Principal investigator: Viviane Pires Ribeiro
Paper Title: Conceptualizing Financial Wellbeing: An Ecological Life Course Approach
Authors: Fanny Salignac, Myra Hamilton, Jack Noone, Axelle Marjolin and Kristy Muir
Location of the Intervention: Australia
Sample Size: 72 participants
Main theme: Finances
Main Variable of Interest: Financial Well-being
Type of InterventionRedefining and reconceptualizing financial well-being.
Methodology: Ecological Approach
The ability to make sound financial decisions and create responsible financial habits has always been important; however, in an increasingly complex financial system, financial decision-making is becoming more challenging. However, existing conceptualizations do not adequately consider the dynamic interaction between the individual's environment and their financial well-being, as well as how aspects of financial well-being can interact according to the individual's age and life stages. In this context, Salignac et al. (2020) seek to address this gap by redefining and re-conceptualizing financial well-being, aiming to understand its components and the relationships between them.
Evaluation Context
Around the world, the financial landscape is becoming increasingly complex, resulting in more challenging financial decision-making. Economic prospects are changing rapidly, and external shocks are becoming more permanent, leading to increased financial uncertainty. Responses from governments, non-profit organizations, and businesses worldwide have focused on ways in which people can be supported to navigate and succeed in this new financial landscape, including: financial inclusion; financial literacy; financial empowerment; and financial counseling.
There is a growing expectation that these programs will improve the financial well-being of individuals and families. However, financial well-being is inadequately conceptualized and inconsistently defined, making it difficult to understand and improve financial outcomes. Existing conceptualizations do not adequately consider the dynamic interaction between an individual's environment and their financial well-being, nor how aspects of financial well-being can interact according to age and life stages.
The lack of a conceptualization of financial well-being that adequately captures the interaction between an individual and their environment undermines the ability of individuals, financial advisors, employers, community organizations, and policymakers to help improve financial outcomes and overall financial well-being.
Intervention Details
The research conducted by Salignac et al. (2020) aims to advance the understanding of financial well-being by addressing gaps in current knowledge. Thus, the research seeks to answer the following questions: What is financial well-being? What are its different dimensions? And how can we ensure that we are capturing the interaction of the individual with their environment over time? In this sense, the authors argue that adopting an ecological life-course approach can help to understand and reconceptualize financial well-being. An ecological perspective allows for a better understanding of the ways in which an individual's financial well-being develops in interaction with their environment. At the same time, a life-course perspective allows us to consider how we understand financial well-being, and this will differ for people of different ages and life stages, and according to different life events.
The study's contributions are twofold. Firstly, the authors re-conceptualize financial well-being using an ecological life-course approach and drawing on new qualitative research. The research explores the ways in which Australians of different ages, genders, and socioeconomic levels understand financial well-being in their daily lives and in the future. Secondly, the study suggests a definition of financial well-being that allows it to be situated within its legitimate dynamics. Therefore, based on this work, the authors propose a conceptual model that allows for a better understanding of how financial well-being can change over time and how it is achieved, maintained, or challenged.
Methodology Details
Focus groups and individual interviews were conducted between August and November 2016. A purposive sample of participants was selected to cover a broad demographic and a range of socioeconomic and personal circumstances. The sample included 72 participants: 9 focus groups with 54 people living in Australia, of different ages, genders and socioeconomic levels; and 18 individual interviews with people facing challenges related to their financial well-being.
Focus groups were conducted in two urban and one regional location and followed a semi-structured discussion guide – lasting approximately 1,5 hours. Individual interviews also followed a semi-structured discussion guide and the same questions applied to the focus groups were asked. Participants were asked what it meant to them to be in a good financial situation and what contributed to their current and future financial situation. More specific questions were then asked about the role of financial capacity in financial well-being, differences according to gender and age, and facilitators and barriers to financial well-being at different levels. Most interviews were face-to-face (in urban areas), but in several cases, participants expressed a preference for telephone interviews. Interview durations ranged from 30 minutes to 1 hour.
