What is Financial Wellbeing?

Responsible researcher: Viviane Pires Ribeiro

Paper Title: Conceptualizing Financial Wellbeing: An Ecological Life Course Approach

Authors: Fanny Salignac, Myra Hamilton, Jack Noone, Axelle Marjolin and Kristy Muir

Intervention Location: Australia

Sample Size: 72 participants

Big topic: Finance

Variable of Main Interest: Financial Well-being

Type of Intervention : Redefining and reconceptualizing financial well-being

Methodology: Ecological Approach

The ability to make sound financial decisions and create responsible financial habits has always been important, however, in an increasingly complex financial system, making financial decisions is becoming more challenging. However, existing conceptualizations do not adequately consider the dynamic interaction between an individual's environment and their financial well-being, as well as how aspects of financial well-being may interact according to an individual's age and life stages. In this context, Salignac et al. (2020) seek to address this gap by redefining and re-conceptualizing financial well-being, seeking to understand its components and the relationships between them.

Assessment Context

Across the world, the financial landscape is becoming increasingly complex, resulting in more challenging financial decision-making. The economic outlook is changing rapidly and external shocks are becoming more permanent, leading to increased financial uncertainty. Responses from governments, non-profits and businesses around the world have focused on ways in which people can be supported to negotiate and navigate this new financial landscape, including: financial inclusion; financial literacy; financial empowerment; and financial advice.

There is a growing expectation that these programs will improve the financial well-being of individuals and families. But financial well-being is inadequately conceptualized and inconsistently defined, making it difficult to understand and improve financial outcomes. Existing conceptualizations do not adequately consider the dynamic interaction between an individual's environment and their financial well-being, as well as how aspects of financial well-being may interact across age and life stages.

The lack of a conceptualization of financial well-being that adequately captures the interaction of an individual and their environment undermines the ability of individuals, financial counselors, employers, community organizations, and policymakers to help improve financial outcomes and well-being financial in general.

Intervention Details

The research carried out by Salignac et al. (2020) aims to advance the understanding of financial well-being by taking advantage of gaps in current knowledge. Thus, the research seeks to answer the following questions: What is financial well-being? What are its different dimensions? And how can we ensure we are capturing the individual's interaction with their environment over time? In this sense, the authors argue that adopting an ecological life course approach can help understand and reconceptualize financial well-being. An ecological perspective allows for a better understanding of the ways in which an individual's financial well-being develops in interaction with their environment. At the same time, a life course perspective allows us to consider how we understand financial well-being and this will be different for people of different ages and life stages and according to different life events.

The contributions of the study are twofold. First, the authors reconceptualize financial well-being using an ecological life course approach and drawing on new qualitative research. The research explores the ways in which Australians of different ages, genders and socioeconomic levels understand financial well-being in their everyday lives and in the future. Secondly, the study suggests a definition of financial well-being that allows us to place it in its legitimate dynamics. Therefore, based on this work, the authors propose a conceptual model that allows a better understanding of how financial well-being can change over time and how it is achieved, maintained or challenged.

Methodology Details

Focus groups and individual interviews were conducted between August and November 2016. A purposive sample of participants was selected to cover a broad demographic and range of socioeconomic and personal circumstances. The sample included 72 participants: 9 focus groups with 54 people living in Australia, of different ages, genders and socioeconomic levels; and 18 one-on-one interviews with people facing challenges related to their financial well-being.

The focus groups were held in two urban and one regional locations and followed a semi-structured discussion guide – lasting approximately 1.5 hours. The individual interviews also followed a semi-structured discussion guide and asked the same questions applied to the focus groups. Participants were asked what it meant to them to be in a good financial situation and what contributed to their current and future financial situation. Next, more specific questions were asked about the role of financial capacity in financial well-being, differences according to gender and age, and facilitators and barriers to financial well-being at different levels. Most interviews were in-person (in urban areas), but in several cases, participants expressed a preference for interviewing over the phone. The duration of the interviews was 30 minutes to 1 hour.

Focus groups and interviews were transcribed and a thematic analysis was performed using NVIVO qualitative data management software. The authors adopted a "theory-driven" approach shaped by the literature review and financial well-being principles that the authors themselves developed.

Results

The results made it possible to identify three distinct dimensions of financial well-being – each with its own subdimensions:

 (1) “Meeting expenses” and having “money left over” comprises three sub-dimensions: (a) meeting expenses and managing debts, (b) having a “reserve” in case of unexpected expenses, and (c) having some savings to pay “little extras” if you will.

(2) Being in control (i.e., feeling and acting in control of your finances) comprises two sub-dimensions: (a) having control over your financial situation in the present and future, and (b) having the ability to set and pursue goals for future expenses and life planning.

(3) Feeling financially secure comprises two subdimensions: (a) having limited financial concerns in the present and future, and (b) how satisfied one feels with one's financial situation.

Based on the results, the authors propose the following definition: financial well-being is when a person is able to cover their essential expenses and the non-essential expenses that they consider important and have some money left over, have control of their finances and feel secure financially, in the present and in the future.

Thus, research suggests that this definition of financial well-being is intrinsically situated within broader relational, social, structural and temporal dynamics. The combination of ecological systems and life course approaches allows for a better understanding of how financial well-being and its dimensions change over time and how it is achieved, maintained or challenged. A life course perspective allows you to take into account different life stages and events and how they influence financial well-being for different people. In this sense, research suggests that the importance and meaning of dimensions of financial well-being change throughout life and in response to different life stages and events. An ecological systems approach, in turn, provides a solid mechanism for understanding the ways in which an individual's financial well-being develops in interaction with their environment.

The research found a number of influencers of financial well-being at the ecological system level: that is, at the individual, family, and broader community and societal levels. At the individual level, financial capacity, employment, health and happiness, gender and education, and skills have been identified as strong influencers of well-being. The nature and extent of influence appears to be linked to the individual's life course stage and financial circumstances over time. Research also suggests that these individual factors interact with factors in the broader context of the family and community in which participants live. Individual factors such as financial knowledge, attitudes and gender were closely related to family, family and friend level influencers such as family responsibilities, parental support and education and couple dynamics.

Finally, influencers at both the individual and household levels were shaped by broader influencers at the community level, such as cost of living, government policy, or access to financial products and services. The lack of affordable housing and the rising cost of living are significant structural issues across Australia and are particularly problematic for low-income families. Furthermore, the demographic restriction on supporting young dependents and elderly parents tends to place additional financial pressure on families, especially low-income ones.

Public Policy Lessons

The qualitative study carried out by Salignac et al. (2020) shows that an ecological life course approach allows us to capture the way in which an individual's financial well-being is structurally, socially and temporally situated. Such research is among the first in Australia to begin to develop a model of financial well-being and the factors that contribute to well-being, and therefore offers a way forward in addressing current gaps in the literature. It is a first step towards understanding what financial well-being is, what it means, what influences it and, in this way, contributes to international discussions around its reconceptualization.

With the appropriate measures now available, the authors state that the next step is to develop, implement and evaluate initiatives that operate at the individual, family, community and societal levels. The research thus provides guidance for these activities, allowing researchers studying happiness and financial well-being to answer new questions: Which dimension of financial well-being has the most influence on creating overall happiness? Which levels of ecosystems represent the “big levers” for creating financial well-being and happiness, and to what extent does this depend on culture and context? The answers to these questions will help governments reduce financial inequalities by creating appropriately targeted social and economic policies.

References SALIGNAC, Fanny et al. Conceptualizing financial wellbeing: an ecological life-course approach. Journal of Happiness Studies , vol. 21, no. 5, p. 1581-1602, 202