What is financial well-being? What does it mean to Canadians?

As consumers in Canada, we are constantly bombarded with investment and financial fads, promising significant returns that often fall short, especially when considering their costs. Marketers capitalize on these trends, as seen with DIY stock trading, which has enabled hundreds of thousands of inexperienced Canadians to make trades—often resulting in substantial losses. Similarly, technologies like non-fungible tokens (NFTs) initially attracted millions of dollars from everyday consumers and were hailed as lucrative opportunities. However, they are now widely criticized after causing significant financial losses for many. Fads frequently promise the world but fail to deliver, leaving Canadians with less money and a diminished sense of well-being.

Fortunately, social scientists have been examining financial well-being for decades, providing us with valuable insights. Their research offers a solid foundation for understanding how to manage our money in ways that contribute to our overall well-being.

What exactly is financial well-being?

As a Certified Financial Behaviour Specialist, I define “financial well-being” as being able to:

• Comfortably covering bills today. 
• Feeling confident about future finances. 
• Having the freedom to enjoy life’s pleasures.

This suggests that financial well-being enables consumers to take charge of their finances, reach their financial goals, feel at peace financially, and sidestep costly mistakes. Building on this understanding, in 2015, The Consumer Financial Protection Bureau released a comprehensive study outlining four key areas essential for financial well-being:

1. Control over day-to-day and month-to-month finances. That means understanding and aligning expenses with income and managing or paying off debt effectively.
2. Capacity to absorb a financial shock. Having an emergency fund is a means to plan for unexpected expenses or a major life transition, such as a job loss, medical bills, home or car repairs, sudden death of a spouse and more.
3. Being on track to meet financial goals. This is actively saving for significant goals, like a wedding, sabbatical, retirement and so on.
4. Financial freedom to make happy choices: Having the time and resources to spend on things that bring you enjoyment, from a hobby to a big vacation.

Academic research on financial well-being has primarily concentrated on the objective and empirical aspects of our finances. These include income, savings, investments, credit scores, debts, mortgages and tax payments. It operates on the premise that getting these technical elements in order ultimately leads to financial well-being. However, this approach often overlooks our sense of happiness and satisfaction, which can influence how we feel about our overall financial well-being.

How are Canadians doing with their money?

A recent Transunion Consumer Pulse survey reveals that 32% of Canadian households struggle to cover debt payments. These findings align with that from FP Canada, which reports money as the top stressor for 44% of Canadians, but many are optimistic about their financial futures. The data suggests that financial stress is increasing for Canadians. And, the Financial Consumer Agency of Canada (FCAC) reports that three in four Canadians feel “somewhat secure or financially secure.” So, Canadians, as a group, seem to be doing well financially.

But it seems financial well-being for Canadians is more closely linked to behaviours around money than around things like income and savings. The FCAC report suggests that subjective factors—confidence and attitudes toward spending, saving and investing—also play pivotal roles in financial well-being.

While income and other measurable finances are important, the broader scope of financial behaviours and mindsets carries substantial weight in our overall financial well-being.