Focus groups and interviews were transcribed, and a thematic analysis was performed using the NVIVO qualitative data management software. The authors adopted a “theory-driven” approach, shaped by a literature review and the principles of financial well-being that the authors themselves developed.
Results
The results allowed us to identify three distinct dimensions of financial well-being – each with its own sub-dimensions:
(1) “Meeting expenses” and having “money left over” comprises three sub-dimensions: (a) meeting expenses and managing debts, (b) having a “reserve” in case of unexpected expenses, and (c) having some savings to pay for “small extras,” if desired.
(2) Being in control (i.e., feeling and acting in control of your finances) comprises two sub-dimensions: (a) having control over your financial situation in the present and in the future, and (b) having the ability to set and pursue goals for future spending and life planning.
(3) Feeling financially secure comprises two sub-dimensions: (a) having limited financial worries in the present and the future, and (b) how satisfied one feels with one's financial situation.
Based on the results, the authors propose the following definition: financial well-being is when a person is able to cover their essential expenses and non-essential expenses that they deem important, with some money left over, has control over their finances, and feels financially secure, both now and in the future.
Thus, research suggests that this definition of financial well-being is intrinsically situated within broader relational, social, structural, and temporal dynamics. The combination of ecological systems and a life-course approach allows for a better understanding of how financial well-being and its dimensions change over time and how it is achieved, maintained, or challenged. A life-course perspective allows for consideration of different life stages and events and how they influence financial well-being for different people. In this sense, research suggests that the importance and significance of the dimensions of financial well-being change throughout life and in response to different life stages and events. An ecological systems approach, in turn, provides a robust mechanism for understanding the ways in which an individual's financial well-being develops in interaction with their environment.
The research found a number of influencers of financial well-being at the ecological system level: that is, at the individual, family, and community/society levels. At the individual level, financial capacity, employment, health and happiness, gender, education, and skills were identified as strong influencers of well-being. The nature and extent of the influence appear to be linked to the individual's life course stage and financial circumstances over time. The research also suggests that these individual factors interact with factors in the broader context of the family and community in which participants live. Individual factors such as financial knowledge, attitudes, and gender were closely related to family-level influencers, and those at the family and friend level such as family responsibilities, parental support and education, and couple dynamics.
Finally, influencers at both the individual and family levels were shaped by broader influencers at the community level, such as cost of living, government policy, or access to financial products and services. A lack of affordable housing and the rising cost of living are significant structural issues across Australia and are particularly problematic for low-income families. Furthermore, the demographic constraints on supporting dependent young people and elderly parents tend to place additional financial pressure on families, especially low-income families.
Lessons in Public Policy
The qualitative study conducted by Salignac et al. (2020) shows that an ecological life-course approach allows us to capture how an individual's financial well-being is structurally, socially, and temporally situated. This research is among the first in Australia to begin developing a model of financial well-being and the factors that contribute to it, therefore offering a path forward in addressing current gaps in the literature. It is a first step towards understanding what financial well-being is, what it means, what influences it, and thus contributes to international discussions surrounding its reconceptualization.
With appropriate measures already in place, the authors state that the next step is to develop, implement, and evaluate initiatives that operate at the individual, family, community, and social levels. Thus, the research provides guidance for these activities, allowing researchers studying happiness and financial well-being to answer new questions: Which dimension of financial well-being has the most influence on the creation of overall happiness? Which levels of ecosystems represent the “big levers” for the creation of financial well-being and happiness, and to what extent does this depend on culture and context? The answers to these questions will help governments reduce financial inequalities through the creation of appropriately targeted social and economic policies.
References SALIGNAC, Fanny et al. Conceptualizing financial wellbeing: an ecological life-course approach. Journal of Happiness Studies, v. 21, no. 5, p. 1581-1602, 202
