21 May 2021

the importance of financial well-being and five ways to improve it

Financial well-being is not something we hear about in the news every day; however, its negative impact on society is becoming clearer by the day. Discussion around money is something we like to avoid as it involves a lot of emotions. Money and financial well-being are among the leading causes of conflict in relationships, so we must start to open up and talk about it. Luckily, financial planners like myself are taking far more interest in this area and sharing it with our clients to help improve financial well-being in this country.

Research highlights that we fail to plan for our futures; we struggle to concept what makes us truly happy, and we spend far too much time worrying about money. Maybe we should be focussing on the question ‘Are we using our money in a way to live our best life possible?'

A recent report by Aegon discovered some frightening statistics about financial well-being. More than 19 million people (36%) in the UK are currently struggling with their financial well-being. It found that only 8.6 million (16%) of the population are fortunate to combine healthy finances and a positive mindset around money, but 6.5 million (12%) struggle with both, which is why this topic needs to be openly discussed.

We naturally have a negative mindset when it comes to planning for the future, which is why 38% only have a vague idea of where they want to be financially in the future in 10 years time, let alone in 20 years. Less than a third of the population (29%) have a specific idea of what their future looks like, which is why we need to encourage more people to start envisaging what they want to achieve in their lives. Only 28% of people have a vague idea of what brings them joy and purpose in life, so financial well-being is a problem in this country. Worryingly, only 13% of the population have a financial plan in place to achieve their long-term goals and aspirations; this is a frightening statistic.

Other research by Neyber found that 20.3 million workers in the UK are affected by money worries which directly impacts their financial well-being. You would think that this applies to the low paid and the younger generation; however, this is not the case. Although money worries do slightly decrease with income, statistics show that 46% of employees who earn over £70,000 per year are affected by money worries.

It is not always about how much money we have that contributes to financial well-being, but it is how we use our money to live a meaningful life.

Health & Financial Well-being

There is clear evidence that when people suffer from money worries, it can, directly and indirectly, impact their health. Financial well-being has been linked to mental health conditions such as depression, stress and anxiety. When people get stressed about money, it can trigger these conditions or a combination of them, all of which can severely impact your health, your ability to work, and your overall happiness and purpose in life. Financial well-being can also affect physical health. You could also struggle to purchase enough food for yourself and your family or purchase gym memberships, which prevent you from keeping physically fit.

Research has now shown that financial well-being can also affect employee's productivity levels at work and morale. By improving financial well-being in the workplace, they have found that productivity and morale go up, ultimately enhancing output within the business.

By improving our financial well-being, we can improve our relationship with money, improve health and improve our lives at work.

How To Improve Financial Well-being

The great news is we can improve our financial well-being; this, in turn, will give a greater purpose to your life. Aegon Identified 5 areas where we can improve our financial well-being.

  1. Put your happiness first. Be aware of what truly brings joy and purpose in your life and focus your time, effort and money on achieving them. Essentially don't waste your time concentrating on things that will not bring you any joy or purpose in life.
  1. Social Comparisons. Do not use social media to compare your life as they are not accurate comparisons. Living your life through social media will often end up bringing disappointment. When you are making social comparisons, make them realistic. Be careful not to compare your life to billionaires; it is not healthy, and it is not practical. A good way could be to compare your life to 10 years prior and see how far you have come.
  1. Envisage your future lifestyle. Try spending time picturing what you want your lifestyle to look like in the future. Regularly pay attention to your future self, the life you want to live and your pension and investment goals. This will keep you motivated and on track to achieve your desired lifestyle in the future.
  1. To me, the most crucial step to financial well-being is to write down a long-term plan. People who have a financial plan in place save more regularly, have better pension and investments and do better financially in the future.
  1. Do not panic in a crisis. We have certainly had the biggest crisis in living memory over the last 12 months, but this is more geared towards a financial crisis in the markets. Markets will inevitably go down in value at different stages of your life, but it is important to hold your nerve and focus on why you invested in the first place.

Nicholas Morris Dip FA
Clarity Wealth Management