Money and mindset

For financial advisers only

The following video is about How does a pension work and has a transcript (see below).

What we focus our mind on matters. Aegon’s Dr Tom Mathar explores our latest research about the nation’s financial resilience, how they think about money and the importance of having a balanced ‘money mindset’.

Money and mindset – video transcript

Dr Tom Mathar, Aegon UK:
So I'm going to elaborate a little on the financial wellbeing work that we have done. And the understanding that we have come to is perhaps worth saying that financial wellbeing will never be a concept that will ever be like objectively defined. So our understanding is contribution to a lively debate and perhaps a contribution where we think others have some shortcomings or where we elaborate on what others have done. So first, perhaps there's a difference between financial worries and financial trouble. Trouble is urgent - I can't pay the bills or I don't know where the income's coming from etc. Whereas these are more about what's going on in the head rather than in the bank account. And both worries and troubles of course affect financial wellbeing, but it's useful to distinguish the two in a sense.

We don't think that we can ever stop worrying about money. In fact, we see that we've asked this question. When we did a big piece of research, we see that people of all income brackets worry about money, they worry about different things, but they're all worried. So it's perhaps unrealistic to aspire, to stop people or to help people stop worrying about money. Rather, it's all about encouraging them to worry more effectively or insightfully about money. So the, the questions are, in what ways should you care about money and for what reasons should you care about money? What do you need money for in the first place to do what, why etc. And, and we think that much of the most of financial wellbeing work that's been done is addressing the sort of financial troubles part, the urgent money problem side.

It's less to do with the side that enables us to live a more sort of flourishing and happy life. So that's really why we have developed an understanding of financial wellbeing that considers money matters.

You see that there on the left-hand side, that's perhaps an uncontroversial part. Yes, income matters, rainy day fund matters, manageable debt levels matter to have long-term savings matters and to have other assets to help us feel secure - all that is important, but we have also looked into what we call the mindset side, which is this other side of financial wellbeing, which is really about are we intrinsically motivated? Do we know what gives us joy and purpose in life? Do we have a concrete or vague picture of our future selves?

Are we bogged down by social comparisons? The social comparisons part is interesting because there's lots of research that shows that how much one possesses is less important compared to how much, one thinks, one possesses in comparison to others. And have we got plans that consider those three things?

I mentioned the, the intrinsic motivations, and do we also understand the emotions that drive or prevent investment success? So the way we've done this when, when researching financial wellbeing is we've invited a huge population of the general populations of 10,000 people, the UK population across genders, age groups, regions, etc and asked them questions around those 10 aspects and total we asked the questions in a way that allowed us to sort of index this so that on each of the 10 aspects, one could have earned a minimum off zero points and a maximum of 10 points.

And a result of that was up to a hundred points that could have been earned. And what we found was that with higher income, so the more income you earn, the better your money side of financial wellbeing is doing, but the mindset side is not necessarily increasing by the same margins as the money side is. And that is interesting, and that highlights new opportunities with things.

Role of protection

I talked initially about the difference between financial worries and financial troubles, and I made the point that both our financial wellbeing, but to achieve financial wellbeing, we should worry more insightfully about money, for example, by asking ourselves, what might give us joy and purpose in the future, and how might we achieve that?

Now, let me just move to financial troubles quickly. Solid finances are of course, a key component of financial wellbeing. But we found that many people are struggling more than a third. I think 36% of people have no emergency savings at all. And 29% have less than a month’s worth of income saved.

For those with emergency savings, the amounts held would only allow people to live without an income for an average of just over four months, let's just 18 weeks.

So this highlights just how important it is for people to protect their income. Not only will they be protected against unforeseen circumstances, but they'll also improve their financial wellbeing, giving them confidence in their financial decisions so they can sleep better at night. So protection and insurance against the risks of life really does have an impact on financial wellbeing.