image: Screenshot of the online tool
Credit: Valerie Maltseve, ERSTE Foundation
What if the key to improving financial well-being is not better budgeting or more savings, but simply more joy? Banks are increasingly focusing on financial health or well-being, but struggle with translating their view of what it means to their customers. Somehow, people are not too keen to do what the bankers think is wise to do – learn about financial terms and services, plan and invest.
Yet emerging research shows that financial well-being is fundamental for mental health and life satisfaction, and the OECD G20 has even issued a policy note on that. Then how can bankers and policymakers support people in securing and improving their financial well-being?
These issues led Leonore Riitsalu, the Research Fellow in Behavioural Policy at the University of Tartu, together with Boris Marte, CEO of the ERSTE Foundation to initiate a unique partnership between academia, philanthropy, and the banking sector nearly four years ago. On May 7, their findings were published in a book and presented to a broad audience online and in person in Vienna. It was a multi-stage research with multiple data collections, including the largest qualitative study (630 interviews in 7 countries) into the human-centred meaning of financial well-being, analysis of responses to longitudinal multi-dimensional subjective financial well-being study combined with bank data for 14 months for each of the respondent on all of its accounts, and experiments testing the interventions that go beyond money.
The rigorous study reveals that for people, the three elements of financial well-being are security, freedom and pleasure. The first two have been addressed before, but none of the existing measures explicitly assess pleasure, the enjoyment of life. When people hear the word “invest", they often feel ambivalent, thinking more about personal growth – like health, family, or education – than financial products. A quote from an interview:
“I don’t like investments, I invest in holidays; those stocks and funds, these are all the things I didn’t believe in; maybe I am wrong, maybe I could have been wealthier, but I don’t believe in investing.”
To apply the human-centred, three-dimensional conceptualisation of financial well-being to the real world, the researchers developed and tested new measures: nine reliable and valid statements across time, languages and personality types, to be included in surveys, as well as a digital tool, which is freely available online in English and is not linked to any banks. Experts in any field can use the new scale, which assesses security, freedom and pleasure, to see if their interventions have any effect.
People themselves can reflect upon various topics in their lives, such as education, family and even pets, and assess how these affect their financial well-being, using the new digital tool. Existing financial health or well-being tools give the respondent either a score (e.g. 7 out of 10) or a diagnosis (e.g. you are in the red). Those can be intimidating, cause stress and give no clue what to do with that information (other than suggestions to buy some banking services). Our measure is very different, it is the first financial well-being assessment tool without numbers, and with no normative verdicts in the end. Instead, the user can self-reflect, set goals for changes and receive tips on how to enjoy life more.
Furthermore, it was evident from the interviews, and as a vast surprise to the bankers, that many people do not want their financial well-being to be improved. It may be counterintuitive to managers in the financial sector and policymakers that not everyone aims for more wealth. The interviewees said that they are rather satisfied with the way things are, though they wished they could afford life's simple pleasures more often – like treating friends to coffee or a concert. Nothing more, nothing less.
Talking to people and studying the bank data confirmed that factors affecting financial well-being go far beyond money. In the interviews, people talked about investing in themselves and social relationships, the socio-economic and financial indicators in the bank data explained in total only a quarter of financial well-being assessment. Experimental evidence showed that using a mindfulness app Headspace improves not only psychological but also financial well-being, and these effects remain over time. So far it has been addressed the other way around – problems with finances cause psychological stress and are harmful to mental health. Now it has been turned around – helping to improve mental health also benefits financial health. Therefore, our recently published book “Beyond Money: Exploring Financial Well-Being through a Human Lens” shifts the financial well-being paradigm and provides ideas for implications for various sectors. With the aim of helping people to enjoy their lives, today and in the future.
Method of Research
Case study
Subject of Research
People