Financial wellbeing is learning how to manage your money and resources responsibly with an eye toward long-term financial security. It’s about being able to meet your financial obligations, be financially prepared for an unexpected event, able to save for future goals including retirement and having the financial freedom to make choices that allow you to enjoy life – now, in the future and under adverse circumstances.
The Organization for Economic Co-operation & Development (OECD) states a correlation between Financial Education, Literacy and Wellbeing.
According to the OECD, Financial Literacy is defined as a combination of financial awareness, knowledge, skills, attitude and behaviour necessary to make sound financial decisions and ultimately achieve individual financial well-being (OECD, 2012).
Financial Education, on the other hand is defined as the process by which financial consumers/investors improve their understanding of financial products, concepts and risks and through information, instruction and/or objective advice, develop the skills and confidence to become more aware of financial risks and opportunities, to make informed choices, to know where to go for help and to take other effective actions to improve their financial well-being”
The term Financial Education and Financial Literacy are not the same, these are related concepts. People achieve Financial Literacy through the process of Financial Education. The achievement of Financial Literacy empowers the users to make sound financial decisions which result in financial well-being of the individual.
How to improve financial wellbeing
A few tips to improve your financial wellbeing are mentioned below:
1. Budgeting:
◦ Create a realistic budget to track income and expenses.
◦ Allocate funds for savings and prioritize essential expenses.
2. Emergency Fund:
◦ Establish and maintain an emergency fund for unexpected expenses.
◦ Aim for 3-6 months’ worth of living expenses in your fund.
3. Debt Management:
◦ Prioritize high-interest debt repayment.
◦ Explore debt consolidation options and negotiate with creditors.
4. Savings and Investments:
◦ Save consistently for short-term and long-term goals.
◦ Invest wisely based on financial goals and risk tolerance.
5. Live Below Your Means:
◦ Differentiate between wants and needs.
◦ Avoid lifestyle inflation and save the excess income.
6. Financial Education:
◦ Continuously educate yourself about personal finance.
◦ Stay informed about investment options, taxes, and financial planning.
7. Retirement Planning:
◦ Contribute regularly to retirement accounts.
◦ Take advantage of employer-sponsored retirement plans.
8. Insurance:
◦ Ensure adequate insurance coverage for health, life, and property.
◦ Review and update coverage as needed.
9. Stay Protected from Scams & Frauds:
◦ Stay vigilant against phishing attempts and fraudulent activities.
◦ Regularly monitor bank statements and credit reports for unusual transactions.
◦ Be cautious about sharing personal information online and verify the legitimacy of emails, messages, and calls from unknown sources.
In summary, achieving financial wellbeing involves cultivating responsible money management, making informed decisions, and engaging in proactive planning. The synergy between financial education and literacy is pivotal in this pursuit. Recognizing this correlation empowers individuals to enhance their financial knowledge, make informed choices, and secure a fulfilling future. Embracing a holistic approach, which includes financial education, regular savings, responsible credit use, access to debt advice, and thoughtful planning, serves as a key catalyst for fostering comprehensive financial wellbeing.