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Financial well-being is finding a balance between the money we have and the life we want to live. Here's what research says about connecting both.
From cold plunges to antiaging secrets, wellness is a major focus for many of Canadians in 2024. This fixation on wellness and self-care has spread to our financial habits, with trends like “no-spend” months and loud budgeting gaining popularity. But it’s important to step back and evaluate these trends critically, asking ourselves, “Are these ‘wellness investments’ truly effective?”
As consumers in Canada, we are constantly bombarded with investment and financial fads, promising significant returns that often fall short, especially when considering their costs. Marketers capitalize on these trends, as seen with DIY stock trading, which has enabled hundreds of thousands of inexperienced Canadians to make trades—often resulting in substantial losses. Similarly, technologies like non-fungible tokens (NFTs) initially attracted millions of dollars from everyday consumers and were hailed as lucrative opportunities. However, they are now widely criticized after causing significant financial losses for many. Fads frequently promise the world but fail to deliver, leaving Canadians with less money and a diminished sense of well-being.
Fortunately, social scientists have been examining financial well-being for decades, providing us with valuable insights. Their research offers a solid foundation for understanding how to manage our money in ways that contribute to our overall well-being.
As a Certified Financial Behaviour Specialist, I define “financial well-being” as being able to:
This suggests that financial well-being enables consumers to take charge of their finances, reach their financial goals, feel at peace financially, and sidestep costly mistakes. Building on this understanding, in 2015, The Consumer Financial Protection Bureau released a comprehensive study outlining four key areas essential for financial well-being:
Academic research on financial well-being has primarily concentrated on the objective and empirical aspects of our finances. These include income, savings, investments, credit scores, debts, mortgages and tax payments. It operates on the premise that getting these technical elements in order ultimately leads to financial well-being. However, this approach often overlooks our sense of happiness and satisfaction, which can influence how we feel about our overall financial well-being.
A recent Transunion Consumer Pulse survey reveals that 32% of Canadian households struggle to cover debt payments. These findings align with that from FP Canada, which reports money as the top stressor for 44% of Canadians, but many are optimistic about their financial futures. The data suggests that financial stress is increasing for Canadians. And, the Financial Consumer Agency of Canada (FCAC) reports that three in four Canadians feel “somewhat secure or financially secure.” So, Canadians, as a group, seem to be doing well financially.
But it seems financial well-being for Canadians is more closely linked to behaviours around money than around things like income and savings. The FCAC report suggests that subjective factors—confidence and attitudes toward spending, saving and investing—also play pivotal roles in financial well-being.
While income and other measurable finances are important, the broader scope of financial behaviours and mindsets carries substantial weight in our overall financial well-being.
I’m not discounting the importance of objective measures in financial well-being. However, to truly experience financial well-being, we need to consider more than just ways to increase income or save. It also includes our perception of how we are doing financially and our belief in ourselves to make sound financial decisions.
Since financial well-being is an integral part of subjective well-being, such as thoughts and feelings about our lives and experiences, we’d be justified to include our perceptions of money and our relationships with it in our definition of financial well-being.
In 2017, research by Brüggen et al. highlighted that personal feelings and beliefs about money matter. For instance, even if two people have the same amount in the bank, their feelings about their financial health can be worlds apart. It’s not just what you have, but how you view your finances that counts. And in 2018, Netemeyer et al. reached a similar conclusion, showing that, despite having comparable financial situations, people often perceive their financial wellness quite differently.
When thinking about your own financial well-being, it’s crucial to consider that our financial situation affects more than just our bank accounts. It impacts our mental health, happiness, relationships and overall life satisfaction. Sure, paying off debts and saving for retirement are important markers of financial health, but they don’t guarantee a sense of financial well-being.
Financial well-being includes your perceptions and emotions concerning your finances. Believing in your ability to manage your money and feeling that your lifestyle supports your financial decisions can significantly enhance your sense of financial well-being.
How you perceive your financial situation matters—immensely.
In 2024, financial well-being is about more than just the numbers in your bank account or your income. It combines having solid financial stability with how you actually feel about your money situation. It’s about achieving a balance where the bills are paid and having money for the future, while also having a healthy relationship with money. By managing debts, savings and spending with your values and with what makes you truly happy, you not only take care your money better but you have a higher level of life satisfaction.
If you’re interested in learning more about financial well-being, Chris Rudd and I explore this topic and discuss How To Be Happier, Not Just Wealthier on Episode #175 of The Most Hated F-Word Podcast.
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Financial well being is always a moving target and there are so many variables that it is very difficult to feel confident that you are financially stable. It is very difficult to manage debt and to build a nest egg and to enjoy life. Most want more than they can afford and those short term feel good moments you get when spending money on something you can not afford are what ruin most peoples financial well being. One has to learn to get the same feel good moment when you pay down debt and when you put money away for retirement. One has to learn that properly managing debt (always striving to be debt free) is the basis for the feeling of being financially well. You need to do that very early in your life process. The other habit to learn is the direct relationship between using a credit card and its balance owing on your current bank balance. You do this by creating a budget and living within that budget religiously for the rest of your life. Living within your means is hard but it is rewarding over time as you can see the results of your efforts and then you begin to know when you can actually afford those feel good moments. The sooner you learn to budget and manage your debt and understand the relationship between spending money and your future needs the better off you will be your whole life. Unfortunately, for the current generation just starting out, without company pensions, one has to really make an extra effort for retirement planning and with the rapid rise in the cost of housing and wage gap that exists, it will be exceedingly difficult for many to realize financial well being. This current generation will not feel financially well off for many years to come. This is evident when you see new neighborhoods of house poor homeowners who have little to no furniture, uncut lawns and rusty cars in the driveways and many are new immigrants who do not have the traditional generational family support of the well off mom and dad across town to help out. I feel for the current generation.