In Search of Financial Wellness?
31 March 2023 0
31 March 2023 0

Enriched Academy Staff

Financial wellness is fast becoming the latest buzzword as soaring inflation and interest rates pile the financial pressure on Canadians. There is also a strong connection between mental health and finances and financial stress is taking a heavy toll.... so, what exactly does it mean to be “financially well”?

Financial wellness is described as a state of well-being where an individual or a household has achieved financial stability and is able to meet their current and future financial obligations without undue stress.

Financial wellness is not about being rich, having a certain amount of net worth, or achieving a specific financial goal. Rather, it is about having a sense of security and confidence in your financial capability and being able to manage financial issues, challenges and opportunities as they arise over time.

Financial wellbeing is a function of many different factors. Income is obviously a critical element, but it also depends heavily on how well we are able to manage our money. These tasks include budgeting, managing debt, and investing and planning our retirement. The degree to which we are able to handle these tasks successfully depends on our level of personal financial literacy and our ability to make informed decisions, solve financial problems, and manage financial risk.

What is making Canadians so financially unwell?

Lack of financial literacy: Many Canadians lack the financial knowledge and skills to manage expenses and cashflow, save money, and invest and grow their savings for a secure financial future. This makes it difficult to effectively manage their financial life and can lead to financial instability and plenty of financial stress.

Better financial understanding by itself will not solve your money issues, but the importance of financial literacy cannot be overstated. We have seen over and over again at Enriched Academy how just a little pre-emptive knowledge can make a huge difference. For example, understanding the benefits of a TFSA and starting from a younger age.... or investing in an index fund instead of letting cash pile up for years in an RRSP.

High levels of debt: Canadians struggle with credit literacy and have some of the highest levels of household debt in the world. This debt is primarily driven by mortgage debt, but Canadians also carry significant amounts of credit card debt, car loans, lines of credit (often secured by home equity) and student loan debt. The average non-mortgage debt in 2020 was around $23,000. Rising interest rates have seriously exacerbated this problem and there is spiking demand for credit counseling and debt consolidation services.

Income inequality: Income inequality is a significant issue in Canada, with a widening gap between the richest and poorest Canadians. This can make it more difficult for lower-income Canadians to achieve financial stability and security.

Housing affordability: Housing affordability is a major concern in many Canadian cities, with rising housing costs making it difficult for many Canadians to purchase homes or afford rental housing.

What are the costs of poor financial wellness?
Poor financial wellness can have significant costs, both for individuals and for society as a whole.

  • Stress and anxiety: Financial health and mental health go hand-in hand and financial stress can lead to depression, insomnia, and other health problems.
  • Poor performance in the workplace: Financial stress can also affect an individual's job performance and productivity. It can lead to absenteeism, reduced work quality, and lower job satisfaction.
  • Relationship problems: Financial problems can cause tension and conflict in personal relationships. It can lead to arguments, breakups, and divorce.
  • Increased debt: Poor financial wellness can lead to increased debt, which can be difficult to repay and can lead to financial instability.
  • Higher interest rates: Individuals with poor credit scores may face higher interest rates on loans and credit cards, which can make it more difficult to manage debt and improve their financial situation.
  • Limited opportunities: Poor financial wellness can limit an individual's opportunities for education, career advancement, and other life goals.
  • Economic costs: Poor financial wellness can have broader economic costs, such as reduced economic growth, increased demand for social services, and higher rates of poverty.

Overall, poor financial wellness can have far-reaching consequences for individuals and society, underscoring the importance of promoting education and financial literacy to support individuals in achieving financial stability and well-being.

Workplace financial stress in Canada
Financial stress in the workplace is a significant issue in Canada and according to one survey, Canadians worrying about their finances while on the job could have cost as much as $40 Billion dollars in 2022! Employee productivity, employee performance, and employee mental health are all being negatively impacted by financial stress at home and are common reasons for poor performance at work.

Some employers are starting to recognize the effects of poor financial health in the workplace and are implementing programs to support employee financial wellness. Financial wellness benefits may include free financial literacy courses, counseling, employee benefits such as retirement savings plans, and flexible work arrangements to help employees balance work and personal financial responsibilities.

Overall, workplace financial stress is a growing concern in Canada, and employers and policymakers are increasingly looking for financial stress help to support employees in achieving financial wellness.

How do you measure financial wellness?
Financial wellness can be measured in a number of ways, but it is often a feeling rather than some sort of tangible number. While we can easily take some steps to improve our credit score, improving financial wellness is much more complex.

A financial health assessment is a comprehensive evaluation of an individual's or household's financial situation. It typically involves reviewing income, expenses, debt, savings, investments, insurance coverage, and other financial assets and liabilities. A financial health assessment can help identify areas of strength and weakness and provide insights into how to improve overall financial well-being. Enriched Academy offers a complimentary financial assessment call for anyone looking for advice on how to better their financial situation.

A financial stress tests involve evaluating an individual's or household's ability to withstand financial shocks or unexpected events, such as a job loss or medical emergency. Financial stress tests can help identify potential vulnerabilities in one's financial situation and provide insights into how to build financial resilience.

Financial behavior analysis involves examining an individual's or household's financial behavior and decision-making processes. It can help identify patterns of behavior that may be contributing to financial stress or instability, such as overspending or not saving enough.

Surveys and self-assessments can be used to measure an individual's or household's financial wellness. These tools often include questions about financial knowledge, attitudes, and behaviors, and can provide insights into areas where individuals may need additional education or support.

Overall, measuring financial wellness is a complex process that requires taking into account multiple factors and indicators. Different methods may be appropriate for different individuals or households, depending on their specific financial circumstances and goals.

How can I improve my financial wellness?
There are plenty of options for improving your financial wellness and most of them revolve around bettering your financial literacy skills.

Budgeting: Creating a household or personal budget is an important first step towards achieving financial wellness. A budget can help individuals track their income and expenses, prioritize their spending, and identify areas where they can cut back. Most of us are already have the financial knowledge and skills to create a simple budget — the real issue is having the commitment and making the hard choices that are often required to stick to a budget.

Debt management: Developing a plan to manage debt, such as creating a debt repayment plan or debt consolidation and interest rate reduction can help individuals reduce their debt load and improve their financial stability.

Savings: Building an emergency fund and setting savings goals can help individuals prepare for unexpected expenses and achieve long-term financial goals, such as saving for retirement or a down payment on a home.

Financial literacy education: Improving financial literacy can help individuals make informed financial decisions and better understand the impact of their financial choices. Enriched Academy offers free financial literacy in our weekly webinar series, and we also provide learning resources to support financial literacy for young adults to educational institutions across the country.

Seeking professional help: Working with a financial coach, financial planner or financial advisor can provide individuals with personalized guidance and support in achieving their financial goals.

In addition to individual action, there are also broader solutions that can support financial wellness at the societal level. These may include policies that promote income equality, affordable housing, and access to financial services, as well as employee financial wellness programs and education initiatives.

2023 is shaping up to be another tough year financially for Canadians and financial wellness will continue to be elusive, especially if your financial literacy is lacking. The good news is there are a lot of resources available and many of them are free or low-cost. The largest hurdle for most of us is willpower and maintaining our motivation — achieving financial wellness is not a sprint. It can be a time-consuming, slow process and you may not see the results from your efforts until many months or many years down the road!

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