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“Financial wellbeing is about feeling secure and in control. It’s about making the most of your money from day to day, dealing with the unexpected, and being on track for a healthy financial future. In short: financially resilient, confident, and empowered.”
The Money and Pensions Service (MaPS)
Financial wellbeing encompasses an individual's ability to manage their finances effectively, feel secure and confident about their future financial situation, and have access to resources and opportunities that allow them to achieve their financial goals.
It Is Not Financial Education
Financial wellbeing is very different from financial education.
Financial education covers the knowledge and understanding of financial concepts, systems, and processes, such as budgeting and how to use a credit card. Financial wellbeing, on the other hand, relates to financial security, i.e., knowing you have enough money to meet your needs, allowing you to be in control, and giving you the freedom to enjoy your life.
Financial wellbeing is concerned with how you feel about money, and how this affects your financial habits and behaviours.
The Money Problem
Our finances play a significant role in our day-to-day lives, affecting how we show up at work, how we interact with others, and how we feel. By the same token, financial struggles can have a direct impact on the state of someone’s mental health, causing stress, worry and overwhelm.
Unfortunately, the topic of money is still very taboo within society today and is often avoided in conversation. Forty percent of the UK are worried about money and are 10 times more likely to have sleepless nights as a result.
Financial struggle can lead to sleepless nights and anxiety, resulting in an inability to fully focus on work. Research by Money and Mental Health at Work carried out before the pandemic showed that in England alone over 1.5 million people were experiencing both problem debt and mental health problems.
It is also important to note that financial struggles do not correlate to low income. Studies do not find a positive correlation between salary level and wellbeing, and some research has even found those with higher salaries suffer the highest level of financial stress. Financial wellbeing is instead connected to an individual’s borrowing, saving, and spending habits.
The Business Case
Businesses depend on their people for success, so the wellbeing of the workforce is essential. Low financial wellbeing causes absence, loss of staff, recruitment costs and additional training costs. This extra expense is a waste of money and a dent in the economy as it reduces efficiencies and performance.
Extensive research has highlighted the significant role that financial stress can have on our daily functioning and performance in the workplace. Financial stress and worry are very common, with 47% of UK workers stating that they have experienced financial difficulties to some degree. Another study found that 30% of employees blamed financial worries for reduced productivity in the workplace.
Other research finds that 60% of presenteeism is due to having an unhealthy financial mindset, directly connected to poor financial wellbeing.
It is estimated that the average cost to employers due to financial distress is £192 for each day lost. The same study found that presenteeism and absenteeism cost medium-sized businesses £22,000 per year.
On the other side of the business, if customers and clients do not fall behind on their bills and payments, businesses have better profits and cash flow and do not need to write off debts as a result.
Good for the Community and the Wider Economy
Financial stress and worry affect not only the individual's mental health but also their personal relationships and physical health. This creates an extra cost for the healthcare system as it seeks to remedy the individual.
Good financial wellbeing has a direct positive impact on the family function, whereas financial stress causes problems for children and partners as it creates friction within the home. This instability can spill over and affect how other members of the household show up in their day.
When people are able to live financially stable and healthy lives, including putting money away for retirement, they are in a better position to positively contribute to the economy long-term.
So targeting the financial life of the individual benefits all of society. Improving financial wellbeing acts as the catalyst for enhanced business performance, increased health, and overall economic prosperity.