Financial well-being: What it means and how to help
Financial well-being:
What it means and how to help
Understanding financial well-being is crucial to helping
consumers achieve it.
Financial educators, coaches, and other practitioners work to help people improve their financial
lives and get to a better state of financial well-being. To tell whether these efforts are successful,
the field needs a reliable definition of personal financial well-being. Read the full report at
reports/financial-well-being.
Consumer-driven definition of personal financial well-being
The CFPB¡¯s research team listened to people around the country talk about what financial well-being
means to them. With this input, we can now share the first-ever definition of financial well-being
created directly out of the voices of consumers. Consumers can experience financial well-being¡ªor a
lack of it¡ªregardless of income. It¡¯s a highly personal state, not fully described by objective financial
measures. Instead, well-being is defined as having financial security and financial freedom of choice,
in the present and in the future.
The four elements of financial well-being
Security
Freedom of
choice
Present
Future
Control over your day-to-day,
month-to-month finances
Capacity to absorb a
financial shock
Financial freedom to make
choices to enjoy life
On track to meet your
financial goals
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Factors that create financial well-being
We interviewed consumers and financial professionals to hear about how people experience
financial well-being. Then, we analyzed existing studies of financial literacy, psychology,
decision making, and related fields. Together, the information helped us create the visual guide
below, outlining the factors that lead to a person¡¯s financial well-being at a specified moment.
What influences financial well-being
Personality
and attitudes
How you tend to
think, feel, and act.
Social
and economic
environment
What surrounds
you in your family
and community.
Decision context
How a particular
decision is presented.
Behavior
What you
actually do.
Knowledge and skills
What you know,
and what you know
how to do.
Personal financial
well-being
How satisfied you
are with your
financial situation.
Available opportunities
What options are open to you.
People work to make the most of their own situation
The diagram above acknowledges that at any given time, some factors of financial well-being are
within a person¡¯s control, and some aren¡¯t.
Social and economic environment can expand or limit a person¡¯s opportunities. For example, some
employees are offered a retirement plan at work, while others aren¡¯t. Then, the decision context
the person encounters can make a difference in what action he or she takes. For example, some
employers require workers to opt in to a retirement plan, while others make participation automatic
and allow employees to opt out.
Financial behavior is also guided by personality, attitudes, knowledge, and skills. The actions
consumers take, within the options available to them, create their level of financial well-being.
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Practitioners can help in key areas
Research on financial well-being is ongoing. In the meantime, the current study suggests ways
that practitioners can continue to work with consumers to improve their well-being.
BALANCE: LIVE WITHIN THEIR MEANS
Financial practitioners can help people develop sound habits and make conscious adjustments in
day-to-day money management:
¡ì¡ì Practice contentment and cut down mindless spending
¡ì¡ì Stay out of debt and use credit responsibly when it¡¯s needed
¡ì¡ì Act like an entrepreneur in generating income and avoiding interruptions in paid work
ASK: GATHER INFORMATION AND EVALUATE THE RESULTS
Financial practitioners can help people ask good questions, find facts, and apply them effectively:
¡ì¡ì Identify situations when they need financial information
¡ì¡ì Explore how to get trustworthy information
¡ì¡ì Decide what choice makes the most sense for them
PLAN: FOCUS ON THE FUTURE
Financial practitioners can help people connect their aspirations for the future to concrete plans:
¡ì¡ì Identify specific, realistic goals
¡ì¡ì Make step-by-step plans to reach those goals
¡ì¡ì Feel confident about their ability to make a difference in their own lives
ACT: SET THEMSELVES UP FOR SUCCESS
Financial practitioners can help people carry out their decisions consistently:
¡ì¡ì Figure out how to take the steps needed to put decisions into action
¡ì¡ì Determine how to motivate themselves to take those actions
¡ì¡ì Take advantage of existing ways¡ªfrom auto-pay to peer support¡ªto simplify staying on track
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