A New Measure of Financial Well-Being
In order to provide practitioners and researchers with a “standard, reliable, and broadly available way to measure individual financial well-being,” a government agency has launched a new “financial well-being scale.”
The government agency is the Consumer Financial Protection Bureau, (CFPB). The agency led what it described as a “rigorous research effort” to develop a consumer-driven definition of financial well-being, and then tested a set of questions — a “scale” — to measure financial well-being.
CFPB said that its research indicated that financial well-being contained the following elements:
- Having control over one’s finances in terms of being able to pay bills on time, not having unmanageable debt, and being able to make ends meet.
- Having a financial “cushion” against unexpected expenses and emergencies.
- Having financial goals — such as paying off one’s student loans within a certain number of years or saving a particular amount towards one’s retirement — and being on track to meet those financial goals also made people feel like they were in good shape financially.
- Being able to make choices that allow one to enjoy life — such as taking a vacation, enjoying a meal out now and then, going back to school to pursue an advanced degree, or working less to spend more time with family — was also deemed an essential ingredient in financial well-being.
The CFPB scale is designed to allow practitioners and researchers to accurately and consistently quantify, and therefore observe, something that is not directly observable —
the extent to which someone’s financial situation and the financial capability that they have developed provide them with security and freedom of choice.
You can access the user guide, as well as both standard and abbreviated versions of the worksheet and questionnaire here