Financial wellness is climbing the ladder as a top concern for organizations seeking to improve the health and wellbeing of their workforces. The stress that a lack of financial causes may cost global companies a combined $300 billion per year. But financially confident, stable employees stick around longer, come to work more often, and are even more productive once they get there.
One critical first step to cultivating personal financial wellness is understanding the current state of our finances so we can effectively plan the pathway between where we are and where we want to go. But money is complex, and for the 36 percent of Americans who believe themselves to be financially illiterate, the task of understanding their financial realities (let alone strategizing for the future) is monumental without some basic metrics to work with.
That’s where the financial wellness score (FWS) comes in. Even for more confident consumers, a FWS simplifies the task of understanding every aspect of our monetary lives — from income and savings to debt and daily expenses — so we can set better goals and begin to work towards them. Let’s dive in.
First, let’s establish a baseline definition of financial wellness.
Financial wellness describes the sense of confidence, stability, and security that comes from intelligent money management. On a practical level, financial wellness can include:
All of these factors come together to enable individuals to live comfortably according to their own standards. Financial wellness is not a possibility without adequate income, though it is possible at a variety of different income levels. Financial wellness will rarely be universally measured against a singular dollar amount, but is instead a matter of balance, and the comfort of the individual.
Practical financial wellness is a complex network of financial factors which are unique to the group or individual who holds them. A financial wellness score offers one method to simplify these factors into a digestible measurement so that the person or people holding the score can understand, analyze, and address their financial reality more easily.
Most financial wellness calculation methods include the following elements:
Some methods will also consider age as a critical factor in your total score. For example, how close you are to retirement may increase or decrease the total value of your savings.
Additional considerations include inflation, as well as returns on investments, savings kept in a generative accounts, etc.
A financial wellness score can help to establish a clear baseline of your current financial situation. It might not be fun to look at initially, but having this metric in your pocket will allow you to better understand which elements of your overall financial wellness are working, and which ones need some attention.
Once you have this information, it becomes easier to plan a pathway between your current financial reality and the short- and long-term goals you set for yourself. Having this baseline will also enable you to measure your progress as you get closer to reaching those objectives.
A number of basic and more complex financial wellness calculation methods exist that will either place your score within an established index (similar to a credit score) or give you a percentage-based score which rates your financial wellness out of 100. In all cases, your score will be measured against ideal ratios established by financial experts, though these ratios may be different depending on which expert or institution is delivering the ideal.
For this article, we’re borrowing standards from Credit Donkey’s basic financial wellness calculator. Here’s how it works.
Each of these factors represents 25% of your total score. To understand your score as a percentage, add your 4 scores together and divide them by 4 to get a percentage amount. Higher numbers means a high degree of financial wellness, while lower numbers indicate some work may need to be done.
Remember, a financial wellness score is an indicator, not a signal for despair, or an excuse to ignore your budget. Whatever your score may be, it’s important to use it as a signpost to guide you towards the next step in your financial journey. For some individuals, that may mean paying down debt or getting serious about saving for retirement. For others, it may mean creating a pathway towards your next big financial objective, like saving for a downpayment on a house.
Or, your next step may be simply learning more about finances so you can better manage your money. Origin is one employee benefit that can help make this happen. Origin helps organizations improve holistic financial wellness with practical and educational resources that empower employees to build financial wellness for themselves and their families.
See how Origin can meet the financial wellness needs of your employees and your organization.