14.3: Financial Wellness
- Page ID
- 129834
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\(\newcommand{\avec}{\mathbf a}\) \(\newcommand{\bvec}{\mathbf b}\) \(\newcommand{\cvec}{\mathbf c}\) \(\newcommand{\dvec}{\mathbf d}\) \(\newcommand{\dtil}{\widetilde{\mathbf d}}\) \(\newcommand{\evec}{\mathbf e}\) \(\newcommand{\fvec}{\mathbf f}\) \(\newcommand{\nvec}{\mathbf n}\) \(\newcommand{\pvec}{\mathbf p}\) \(\newcommand{\qvec}{\mathbf q}\) \(\newcommand{\svec}{\mathbf s}\) \(\newcommand{\tvec}{\mathbf t}\) \(\newcommand{\uvec}{\mathbf u}\) \(\newcommand{\vvec}{\mathbf v}\) \(\newcommand{\wvec}{\mathbf w}\) \(\newcommand{\xvec}{\mathbf x}\) \(\newcommand{\yvec}{\mathbf y}\) \(\newcommand{\zvec}{\mathbf z}\) \(\newcommand{\rvec}{\mathbf r}\) \(\newcommand{\mvec}{\mathbf m}\) \(\newcommand{\zerovec}{\mathbf 0}\) \(\newcommand{\onevec}{\mathbf 1}\) \(\newcommand{\real}{\mathbb R}\) \(\newcommand{\twovec}[2]{\left[\begin{array}{r}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\ctwovec}[2]{\left[\begin{array}{c}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\threevec}[3]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\cthreevec}[3]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\fourvec}[4]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\cfourvec}[4]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\fivevec}[5]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\cfivevec}[5]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\mattwo}[4]{\left[\begin{array}{rr}#1 \amp #2 \\ #3 \amp #4 \\ \end{array}\right]}\) \(\newcommand{\laspan}[1]{\text{Span}\{#1\}}\) \(\newcommand{\bcal}{\cal B}\) \(\newcommand{\ccal}{\cal C}\) \(\newcommand{\scal}{\cal S}\) \(\newcommand{\wcal}{\cal W}\) \(\newcommand{\ecal}{\cal E}\) \(\newcommand{\coords}[2]{\left\{#1\right\}_{#2}}\) \(\newcommand{\gray}[1]{\color{gray}{#1}}\) \(\newcommand{\lgray}[1]{\color{lightgray}{#1}}\) \(\newcommand{\rank}{\operatorname{rank}}\) \(\newcommand{\row}{\text{Row}}\) \(\newcommand{\col}{\text{Col}}\) \(\renewcommand{\row}{\text{Row}}\) \(\newcommand{\nul}{\text{Nul}}\) \(\newcommand{\var}{\text{Var}}\) \(\newcommand{\corr}{\text{corr}}\) \(\newcommand{\len}[1]{\left|#1\right|}\) \(\newcommand{\bbar}{\overline{\bvec}}\) \(\newcommand{\bhat}{\widehat{\bvec}}\) \(\newcommand{\bperp}{\bvec^\perp}\) \(\newcommand{\xhat}{\widehat{\xvec}}\) \(\newcommand{\vhat}{\widehat{\vvec}}\) \(\newcommand{\uhat}{\widehat{\uvec}}\) \(\newcommand{\what}{\widehat{\wvec}}\) \(\newcommand{\Sighat}{\widehat{\Sigma}}\) \(\newcommand{\lt}{<}\) \(\newcommand{\gt}{>}\) \(\newcommand{\amp}{&}\) \(\definecolor{fillinmathshade}{gray}{0.9}\)Introduction
Financial wellness is a comprehensive, multidimensional concept that describes a person’s overall financial health (Joo, 2008). It encompasses multiple components, including: financial status (objective circumstances), financial satisfaction (subjective feelings), financial knowledge, financial attitudes, and financial behaviors (Gerrans et al., 2014; Joo, 2008). At its core, financial wellness is the ability to balance today’s needs with tomorrow’s goals (Consumer Financial Protection Bureau [CFPB], 2014) and to manage personal finances in ways that enhance economic security and foster confidence in financial decision-making (Cook et al., 2013).
