February 2, 2015
The Consumer Financial Protection Bureau has issued a report, Financial Well-Being: The Goal of Financial Education. I have been somewhat critical of the CFPB’s approach to financial literacy education, but I think that this report sets forth a pretty reasonable baseline for future research. It states,
A growing consensus is emerging that the ultimate measure of success for financial literacy efforts should be improvement in individual financial well-being. But financial well-being has never been explicitly defined, nor is there a standard way to measure it. Overall, the literature paints a picture of nuanced, complex interactions between financial knowledge, understanding, and actions taken. However, rigorously identified links between these factors and financial outcomes have yet to be established.
Our project provides a conceptual framework for defining and measuring success in financial education by delivering a proposed definition of financial well-being, and insight into the factors that contribute to it. This framework is grounded in the existing literature, expert opinion, and the experiences and voice of the consumer garnered through in-depth, one-on-one interviews with working-age and older consumers. (4-5)
The CFPB proposes a definition of financial well-being “as a state of being” where people
- Have control over day-to-day, month-to-month finances;
- Have the capacity to absorb a financial shock;
- Are on track to meet your financial goals; and
- Have the financial freedom to make the choices that allow you to enjoy life.
Because individuals value different things, traditional measures such as income or net worth, while important, do not necessarily or fully capture this last aspect of financial well-being. (5)