As consumers in Canada, we’re always bombarded with investment and financial trends that promise high returns, but often fall short, especially whenever you consider costs. Marketers capitalize on these trends, as seen in DIY stock trading, which has enabled tons of of hundreds of inexperienced Canadians to trade—often at significant losses. Similarly, technologies like non-fungible tokens (NFTs) initially attracted tens of millions of dollars from on a regular basis consumers and were hailed as lucrative opportunities. However, they at the moment are widely criticized after causing significant financial losses for a lot of. Fads often promise the world but fall short, leaving Canadians with less money and a diminished sense of well-being.
Fortunately, social scientists have been studying financial well-being for many years and providing us with priceless insights. Their research provides a solid foundation for understanding how we are able to manage our money in ways in which contribute to our overall well-being.
What exactly is financial well-being?
As a licensed financial behavior specialist, I define “financial well-being” as the flexibility to:
- Pay your bills conveniently today.
- Confidence about future funds.
- Having the liberty to benefit from the pleasures of life.
This suggests that financial well-being helps consumers higher manage their funds, achieve their financial goals, feel financially secure, and avoid costly mistakes. Based on this, the Consumer Financial Protection Bureau published a comprehensive study in 2015 that outlined 4 key areas which are essential to financial well-being:
- Control over every day and monthly fundsThis means comparing and understanding expenses with income and effectively managing or paying off debt.
- Ability to soak up a financial shock. An emergency fund is a approach to plan for unexpected expenses or major life changes, akin to job loss, medical bills, home or automobile repairs, the sudden death of a spouse, and more.
- Be on course to attain financial goalsThis involves actively saving for necessary goals akin to a marriage, a sabbatical, retirement, etc.
- Financial freedom to make completely happy decisions: Having the time and resources to do things that bring you joy – from hobbies to big vacations.
Academic research on financial well-being has focused totally on the target and empirical elements of our funds, including income, savings, investments, credit scores, debt, mortgages, and tax payments, assuming that ordering these technical elements ultimately results in financial well-being. However, this approach often overlooks our sense of happiness and satisfaction, which might affect our attitudes toward our overall financial well-being.
How do Canadians handle their money?
A current Transunion Consumer Pulse Opinion poll shows that 32% of Canadian households are struggling to repay their debts. These findings are consistent with FP Canada, which cites money as the largest stressor for 44% of Canadians, but many are optimistic about their financial future. The data suggests that financial stress amongst Canadians is increasing. And the Financial Consumer Agency of Canada (FCAC) reports that three out of 4 Canadians feel “somewhat secure or financially secure.” So Canadians as a gaggle appear to be doing well financially.
But plainly Canadians’ financial well-being is more closely linked to how they manage money than to things like income and savings. The FCAC report suggests that subjective aspects – confidence and attitudes toward spending, savings and investing – also play a vital role in financial well-being.
While income and other measurable financial data are necessary, the broader spectrum of economic behaviors and mindsets carries significant weight for our overall financial well-being.
