Financial Health and Well-Being: A Primer


There’s a lot of talk these days about wages and opportunity and whether the American Dream is more like a pipe dream.

We hear that a growing proportion of the nation is struggling financially, but it’s hard to know exactly who is affected, and why. Most of us need a better understanding of what financial health and well-being looks like — and it goes far beyond having a job or a bank account.

More than half of all Americans — 57 percent — are financially unhealthy, according to the Center for Financial Services Innovation.

More than 1 in 4 people say finances cause them significant stress

4 in 10 struggle to keep up with their bills

And more than 1 in 3 aren’t sure they could cover a $2,000 emergency expense

Policy discussions often focus on more jobs and higher wages …

Unemployment keeps going down. So why aren’t wages going up?
(CNN Money, 9/21)
Are wage increases ever coming?
(Las Vegas Review-Journal, 9/22)‎

And while both are important, they are not the only components of financial health.

More Jobs Haven’t Meant Less Poverty
(FiveThirtyEight, 9/16/15)
U.S. Job Growth Not Making a Dent in Poverty
(Wall Street Journal, 9/16/15)

There is no official benchmark of “financial well-being.” Instead, in interviews with consumers, the Consumer Financial Protection Bureau (CFPB) found that it means different things to different people — but is generally defined as “financial security and financial freedom of choice in the present and in the future.” CFPB identifies four elements of financial well-being:

Consumer Financial Protection Bureau

Financial Health and Well-Being: Breaking it Down

Financial well-being is determined by a complex array of circumstances and choices. For many people, factors beyond their control determine the financial choices they have. It’s important to recognize that the social and economic environment in which a person grows up — their parents’ education, when they are born and enter the job market, their race, where they live, or the schools they attend, for example — may limit opportunities to be financially healthy.

Other drivers of financial health and well-being include:

Annual income. But income isn’t the same as cash flow in and out of a household. Making $60,000 a year suggests that a household takes in $5,000 a month. But what if, in reality, that income comes from multiple part-time jobs with variable and unpredictable hours? What if a household earns as much as $8,000 one month and as little as $3,000 another month? How does that affect the ability to cover regular household expenses or absorb unanticipated ones, when the furnace breaks down or a child needs major dental work?

This is why, in addition to income, things like savings and other assets matter.

Assets. A home, savings, or a business not only to help cover emergency expenses but also allow us to invest in education, move up the career ladder, make long-term plans, and minimize household stress.

There’s also the question of credit access— whether a household can tap into conventional credit sources, or even whether it believes it has access to such sources. Sometimes people don’t apply for credit from formal sources because they are afraid of being turned down. And while access to credit — and even borrowing — is an important part of financial health, too much debt means whatever assets a family has really belong to someone else.

There’s also a psychological element to financial health. It’s not just about credit scores and savings accounts. It’s about feeling in control of your personal finances and having the confidence and resources to set and achieve financial goals. In the end, it’s about how satisfied you are with your financial situation.

CFPB interviewed consumers and experts and reviewed multiple studies to create this visual for what influences financial well-being:

Consumer Financial Protection Bureau

As this shows, only some factors of financial well-being are within a person’s control. While people may control the choices they make, they may not have much — if any — control over the choices they have.

This juxtaposition highlights two important myths about why some people are financially healthy and others are not.

Myth 1: Financial well-being is about making responsible choices.

It’s obviously important for each of us to make sound financial choices. But not everyone has the same choices available. Financial health is driven by both our own decisions and many other aspects of our lives. Limited opportunities can force a person into making financial trade-offs that someone with greater opportunities may not have to make. Payday lenders, for example, while expensive and potentially exploitative, may be the only source of credit available to people whose finances are tight, need to meet ends meet, and lack other resources.

Myth 2: Struggling households mismanage finances.

There is also a widely held perception that struggling households neglect or mismanage their finances. But research from the U.S. Financial Diaries project shows that’s not true. Indeed, many families with tight budgets display surprisingly high levels of financial discipline and resourcefulness to meet daily needs, pay the bills, and even put money aside. When every dollar counts, heads of households frequently devote a significant amount of their time to managing their finances. Yet the constant stress of needing to carefully manage financial resources and long-term financial distress can diminish otherwise savvy people’s ability to made good financial decisions, especially for the long term.

As this recent New Republic article explains, Poor People Don’t Have Less Self-Control. Poverty Forces Them to Think Short-Term.


Creating financial health and well-being is not a just matter of changing individual behaviors but also requires changing the systems that shape financial opportunities. Where we live, go to school, work each day, and receive health services — along with dozens of other daily actions — shape our financial health and well-being.

To help many more Americans become financially healthy, we must embed financial capability strategies in all sectors of society, including education, health, housing, workplaces, and criminal justice — and make financial services more accessible and valuable for people. All have impacts on household financial health and they all have a role to play in making good financial health an attainable American dream.


A forthcoming book,
What It’s Worth: Strengthening the Financial Future of Families, Communities and the Nation, will make clear why every household’s financial health matters for the U.S. economy to thrive.

The book also demonstrates how those who work outside traditional financial capacity building in education, health, housing, workforce training, justice and other sectors play a critical role in removing barriers to financial health and well-being.

Comprised of more than 30 essays from experts across a broad range of fields, the book will include examples of innovations and policy changes that can help more families be financially healthy.


By Laura Choi, Federal Reserve Bank of San Francisco; Kate Griffin, CFED; and Ellen Seidman, Urban Institute


Sign up to receive a free copy of the forthcoming book at strongfinancialfuture.org.

For regular updates, follow @StrongFinFuture.