The Financial Wellbeing Index – The Surprisingly Simple Idea That Helps You Be Better With Money

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Today I wanted to share with you a fascinating piece of research from Aegon (pronounced, a-gon) that is looking into how confident we are about managing our money. It is so much more than the numbers!

I interviewed Steven Cameron from Aegon about this research.

Steven Cameron is Pensions Director at Aegon. He’s responsible for analysing future plans the Government or the financial regulators have for our pensions, savings and investments and helping shape these. You may well have seen him talking about these topics in the financial press. Right now, he’s taking an interest in how the Government will get the UK’s finances back on track post pandemic and what can be done to ensure people in the UK have a lifetime of financial security.

If you prefer to listen, you can check this interview out on my podcast, The Money Medicine Clinic Podcast.


If you prefer to read, below you will find my questions and Steven’s answers.

Don’t forget to check out your wellbeing index too! (link at the bottom).

I know this is no easy task, but can you summarise this piece in a nutshell?

Hi Nikki. At Aegon our aim is to help people achieve a lifetime of financial security. Financial wellbeing is a huge part of that and it’s increasingly becoming a hot topic in the savings world. But there are different views on what exactly it means.

We believe financial wellbeing isn’t just about your financial position, or how much money you have, here and now – it’s also about your long-term ability to be financially well.

It’s also not just about ‘hard finances’ – it’s about how people feel about the control they have over their financial future – and their relationship with money.

Part of this is about focusing on the things that make your life enjoyable and meaningful – both now and in later life including retirement.

So in our Financial Wellbeing Index Report, we’ve focusses on the longer term and on the mindset aspects. Hopefully that will give people something quite unique to think about. And we also hope it can help people assess where they stand today and how to improve.

Tell us about the Financial wellbeing index

This was a major piece of research – over 10,000 people were questioned and we collected over 1.3 million pieces of data which we can now analyse in depth.

It shines a light on new areas of financial wellbeing that we hope will resonate with a wide range of people – and not just those who earn the most or the least money. And hopefully provide some new personal insights too.

It’s helped us explore the age-old question of whether money equals happiness and finds that while money is important, it’s just one half of the story.

We identified the 10 building blocks we believe contribute to financial wellbeing. There are 5 which focus on those ‘money’ aspects, but we’ve also identified 5 ‘mindset’ blocks.

Money Mindset
Income level Knowledge of what makes you happy – what gives you joy, and what gives you purpose
Having a rainy day fund, ideally to cover 3 months of expenditure How good are you at creating a solid picture of what you want of your future self in 10 or more years’ time
Manageable debt in proportion to your income Making healthy social comparisons – avoiding always seeing yourself as not doing as well as the neighbouts – the Keeping up with the Jones’
Making smart long-term savings including saving adequately for retirement Having a long-term plan that’s nt just vague but quite specific
If you have other valuables assets like your own home which will offer long term security or save you money on the likes of rent in future Strong nerves in a crisis – ‘don’t panic’ when the stockmarket falls

Based on a set of questions we assessed how individuals scored against these 10 building blocks. People could get up to 10 points for each, so a maximum score of 100.

We then mapped individuals into 9 categories, based on if they scored high, medium or low on money, and high, medium or low on mindset. Their relative scoring on money versus mindset.

To give you a flavour of some of the high-level stats:

  • Around 5 in 6 of the population, or 45 million people, could be taking action to improve financial wellbeing.
  • Just 16% of the population or around 8.6 million people are fortunate to combine healthy finances and a positive money mindset.
  • And unfortunately, 1 in 8 of us or 6.5 million people score poorly on both sets of factors.

Interestingly, most people across most income bands scored lower on mindset than money, showing this is an area where most of us could improve.

How is the wellbeing index being used to help us with our money mindset?

The first thing we wanted to do was paint a picture of the mindset people currently have and what’s important here. It also gave us huge insights into the challenges, strengths and weaknesses by age, gender and even by geographical location.

The next thing we’re planning to do is to show individuals, based on how they score in each building block, how they might begin to improve their financial wellbeing. The good news is it can be easier to improve your mindset in the shorter term than your money scores.

Is this something that is becoming more important in the world of finance? Are attitudes shifting? 

Yes, there are some professional financial advisers who are really delving into financial wellbeing topics and coaching individuals on mindset as well as money. They recognise that this can create a really deep and shared understanding with their clients and really get to the core of what is important to them. It is also a great basis for former longer relationships with clients and our survey also shows that support from an adviser throughout your life can have a positive impact on financial wellbeing.

Isn’t it surely the case that the better off you are financially, the better your financial wellbeing?

As you’d expect, the wealthier people were, the higher they scored on money points but this didn’t always translate into mindset points. 1 in 3 top earners say they worry about money.

