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Personal Financial Wellness: Sohyun Joo

This document discusses the concept of personal financial wellness. It begins by noting that while financial wellness is commonly referenced, there is a lack of understanding and agreed upon definition. The chapter aims to define financial wellness. It reviews related concepts like well-being, economic well-being, and financial well-being. These concepts are interrelated and financial wellness is proposed as a multidimensional concept incorporating objective financial status, satisfaction, attitudes, and behaviors.

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183 views

Personal Financial Wellness: Sohyun Joo

This document discusses the concept of personal financial wellness. It begins by noting that while financial wellness is commonly referenced, there is a lack of understanding and agreed upon definition. The chapter aims to define financial wellness. It reviews related concepts like well-being, economic well-being, and financial well-being. These concepts are interrelated and financial wellness is proposed as a multidimensional concept incorporating objective financial status, satisfaction, attitudes, and behaviors.

Uploaded by

babyetchel
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© © All Rights Reserved
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Download as PDF, TXT or read online on Scribd
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Chapter 2

Personal Financial Wellness

Sohyun Joo

Abstract As the importance of financial health of individuals and families con-


tinues to grow, people often use the term “financial wellness” to mean the level
of a person’s financial health. Financial wellness is a comprehensive, multidimen-
sional concept incorporating financial satisfaction, objective status of financial situ-
ation, financial attitudes, and behavior that cannot be assessed through one measure.
This chapter discusses the concept and measurement of personal financial well-
ness and presents “Financial Wellness Diagram.” Future research directions are also
discussed.

Generally, well-being is defined as a state of being healthy, happy, and free from
worry (Zimmerman, 1995). As the importance of financial health of individuals
and families continues to grow, people often use the term “financial wellness” to
mean the level of a person’s financial health (search for “financial wellness” leads to
thousands of websites, programs, and products). However, there is a lack of under-
standing of what is meant by personal financial wellness and no general measure of
personal financial wellness exists (Baek & DeVaney, 2004; George, 1992; Hayhoe,
1990; Porter & Garman, 1993; Strumpel, 1976; Wilhelm & Varcoe, 1991).
Derived from the definition of general well-being, financial well-being could
mean a state of being financially healthy, happy, and free from worry and this could
be the concept that should be addressed. However, this chapter discusses the concept
and measurement of “personal financial wellness” instead of financial well-being.
Following discussion provides several reasons. First, in practice, financial wellness
is a more concrete (rather than abstract) concept to work with: it is more func-
tional (or empirical) rather than cognitive (or conceptual) concept. Second, finan-
cial wellness has multidisciplinary aspects. As suggested by Hansen, Rossberg, and
Cramer (1994), as a primary interest to financial counselors, the concept of finan-
cial wellness has to incorporate multidisciplinary approach. Third, due to the wide
usage of the word “wellness” in various health-related programs, the term “financial

S. Joo
Financial Planning Standards Board of Korea, 17th FL., Seongji Bldg, Dohwa 2-dong, Mapo-gu,
Seoul 121–743, Korea
e-mail: [email protected]

J.J. Xiao, (ed.), Handbook of Consumer Finance Research, 21



C Springer 2008
22 S. Joo

wellness” is easier to understand for general public. Fourth, the proposed measure
of financial wellness in this chapter could provide practical tools for professionals.

Understanding and Defining Financial Wellness

To understand financial wellness, concepts that relate to financial wellness should be


examined. This section reviews the meaning and measurement of financial wellness
and related terms such as well-being, economic well-being, financial well-being,
and material well-being.

Well-Being
The general consensus among researchers is that personal financial wellness is a
sub-construct of overall well-being. Well-being means “non-instrumentally or ul-
timately good for a person” (plato.stanford.edu/entries/well-being), and well-being
in an ordinary term is closely related with happiness or satisfaction. While well-
being is used mostly with physical health, there are six interrelated domains that
construct well-being: job, finances, house, health, leisure, and environmental satis-
faction (Fletcher & Lorenz, 1985; van Praag, Frijters, & Ferrer-i-Carbonell, 2000).
Well-being is usually viewed as a subjective concept. Subjective well-being
refers to “how people evaluate their lives and includes variables such as life and mar-
ital satisfaction, lack of depression and anxiety, and positive moods and emotions”
(Diener, Suh, & Oishis, 1998, p. 25). Self-reported subjective well-being is a stable
concept that can be measured reliably over time (Winter, Morris, & Gutkowska,
1999).
Zimmerman (1995) clarified the term “well-being” as “the state of being healthy,
happy, and free from want; outcome of long-term socialization and developmen-
tal processes and concurrent environmental conditions and processes; composite of
satisfactions in domains of marriage, job, leisure, family, and housing; degree to
which basic needs are met” (p. 8). These concepts are now accepted as the general
definitions of well-being.

Economic or Financial Well-Being

Economic and financial well-beings are often used interchangeably. Generally, fi-
nancial well-being tends to include broader aspects of financial life, and economic
well-being is most often used with income level (e.g., Breen, 1991; Hayhoe, 1990;
Porter & Garman, 1993; Williams, 1993).
Breen (1991) viewed financial well-being as having sufficient income and assets,
quality health and personal care, the right mix of products and services, as well as
legal readiness and professional guidance. Williams (1993) theorized that economic
well-being was a function of material and non-material aspects of one’s financial

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