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How do we define financial health?

Posted on November 10, 2020

We believe supporting financial health is crucial to people’s wellbeing. And its improvement enables people to better enjoy life in general. But how to define financial health? What are the elements in this process that give people the capacity to be in control of their financial decisions?

The people behind the Research Hub of the Think Forward Initiative took it upon them to define financial health in such a way that it builds on existing definitions, and also incorporates several new aspects and ten principles that we find relevant when promoting people’s financial health.

Maria Ferreira, member of the TFI Research Hub and also senior economist at ING: “Financial health is not only a behavioural responsibility of people themselves; responsibility for financial health also rests with business and policy makers. This is one of ten principles that we find important when approaching this topic.”

“Another key principle is that we believe that people are emotional and social beings, and that relationships within the family and/or household play a key role in determining financial health. Financial institutions, policy makers and others would acknowledge that, but in practice often approach financial health as if it is an individual matter. That’s why we made sure that the way we’ve presented the definition, reflects the importance of relationships.”

“Financial health is not only a behavioural responsibility of people themselves; responsibility for financial health also rests with business and policy makers.”

Maria Ferreira, member of the TFI Research Hub

We understand financial health as a continuous balancing process around five dimensions or capacities: income, spending, saving, borrowing and planning. Financial Health is defined by us as the extent to which a person, household or family is able to and also feels in control of:

1) meeting all current and ongoing financial commitments and needs comfortably; and 2) building the financial security to pursue their life goals and meet all future commitments and needs comfortably.

Financial health improvement is a continuous process of being and feeling in control of: managing day-to-day finances; growing the capacity to absorb financial shocks and build wealth; pursuing short- and long-term goals; and developing the capabilities to make good financial choices for yourself and in harmony with your household and family. Financial health improvement enables people to better enjoy life in general.

The people behind the Research Hub of the Think Forward Initiative are part of ING, and have tackled this definition challenge in consultation with several other stakeholders within TFI and ING, to ensure that for the retail side of the ING business the definition can and shall be used. We all agree that there is no single or agreed definition of financial health, despite the term being used by different groups. “This broad definition builds on existing definitions and it is used to guide our purpose of promoting people’s financial health.”