aspects of financial wellbeing?
It’s true that there are principles of sound financial management that are pretty much essential if you want good financial wellbeing. That includes general principles, such as spending less than you earn, as well as foundational behaviours, such as saving money, budgeting and balancing out the now with the future. These are essential but they are tools in the toolkit that individuals should use in the right way to achieve their own goals. Many of them exist on spectrums, and where an individual should best fall on these spectrums should be driven by their own hopes, needs and dreams. It’s also important to note these behaviours and rules relate to one side of financial wellbeing – the objective side. But there’s another critical part of financial wellbeing too.
Understanding the two core parts of financial wellbeing
While we can’t agree on the financial wellbeing endpoint that everyone should strive for, we can agree that there are two core components: the objective and the subjective, more informally known as money and mindset. The former is your financial position – levels of debt, savings, assets, pensions and other related measures. They’re quantifiable for the most part. The latter is about your relationship with money: for example, how you feel about spending, your attitude towards saving, knowing what brings you joy and how money can be used to achieve it and if you feel good about your financial position or if it’s painful to think about it.
Why is it important we agree on these two core parts of financial wellbeing?
Because to have good financial wellbeing, you need to get to the right place across both dimensions. One without the other does not lead to financial wellbeing. For example, there are lots of people who have very strong objective financial wellbeing, who are wealthy and have lots of assets, who do not feel good about money. Maybe they’ve chased it at the expense of their family. On the flipside, someone may be in high levels of debt but not see how bad a situation they’re in, feeling good about money because they’re spending it and buying things they want. These are more extreme examples, but they illustrate that for everyone, money and mindset are interlinked and must be considered the two fundamental parts of financial wellbeing.
The organisational angle: where many go wrong
This split is also important because it helps organisations analyse the strength of their financial wellbeing strategies. A lot of effort is put into improving an objective financial position, such as improving savings rate, or reducing debt. These are essential building blocks. But less effort is put into improving mindset because it’s more abstract and harder to change. Because it’s so personal, it really requires empowering solutions, such as financial coaching, which take into account all the variables that go into a person’s relationship with money and come up with a plan for positive action going forwards. Ultimately, organisations must cover both money and mindset when it comes to the financial wellbeing pillar.
Engagement communications: where money and mindset are essential
As well as strategy, using the money vs mindset comparison is important when it comes to engagement with financial wellbeing. It’s a stereotype, but it’s hard to get someone to save more money if you just tell them to save money. You need to tap into a core motivation. This is where mindset comes in. Maybe saving would help one person feel better about money because they’re more able to provide for their children. For another, it may be because they can take up a hobby they’ve always dreamed about. Helping people to visualise their future self in a positive light can really motivate them to take action.
Conclusion: we can’t define financial wellbeing, but we should use the two buckets
It’s not surprising really that we can’t define financial wellbeing, when we’re all individuals with our own experiences and goals and dreams for the future. Whereas this could seem overwhelming to organisations, it’s actually the opposite. The aim of your financial wellbeing strategy is to empower people to want to take control of their own path to financial wellbeing.
Within this, you have two core focuses: encouraging better decision-making and action when it comes to the objective side, while helping them develop a better relationship with money on the mindset side. Whatever someone’s hopes, goals, dreams and ideas, these two focuses never change – that should be empowering for any organisation looking to really enhance the financial health of their people.
And once you start to turn the dial on the financial wellbeing of your people, you’ll feel the impact on your business too, with things like reduced attrition, lower absenteeism, increased productivity and increased focus. When people feel better about money, they bring more of themselves to work, which also tends to increase engagement.
