Rethink Your Piggybank: An Introduction to Financial Wellness

*Disclaimer: I am not a registered dietitian, naturopath, doctor, or other type of healthcare professional. This is simply the product of my own research and opinions, not to be used to replace the recommendations of a registered healthcare professional.


The wellness market does an excellent job at telling us what we should be spending our money on in order to be well, but what if I told you that saving your money is actually the real key to wellness. Our overall wellness can be divided into 7 categories, referred to as the “7 Dimensions of Wellness”; and among these 7 dimensions is our “Financial Wellness”. “Financial Wellness” is generally defined as being able to confidently apply one’s financial knowledge in order to effectively manage their personal finances. This includes making good financial decisions, spending within one’s means, planning for emergencies and preparing for the future. Given this definition, financial wellness can be split up into three main components: knowledge, confidence and implementation. If any of these three components are lacking, then financial wellness is at risk.


Now, what happens if our financial wellness is at risk? We already know that our financial position impacts our health and wellness; and this relationship is typically studied in terms of the Social Determinants of Health (SDH) or what our money can buy. These Social Determinants of Health refer to things like access to education, food security, housing, and access to health services. However, it has more recently been identified that it’s not only about what our money can physically purchase, but our perceptions of our financial position. This is referred to as “perceived financial strain”, where one is able to cover their basic expenses (i.e. food, housing, health services), but believe that they don’t have much left for anything else (i.e. planning for emergencies, building wealth). It’s important to note that this is a subjective report, meaning that it has to do with how much you think you have not how much you actually have. Thus, perceived financial strain accounts for the fact that people with similar incomes can have large variations in their financial experience. This means that, among two people with the same income, one may report that they are financially strained while the other may not.

Our perception of (or confidence in) our financial position significantly impacts both our financial and overall wellness. One 2015 study among older adult women (age 70 to 79), found that higher self-reported financial strain was associated with a 13% increase in oxidative stress compared to those that reported low financial strain [1]. Oxidative stress is when there are more oxidant compounds in the body than antioxidants; and these oxidants begin to breakdown the components of our cells (proteins, lipids, nucleic acids), causing accumulated cell damage and cell death. These accumulated cell damages have been shown to contribute to the onset and progression of diabetes, atherosclerosis and mortality [1]. What’s really interesting about this study is that it was able to control for income, meaning that these results accounted for only perceptual differences in financial strain, not financial strain due to differences in incomes. However, it’s important to note that this study was conducted on women only, so more research is needed before the results can be generalized to apply for men as well.




Additionally, our financial behaviours (or implementation) can affect our self-reported health and wellness; where this refers to how one manages and plans for their day-to-day financial activities. The Center for Financial Services Innovation (CFSI) identifies 4 components of financial wellness that mirror daily financial activities: 1) spending, 2) saving, 3) borrowing; and 4) planning. These indicators refer to activities like paying bills on time and in full (spending), having sufficient long-term savings (saving), having a good credit score (borrowing); and planning for future emergencies (planning). Interestingly, a 2020 study using these 4 indicators found that poorer borrowing and planning behaviours were associated with lower self-rated health and higher self-rated depressive symptoms; independent of food, housing and energy security [2]. Although these reports are self-rated, previous studies have shown that financial stress has been linked with increased physical pain, lower pain tolerance and risk of coronary heart disease [3]. Interestingly, severe financial stress has been considered affect mental health akin to adverse childhood experiences (ACE), which include abuse, neglect and household dysfunction [4]. Overall, this study shines light on the fact that other financial activities impact our overall health and wellness beyond being able to afford our basic needs. Additionally, it highlights the relationship between our financial behaviours and perceptions, where both how we manage our finances and our feeling of being “in control” of our finances are both major components for our financial wellness.

Lastly, in order to confidently and effectively manage our finances, we must first have good financial knowledge – or be “financially literate”. Financial literacy is the ability to properly understand and apply financial management skills. Some characteristics of being financially literate include: effective financial planning, properly managing debt, understanding and calculating compound interest; and understanding the time value of money. One 2017 study on pharmacy students effectively demonstrated the relationship between financial knowledge, perceived financial stress and financial decision making through the lens of borrowing behaviour. The study found a correlation between students that reported greater “fear of debt” and increased stress and amount borrowed [5]. The same study also found a correlation between students with “greater contemplation and knowledge about loans” and reduced amount borrowed; as well as a shorter expected time frame to repay loans [5]. Thus, it is believed that those that are more thoughtful and knowledgeable about loans understand that fewer dollars borrowed and quicker repayment (through effective and measurable planning) results in greater funds saved for personal use [5]. However, the study also notes that this relationship is a correlation and it could just as well be the case that those students that took out more loans have a greater “fear of debt” because they simply have more debt.