Linking Financial Wellness to Other Areas of Wellness
- Overall Well-being: Financial satisfaction is directly linked to greater life satisfaction (Gerrans et al., 2014).
- Mental and Emotional Health: Financial stress is one of the most common sources of anxiety in the United States (CFPB, 2014). High levels of debt stress have been linked to physical symptoms, severe depression, and anxiety (CFPB, 2014)
- Physical Health: Financial stress may contribute to increased healthcare costs by undermining the body’s ability to fight off illness (CFPB, 2014).
- Academic and Workplace Performance: Financial concerns can disrupt academic achievement (Diaz et al.). A significant portion of students (33%) have considered dropping out of college due to financial concerns (SCFW, 2020), and are a significant distraction in the workplace, reducing productivity and engagement (CFPB, 2014).
Factors That Promote Financial Wellness
- Financial Knowledge and Literacy: Understanding financial concepts and knowing how to act on them strongly influences financial wellness (CFPB, 2014). Financial knowledge predicts positive financial behaviors (Gerrans et al., 2014).
- Financial Attitudes and Behaviors: A positive financial mindset, paired with sound habits, is integral to financial health (Joo, 2008). Positive behaviors, such as budgeting and saving, strongly predict improved financial status (Gerrans et al., 2014).
- Objective Status and Savings: Savings and asset accumulation are essential for resilience during economic challenges (Cook et al., 2013).
- Peer and Employer Support: Employer-provided programs can improve productivity and engagement (CFPB, 2014). Peer networks can also help individuals overcome financial barriers and achieve goals (Cook et al., 2013).
Strategies for Developing Financial Wellness
- Acquiring Financial Knowledge: Learning financial concepts is essential, but practice and real-world application are equally important (CFPB, 2014). Skills such as prioritizing bill payments can increase a sense of control over personal finances (Cook et al., 2013).
- Budgeting and Reducing Costs: Tracking spending provides a realistic picture of financial needs (Diaz et al.). Students can reduce costs by attending in-state schools, purchasing used books, and choosing affordable housing and transportation options (Diaz et al.).
- Strategic Financial Planning: Comprehensive planning means understanding all costs associated with expenses, such as tuition and fees, and recognizing the opportunity cost of time spent away from work while studying (Diaz et al.).
- Smart Borrowing: Before taking out loans, it is important to understand loan types, interest rates, and repayment terms. Private loans should be considered only as a last resort, and repayment plans should be evaluated with salary projections in mind (Diaz et al.).
- Seeking Support: Employers can offer financial counseling and education programs (CFPB, 2014). Peer support can also be an effective resource for overcoming economic obstacles (Cook et al., 2013).
- Goal Setting and Achievement: Setting SMART goals, such as saving for a major purchase or securing part-time employment, can improve financial behaviors and outcomes (Cook et al., 2013).
Conclusion
Financial wellness is not just about earning more. It is about managing resources wisely, making informed choices, and maintaining balance between present needs and future goals. By cultivating knowledge, positive attitudes, healthy behaviors, and supportive relationships, individuals can build financial stability that enhances not only their economic situation but also their mental, physical, academic, and social well-being.
References
- Redefining Success by Nico Diaz; Chelsee Rohmiller DeBolt; lindseycassidy; Isabelle Hermsmeier; and taylorgowdy is licensed CC BY-NC.
- Consumer Financial Protection Bureau. (2014). Financial well-being: The goal of financial education. https://files.consumerfinance.gov/f/201407_cfpb_report_financial-well-being.pdf
- Cook, J., Bateman, H., & Pugh, C. (2013). Helping people make better financial decisions. Financial Literacy Foundation.
- Gerrans, P., Speelman, C., & Campitelli, G. (2014). The relationship between personal financial wellness and financial wellbeing: A structural equation modelling approach. Journal of Family and Economic Issues, 35(2), 145–160.
- Joo, S. (2008). Personal financial wellness. In J. Xiao (Ed.), Handbook of consumer finance research (pp. 21–33). Springer.
- Sorgente, A., & Lanz, M. (2017). Emerging adults’ financial well-being: A scoping review. Adolescent Research Review, 2, 255–292.
- Study on Collegiate Financial Wellness (SCFW). (2020). A holistic portrait of student financial experiences. The Ohio State University.