One area where there was a link between money and mindset was the wealthier people are, the better they are at picturing their future self.

Can you give us some examples of mindset findings?

Sure. We found:

  • 38% of people have only a vague idea of where they want to be financially in 10 years’ time
  • 28% have only a vague sense of what gives them joy or purpose which are key elements of happiness now and in future
  • 70% of the population don’t have a financial plan

These are things that people can tackle pretty much immediately, whereas it may be harder to change your money situation short term.

How does age affect this?

Peoples’ financial wellbeing generally increases with age and that’s to be expected. It’s partly down to increasing incomes and accumulation of wealth including paying off more of your mortgage if you have one.

But it’s also due to mindset factors like as you get older you’re less likely to make as many unhealthy social comparisons and you’re also likely to have picked up more understanding of financial matters to help you plan ahead.

19 million people struggling with financial wellbeing in the UK is staggering! What were your thoughts on discovering this? Were you surprised?

Unfortunately, no. People increasingly have to take more and more responsibility for their financial futures. For example, in the past, many people had generous final salary pension schemes so their employer effectively looked after their retirement for them. But that’s now increasingly rare and  as a country, we’ve not really prepared for that.

Many face financial challenges and of course the pandemic has for many people made that worse.

You’ve said that one of the biggest things people can do is reframe their thinking about money in a more positive way. Is there anything specific around this that people can do to improve their mindset?

There are some simple steps that can help most of us.

One is thinking about what gives us joy and purpose, which can help us with our plans and investment goals. Not only can it help you work out how to best spend your money today on things that matter, it can help with plans for the future. If you know what you’d like to be doing in future, you can start working out how much that will cost and start saving where you can. Some of us will have spent time reflecting on this during lockdown.

Another is taking time regularly to visualise what you want from your life in the future. Some people write this down, others draw a picture of it. Then ask yourself what that future you would thank you for doing today. This could help us make better financial decisions.

It’s also good to be realistic with who we choose to compare ourselves against. It’s easy to fall into a trap of keeping up with the Jones’s, but if you let it, that can become pretty unhealthy. What makes you happy will be different from what makes the Jones’ happy and you don’t want to be spending what money you have on something that actually isn’t that important to your joy or purpose.

And it can also be really helpful if you’re in a relationship to discuss this with your partner. If to any degree you share your finances, you should also share your financial wellbeing.

Only 17% of people were able to answer 4 out of 5 basic financial literacy questions correctly. What were the questions that were asked?

People were asked about the impact of interest on £100 in a savings account per year – in other words to test their understanding of compound interest. They were asked about the impact of inflation on savings, the type of funds with the safest returns and if they thought they had the ability to judge the best time to buy and sell investments.

What do you think needs to change to help people learn about their finances in this country?

There’s no silver bullet. Some favour starting financial education in school, and there are some key building blocks that would be really helpful to include in school curriculum. But the key is to make learning relevant at different life stages. Right support at the right time, building up ore understanding gradually. That’s part of how we hope to use our FW material.

Have you seen any disparities between men and women through this research?

Unfortunately, women on average scored lower than men on financial wellbeing. That’s partly down to well-known gender gaps in pay and also savings such as pensions.

For too long, there has been a persistent gender pay gap. On top of that, women tend to take on more caring responsibility – whether for children or older parents – leading to more having part time work or career breaks. This then feeds through into a gender pensions gap with women having less longer-term savings.

But we found women also tended to score lower on the mindset blocks. For example, women told us they had less confidence in picturing their future selves than men across most of the age groups although the difference gets less with age. This might be because many women are just so burdened with the here and now.

But it didn’t all go one way. Women do tend to hold their nerve better in a crisis, which boosts their wellbeing score.

What can be done to help women in this area?

A lot of that’s down not to individual women but to society – men and women. We really do need to focus on eliminating first the gender pay gap and then the pensions gap. That won’t happen overnight but over time it’s key to helping women improve their financial wellbeing. The introduction of gender pay gap reporting should help and now that al employees earning over £10,000 a year is auto-enrolled into a workplace pension is also a step in the right direction.

But what out index does is help anyone, male or female, take some personal responsibility here. And it’s not just for improving your own personal financial wellbeing, but in discussing how to improve the financial wellbeing as a household or a family. We need to break away from the historic view that men look after the longer-term finances and women deal with the day to day. In this day and age, surely we can be better than that!

Final Thoughts

I found this work absolutely fascinating, and I hope you do too!

To find out more, and to check your own wellbeing score, visit Aegon’s website: https://www.aegon.co.uk/personal/financial-wellbeing.html

To find out more about the study, go here.

I’d love to know your score – comment below once you’ve done it. Let me know what you’ve discovered about yourself through doing it.

If you have any questions about the research, contact:

Stephanie Melrose – PR Manager Aegon UK [email protected]

 

 

 

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