Interestingly, a 2016 study on financial and health literacy in older adults found that higher financial and health literacy was associated with higher baseline levels of cognition, reduced cognitive decline; and decreased risk of developing Alzheimer’s disease and mild cognitive impairment [6]. The results of this study suggest that higher levels of financial and health literacy are associated with maintenance of cognitive health in older adults. However, it’s important to mention that the study did not distinguish between financial and health literacy but combined the two for an overall literacy score.




At this point, it should be evident how our knowledge (financial literacy), implementation (financial behaviours) and confidence (our perception) work together to make up our financial wellness. But, if many of the adverse health outcomes associated with poor financial wellness occur later in life, then why should we care about our financial wellness now, as young adults? Well, it’s been well researched that financial stress accumulates as young people age. One 2014 study investigating young adults with credit card debt found that debt has negative consequences on sense of mastery and self-esteem over time [7]. Thus, not only does our financial wellness continue to impact our physical and mental health over time, but it also affects how we perceive ourselves and our overall confidence. Taking proactive measures as young adults to improve our financial literacy, confidence in our ability to make financial decisions; and ability to effectively plan and manage our finances will help alleviate current and future stress. Additionally, when one begins to learn any new skill, there comes a lot of mistakes. Making these mistakes earlier on will result in greater confidence and better decision making later, with increased experience.

So, what are some steps that young adults can be taking towards becoming more ~financially well~? The first big step is to improve financial literacy. It is impossible to make financial decisions confidently and effectively without first having the necessary background financial knowledge. Thus, to help with this, below are some useful, easy-to-digest resources that can be used as a starting place to improve your financial literacy:

Podcasts

1. Bad with Money

2. Death, Sex & Money

3. Life Kit

4. Millennial Money

5. So Money

6. Planet Money

7. The Indicator

Books

1. You’re So Money: Live Rich Even When You’re Not (Farnoosh Torabi)

2. Why Didn’t They Teach Me This in School?: 99 Personal Money Management Principles to Live By (Cary Siegal)

3. Personal Finance for Dummies (Eric Tyson)

4. The Truth About Money (Rich Edelman)

5. The Richest Man in Babylon (George S. Clason)

6. Rich Dad Poor Dad (Robert T. Kiyosaki)

How do you practice financial wellness? Share any tips and tricks in the comments below!



Sources

[1] Palta, P., Szanton, S. L., Semba, R. D., Thorpe, R. J., Varadhan, R., & Fried, L. P. (2015). Financial strain is associated with increased oxidative stress levels: the Women's Health and Aging Studies. Geriatric nursing (New York, N.Y.), 36(2 Suppl), S33–S37. https://doi.org/10.1016/j.gerinurse.2015.02.020

[2] Weida, E. B., Phojanakong, P., Patel, F., & Chilton, M. (2020). Financial health as a measurable social determinant of health. PloS one, 15(5), e0233359. https://doi.org/10.1371/journal.pone.0233359

[3] Chou, E. Y., Parmar, B. L., & Galinsky, A. D. (2016). Economic Insecurity Increases Physical Pain. Psychological science, 27(4), 443–454. https://doi.org/10.1177/0956797615625640

[4] Braveman, P., Heck, K., Egerter, S., Rinki, C., Marchi, K., & Curtis, M. (2018). Economic Hardship in Childhood: A Neglected Issue in ACE Studies?. Maternal and child health journal, 22(3), 308–317. https://doi.org/10.1007/s10995-017-2368-y

[5] Chisholm-Burns, M. A., Spivey, C. A., Jaeger, M. C., & Williams, J. (2017). Associations Between Pharmacy Students' Attitudes Toward Debt, Stress, and Student Loans. American journal of pharmaceutical education, 81(7), 5918. https://doi.org/10.5688/ajpe8175918

[6] Wilson, R. S., Yu, L., James, B. D., Bennett, D. A., & Boyle, P. A. (2017). Association of financial and health literacy with cognitive health in old age. Neuropsychology, development, and cognition. Section B, Aging, neuropsychology and cognition, 24(2), 186–197. https://doi.org/10.1080/13825585.2016.1178210

[7] Hoeve, M., Stams, G. J., van der Zouwen, M., Vergeer, M., Jurrius, K., & Asscher, J. J. (2014). A systematic review of financial debt in adolescents and young adults: prevalence, correlates and associations with crime. PloS one, 9(8), e104909. https://doi.org/10.1371/journal.pone.0104909