1st March 2017
Those in poor health are more likely to miss bill payments and have next to nothing in savings according to the latest Financial Wellness Index from Momentum UK. They are also less able to afford lifestyle expenses, such as holidays and socialising, even after factors such as income and social class have been accounted for.
Good health, on the other hand, is linked to improved financial wellness. This begs the question: could adopting a healthy lifestyle help me improve my finances, or could taking control of my financial situation be the beginning of the journey towards better health?
The Financial Wellness Index, constructed by the University of Bristol’s Personal Finance Research Centre, assesses key elements of a person’s financial life, combined with measures of the UK’s macro-economic state, to produce an overall Financial Wellness score out of 100 for the country.
Throughout the latest report, health is a consistent theme. Around one in six people (17%) who class their own health as ‘poor’ have missed a bill payment in the last 12 months, more than three times the proportion who rate themselves as being in excellent health (5%). Similarly, one in ten people (11%) with a poor diet have missed such a payment, twice the proportion of healthy eaters (5%) who had done so in the last year.
There was also a clear correlation between physical wellbeing, diet and savings. For example, those in poor health (15%) are twice as likely as those in excellent health (8%) to have no money saved for a rainy day. And while one in five (19%) healthy eaters have less than £100 in savings, this figure climbs to almost one in three (29%) for those with poor diets. The shortfall in savings appears to be having a knock-on effect on standard of living. Of those in poor health, two in five (42%) have had to cut back on lifestyle expenses such as holidays or socialising in the last year, but for those in excellent health, this drops to around one in five (23%).
Samantha Seaton, MD, Momentum UK (Retail) says: “Becoming Financially Well is not something that can be achieved overnight, it’s a personal journey for most, that will take a level of commitment, honesty and reflection. The link between financial and physical health is strong in this year’s index, which is not wholly surprising when you start to analyse the similarities in behaviour needed to achieve both. Whether you’re improving your fitness or trying to improve your financial picture success will be found by taking small steps to achieving your longer-term goals.
“We believe passionately in the Financial Wellness journey and have seen first-hand the direct impact it can have on someone’s life. Engaging people with their finances at an earlier age can be incredibly powerful for their long-term Financial Wellness. As a business we’re committed to continuing our work into this field but call on our industry and government to further support our mission.”
Professor Sharon Collard, Director, Personal Finance Research Centre, University of Bristol says: “Navigating the financial maze that we live in can be an extremely daunting experience, especially as most people receive little to no financial education in their childhood, teenage years and early twenties. The economic instability of the last decade has made the job of managing one’s finances all the more difficult, which is why now more than ever, it’s important that we have a thorough understanding of the financial health of UK households.”
How does the UK fare overall?
Today’s Index gives the UK population a Financial Wellness score of 69, two points higher than last year. With an overall Index average of 69, the typical UK adult falls into the ‘Financially Exposed’ group, indicating that while they have a relatively comfortable standard of living, they are susceptible to financial harm in the event of unexpected economic shocks, both on a micro-scale, such as job loss or illness, and on a macro-scale, for example a fall in house prices. At the bottom end of the scale, one in 40 people currently fall within the ‘Financially Distressed’ group. This portion of the population score very poorly on the Index (less than 45 points) and are likely to face poverty and deprivation in their day-to-day lives. Overall, the extreme groups, ‘Financially Distressed’ and ‘Financially Well’, have decreased in size in the last year, showing a convergence to the ‘middle ground’ – Financially Exposed.
*The Momentum UK Household Financial Wellness Index
The Momentum UK Household Financial Wellness Index brings together macro- and micro-level
data to paint a picture of individual and household finances in the UK. The Index runs from a scale of 0 to 100, where higher scores represent greater Financial Wellness. 70 per cent of the overall Index score is based on a Micro Index, calculated from the results of a UK-wide survey of approximately 2,000 individuals (conducted in late 2016). The remaining 30 per cent consists of a Macro Index that is constructed using the results of three key national economic indicators: the unemployment rate, annual change in GDP per capita, and the Gini coefficient of income inequality. The Overall Index score is calculated by summing the Macro Index results with survey respondents’ individual Micro Index scores. The results are weighted so that they are nationally representative. Financial Wellness is best viewed as a latent construct that is measured indirectly and holistically through a range of measures or indicators.
Micro Index includes measures of:
∙ Financial capability: short-term planning – this domain considers how well respondents manage their money on a day-to-day basis, including how closely they keep track of their money and how well they budget.
∙ Financial capability: long-term planning – this domain considers how much money people have saved for a rainy day, as well as provisions for their retirement.
∙ Savings, assets and security – this domain takes into account the number of savings products and other assets respondents have, as well as the total amount of money they have saved. It also includes a question on the number of different insurance products respondents have.
∙ Steering clear of financial difficulty and debt – this domain looks at use of alternative credit, whether respondents have been able to make the minimum repayments on credit commitments, and whether or not they have been able to pay household bills at final reminder.
∙ Financial inclusion – this domain looks at respondents’ access to various banking, savings and insurance products.
∙ Avoiding deprivation and hardship – this domain looks at respondents who have had to ‘cut back’, ‘go without’ or find extra sources of income to make ends meet. Scores are also affected by respondents’ ability to pay their bills and by common problems in their home, such as damp, mould or a leaky roof.
Macro Index includes measures of: