Measuring and Understanding Your Financial Well-Being

Financial well-being: the phrase can conjure up a number of different interpretations, depending on who you’re asking. For some, it can mean having an emergency fund. Others may think it’s finally paying off those student loans (woo-hoo!) Still, others may simply believe that financial well-being is attained by making a lot of money. But that’s not totally correct. While making money certainly is a factor in financial wellness, it’s certainly not the only one. After all, having a large paycheck is great but it won’t seem like much if you’ve comparable levels of debt and expenses. Despite the common belief that more money brings more security, the definition of financial well-being shows that there’s more to it than just your income:

Financial well-being: a state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future, and is able to make choices that allow them to enjoy life.

                                -Consumer Financial Protection Bureau (CFPB)              

As the CFPB indicates, financial well-being is not at all about how much you earn. Rather, it’s about making smart decisions with the money you have to allow you to experience peace of mind. True, earning bigger bucks can give you the opportunity to more comfortably cover your financial obligations, but all of that can be undone by giving in to lifestyle creep and failing to plan.  That’s why the CFPB has created a tool to help you measure how financially fit you are and a starting point upon which to build your path to financial well-being.

The CFPB Financial Well-Being Tool

The CFPB Financial Well-Being Scale was created to help quantify something that hasn’t been very easy to measure up to this point: your financial wellness! It’s based on a series of five to ten questions, depending on the version you decide to complete. The questions were carefully selected through a series of cognitive interviews, factor analyses, and three rounds of psychometric testing to ensure that you can clearly interpret them in order to construct an accurate score. In other words, it’s a scientific look at the not-so-scientific way we spend money!

Why is this important?                     

If you’ve seen any financial literacy survey or research lately, you know that Americans are failing miserably when it comes to managing money. Millennials, especially, are being targeted as a generation that doesn’t understand credit, can’t repay their student loans, and will need to work well into their golden years due to a lack of saving and retirement planning. But that doesn’t have to be the case. Learning about and investing in your financial well-being can turn these trends around and ensure that you don’t become part of these statistics. And the Financial Well-Being Scale is a good place to start.

That being said, this tool doesn’t “grade” you; there’s no gold star for finding yourself high or low on the scale. Most people will find themselves in the middle. However, you might challenge yourself to an annual competition to monitor your progress on a monthly, quarterly, or annual level. You can use your findings to help yourself cut back, maintain, or add some splurge funds to your next budget.

Can my score change?

Absolutely. Although it’s probably ineffective to take the test every time you put money into your savings account, taking the test every few months may be beneficial as it can help you determine whether or not you’re making the right financial decisions for your lifestyle. Your score is based on things that change – income, spending, savings – so it will fluctuate as your financial behaviors do.

How do I take the assessment?

The assessment is online and ready for you to complete when you’re ready. The best part? It’s everyone’s favorite price – free. The assessment can be downloaded in three easy clicks starting here.

How do I find my results?

Each response has a set value between zero and four, and the sum of those response values is located on a table where you will follow the number to your corresponding identification and you’ll see your score.

In the end, your score means more than just the number you find on a piece of paper. It gives insight into what you’re doing well and where your challenges are when it comes to money. It provides an objective lens through which you can view your ability to pay the bills, both today and in the future, and whether or not you can splurge on a Friday night on the town. And when you know all that before you even receive your next paycheck, then you know you have achieved financial wellness.

Take your assessment today and start becoming your own financial hero.