Financial well-being is an increasingly important topic for everyone, because we all experience financial stress during our lifetime. The Financial Health Institute’s article “Financial Health Defined” states, “Financial health is the dynamic relationship of one’s financial and economic resources as they are applied to or impact the state of physical, mental and social well-being.”
In the last few years, many people have had to deal with losing jobs, increasing prices, and other financial consequences of the COVID-19 pandemic. Gallup’s annual “Economy and Personal Finance” poll results for 2022, reported in the article “U.S. personal finance ratings slide amid rising prices,” stated that:
• Just 46% of Americans rate their current finances positively, down from 57% last year.
• 38% of Americans describe their financial situation as only fair, and 16% say their financial situation is poor, almost double (9%) from 2021.
• More Americans say their financial situation is getting worse (48%) than getting better (37%). There were similar reports in April 2020 and during the Great Recession in 2008.
The poll also showed that the top financial concern among Americans is inflation. Upper-income households mentioned it more often (37%) than middle-income (32%) or lower-income households (27%). Americans worry about lack of money or low wages (11%), costs of owning or renting a home (8%), health-care costs (7%), and too much debt (7%). Comparing personal finances, 67% of Americans reported having enough money to live comfortably, 4% less than last year.
More than half (52%) of Americans reported financial hardship caused by recent gasoline prices; 14% experienced severe difficulties. Lower-income American households experienced more severe economic problems than middle- or upper-income households.
Economic stress can negatively affect people’s overall health. Our financial well-being influences other aspects of well-being, such as physical, intellectual, environmental, spiritual, social, occupational and emotional wellness. When someone faces financial stress, they can experience worry and anxiety that can lead to more severe health issues, resulting in problems at work and in family life.
Employers, organizations, financial companies and schools are encouraged to provide their audiences with opportunities to learn about financial literacy. In order for people to achieve their financial goals, they need to strengthen their financial knowledge and skills. In the “Money Counts: A Financial Literacy Series,” the Sokolov-Miller Family Financial and Life Skills Center defined being financially literate as understanding the five critical components of financial literacy: earning, spending, investing, borrowing and protecting.
Personal financial well-being indicates how satisfied you are with your financial situation. In the Consumer Financial Protection Bureau’s 2015 “Financial Well-Being: The Goal of Financial Education” report, consumers and financial professionals determined the four elements of how people experience financial well-being:
• Having control over day-to-day and month-to-month finances.
• Having the capacity to absorb a financial shock.
• Being on track to meet financial goals.
• Having the financial freedom to make the choices that allow people to enjoy life.
Most people expressed higher economic well-being when they could manage their finances, cover their expenses, and lack financial stress. People who have financial support, savings and insurances reported a higher level of financial well-being. Saving money for future goals — such as purchasing a car or a home, or paying student loans — being on track, and having the financial freedom to afford their “wants,” not just their “needs,” increases people’s financial well-being. Interestingly, the research found that income and net worth do not fully capture this aspect of economic well-being.
As with many other issues, people usually turn to their family and friends first to find financial information. Their financial management style is influenced by their social and economic environment, and from how they, as children, observed their parents dealing with financial situations. Other aspects that affect financial well-being are our personality and attitude, decision context, knowledge and skills.
Financial information can feel intimidating by the volume of data, and many people are unsure where to start, and only a few are searching for answers from financial experts. One of the solutions can be increasing people’s financial literacy, which could help them make well-informed decisions. With increased knowledge, people would have clear indicators of reliable resources that would be able to improve their financial situations.
We can ask whether financial knowledge is enough to change someone’s money management style. Our economic behavior, habits and attitudes are developed by the time we reach adulthood, determining our adult financial wellness. It turns out that factual information alone is insufficient to change people’s spending behavior. People need to know how to complete those financial steps, and financial literacy can provide those functional skills required to put the knowledge into action.
Attaining Financial Stability
The CFPB research mentioned two aspects of financial stability: “living within your means” and “having enough income to cover your needs.” Living within your means is consciously choosing to spend less money, using credit cards sensibly, and avoiding and managing debt. People with stable employment, adequate income, and a good credit score have a higher chance of covering their financial needs and surviving financial emergencies.
Follow the five core financial literacy competencies to achieve financial security: earning, saving, investing, spending, borrowing and protecting. To make well-informed decisions to reach your financial goals, use reliable resources.
The Penn State Extension Financial Literacy sub-team offers a series called “Your Money Matters,” which includes five lessons based on the Sokolov-Miller Family Financial and Life Skills Center’s workshops. The lessons include budgeting, financial goal setting, credit cards, debt management and identity theft. For more information, search for financial literacy on the Penn State website.
Rozalia Horvath is a Penn State Extension educator in food, families and health in Centre County.