What is financial wellbeing?

For financial advisers only

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

Money can have a positive or negative impact on your life. And we think that's not just because of how much or how little someone has but also because of beliefs, emotions, practices around money. Aegon’s Dr Tom Mathar and Chris Budd, founder and Chair of the Initiative for Financial Wellbeing explain what financial wellbeing is, and the five pillars that helps provide its structure. 

What is financial wellbeing – video transcript

Dr Tom Mathar, Aegon UK:
Now let's start with our understanding of financial wellbeing. We've got an understanding here spelled out on this, on this page and I'll let you read this.

Dr Tom Mathar, Aegon UK:
I'd just like to highlight very quick what financial wellbeing does not mean.

It's not about earning healthy sums of money. And it's not about having impressive amounts of savings in, in ISAs, pensions, etc. It's all about this: having a relationship with money that allows you to live a meaningful and enjoyable life.

And I just want to reflect very quick on this relationship point that I mentioned here, so what does it mean to have a good relationship in the first place? Not with money necessarily, but in general, with a partner, with a child and a colleague. And I think the answer is:

A). A good relationship means that everyone in the relationship understands that it's ongoing work. Just because the relationship is good now, it does not mean it's good for forever and

B). A good relationship means that one understands that both partners understand who's contributing positively to a relationship and who perhaps isn't so much.

So when we translate this into a relationship with money, obviously money, it's not the human actor, but money can still have a positive or negative impact on your life. And we think that's not just because of how much or how little someone has, but also because of beliefs, emotions, practices around money. And we'll elaborate on this a little later. Now, Chris, you've done a lot of work on financial wellbeing. What might you want to add to this?

Chris Budd, founder and Chair of the Initiative for Financial Wellbeing:
The point about helping clients to understand what makes them happy. I think is a good starting point for this as it's really important for advisers to acknowledge that this is not something that they are naturally very good at.

One of my favourite statistics is that 95% of people consider themselves to be above average drivers. And in a similar vein 95% of financial advisers I've ever spoken to say, they're good listeners. But we're not good listeners. We're not trained to be good listeners. That's not what we do in school. That through our technical exams, we are trained to find answers to problems. We are given a set of information and your challenge is to find the answer to that issue. And that's not what we're talking about here.

We're talking about helping clients understand themselves better the 'Know Thyself' stuff that we've talked about for years. So if we could just kind of set that one down early and bear that in mind that this is not something that comes naturally to us, it needs to be worked at.

Dr Tom Mathar, Aegon UK:
Chris, do you want to take over and talk about the five pillars of financial wellbeing that you have defined?

Chris Budd, founder and Chair of the Initiative for Financial Wellbeing:
So this comes from some research in America from a few years ago, and this forms the five pillars, which is what we've kind of taken in the IFW as being our bedrock of financial wellbeing. So let me just talk through these for a few minutes.

So the first, is a clear path to identifiable objectives. Now we'll drill down on that identifiable objectives point a little bit later a clear path to identify, but objectives, many ways that is financial planning. So having a financial plan is part of financial wellbeing. So clearly FACHE advisers, financial planners have a huge part to play in helping their clients to get happier.

One of the lines that I've used for quite a few years now is that financial planning is really very simple. You just work out what you want from life and spend your money on that. And as a trike line, but it's very true, it's simplistic, but it's very true. So a clear path I would suggest is probably cashflow forecasting and the identifiable objectives is creating that future that you probably can't currently envisage, or maybe you can, but we find very often people can't.

Being able to cope with financial shocks - and actually it's the ability to cope. It's a peace of mind knowing that if something were to happen, you and your family would be okay. One of the questions I often ask when I do talk to conferences is how many people in the audience, who are generally financial advisers, have their own financial adviser, and you usually see a small smattering of hands go up and that's it.

I have a financial adviser. I pay somebody to do financial planning for me and my family. Why do I do that? Well, one of the biggest reasons is because I want to know that if something happened to me, somebody would be there to look after my family who will be at a step in and tell them about the financial position. So that's actually comes into the ability to cope with financial shocks.

It does also touch on security for loved ones as well of course.

Financial options - there's two aspects to that. There's being able to have a certain element of financial freedom. But there's also the flip side about behaviours and self-limiting beliefs that stop us from making good financial decisions.

Control of daily finances - this is the one that you will find most common in the workplace. Because when people in workplace wellbeing talk about financial wellbeing, they generally only focus on that topic. Similarly, the FCA and MAPS tend to focus just on that aspect of it, that at the IFW we have a much broader definition of financial wellbeing to encompass these other areas as well.

So that's probably a reasonable introduction to, to those five pillars.