Financial Wellness Presentation at Rutgers

Financial Wellness:
How to Define It, Assess
It, and Achieve It
Barbara O’Neill, Ph.D., CFP®
Rutgers Cooperative Extension
boneill@njaes.rutgers.edu
@moneytalk1

Wellness vs. Well-Being
• Not the same thing but influence each other
• Wellness is the sum of positive steps taken to lead a
healthier life (body-focused: physical health)
– Focus on disease prevention and health assessments
• Well-being is focused on holistic life experience (Are
you content and do you find your life fulfilling?)
– Broader focus including mental state, social networks,
spirituality, job productivity, and overall contentment
• Better Wellness = Higher Well-being
http://www.lifedojo.com/blog/employee-wellness-vs.-wellbeing-whats-the-difference
https://www.huffingtonpost.com/alan-kohll/is-there-a-difference-
bet_2_b_11112402.html

Five Related Personal
Finance Status Concepts
• Financial Capability
• Financial Fitness
• Financial Health
• Financial Well-Being
• Financial Wellness
All five concepts have similarities and are used to measure
financial attitudes, behaviors, characteristics, and status
– There are other terms too (financial literacy, stability, security, etc.)

Financial Capability
• “The combination of attitude, knowledge, skills, and self-
efficacy needed to make and exercise money management
decisions that best fit the circumstances of one’s life within
an enabling environment” (Center for Financial Inclusion)
• “The capacity, based on knowledge, skills, and access, to
manage financial resources effectively” (Prosperity Now)
• “A multi-dimensional concept that encompasses a
combination of knowledge, resources, access, and habits”
(FINRA Investor Education Foundation)
• “Financial capability is comprised of four components:
knowledge, influences, access [to financial services], and
action” (Center for Financial Security, Univ. of Wisconsin)

Measures
National Financial Capability Study (NFCS) Financial Literacy
Quiz: http://www.usfinancialcapability.org/quiz.php

Measures
Financial Capability Scale (University of Wisconsin, Center
for Financial Security):
https://fyi.uwex.edu/financialcoaching/files/2013/07/FCS.pdf

Financial Fitness
• “Making, saving, and spending money wisely” (Family,
Career, and Community Leaders of America, FCCLA)
• “What kind of shape your finances are in” (Money
magazine): http://time.com/money/3708117/financial-fitness/
• “Working out regularly” on your personal finances like you
do for your physical health (Kiplinger magazine):
https://www.kiplinger.com/article/investing/T023-C032-S014-five-tips-
for-financial-fitness.html

Financial Fitness Quiz #1
https://njaes.rutgers.edu/money/assessment-tools/financial-
fitness-quiz.pdf

Financial Fitness Quiz #2
Virginia Society of Certified Public Accountants:
https://www.vscpa.com/Content/59148.aspx

Financial Health
• “The state of one’s personal financial situation”
(Investopedia): https://www.investopedia.com/terms/f/financial-health.asp
• “The dynamic relationship of one’s financial and
economic resources as they are applied to or impact
the state of physical, mental, and social well-being”
(Financial Health Institute)
• “We believe that the foundations of financial health are
built when people have day-to-day financial systems
that build long-term resilience and opportunity” (Center
for Financial Services Innovation, CFSI)

Components of
Financial Health (CFSI)
Source: Eight Ways to Measure Financial
Health:
https://www.metlife.com/content/dam/microsites/about/corporate-
responsibility/pdf/CFSI-
eight_ways_to_measure_financial_health.pdf

Financial Health Quizzes
• Clearpoint: https://www.clearpoint.org/tools/financial-health-quiz/
• Creditcards.com: https://www.creditcards.com/credit-card-
news/quiz/time-for-your-annual-financial-health-selfassessment-
test.php
• Military.com: https://www.military.com/money/personal-
finance/credit-debt-management/financial-health-quiz.html
• CFSI EMERGE Magazine: https://cfsi-emerge-
files.s3.amazonaws.com/uploads/2017/06/EMERGE-
Magazine_Quiz_AreYourFinanciallyHealthy_pg11.pdf

CFSI Financial Health
Research Findings
• 57% of American adults are struggling financially
(approximately 138 million people)
• Found 7 subsets of households in 3 categories:
– Healthy: Thriving, Focused, Stable
– Coping: Striving, Tenuous
– Vulnerable: Unengaged, At Risk
• The strongest predictor of being in a “Healthy”
segment was behaviors related to planning ahead
and saving

Financial Well-Being
CFPB Definition: Four Key Elements
Source:
https://files.consum
erfinance.gov/f/201
501_cfpb_digest_fi
nancial-well-
being.pdf

CFPB Online Financial
Well-Being Tool
https://www.consumerfinance.gov/consumer-tools/financial-well-being/

How Well Does This Statement
Describe You or Your Situation?
Options
1 I could handle a major unexpected expense Completely
2 I am securing my financial future Very well
3 Because of my money situation, I feel like I will never
have the things I want in life*
Somewhat
4 I can enjoy life because of the way I'm managing my
money
Very little
5 I am just getting by financially* Not at all
6 I am concerned that the money I have or will save
won’t last*
* Reverse coded

How Often Does This
Statement Apply to You?
Options
7 Giving a gift for a wedding, birthday, or other
occasion would put a strain on my finances for the
month*
Always
8 I have money left over at the end of the month Often
9 I am behind with my finances* Sometimes
10 My finances control my life Rarely
* Reverse coded Never

Financial Well-Being
Case Study Activity

CFPB Financial Well-
Being Research Findings
• Average score of 54 on a scale of 0 to 100
• Savings and financial cushions provide the greatest
differentiation between people with different levels of
financial well-being
• High levels of financial know-how and confidence have
strong, positive relationships with financial well-being
• Employment, income, education, and age (older) have
a strong relationship with financial well-being
https://s3.amazonaws.com/files.consumerfinance.gov/f/documents
/201709_cfpb_financial-well-being-in-America.pdf

Financial Wellness
• “Financial wellness is an intricate balance of the mental,
spiritual, and physical aspects of money. This unique
combination is an ideal to strive towards in our dealings with
money.” (DefinitionofWellness.com)
• “Financial wellness is not just about numbers—it’s about
knowing you have control over your finances in the short
term, and that you’re set up to achieve your long-term
goals, whether that means paying down debt, retiring on
your own timeline, buying a home, or taking a dream
vacation.” (PlanSponsor)
• “Financial Wellness is about your health and wealth. It’s
about the overall quality of the life you’re living.” (Jason
Vitug, founder of Phroogal/The Road to Financial Wellness)

FINANCIAL WELLNESS
ROADMAP
Understanding money
and banking terms;
budgeting skill;
credit knowledge
FINANCIAL
LITERACY
Abundance mindset;
research skills; using
banking products
and services.
FINANCIAL
CAPABILITY
An emergency fund; managing
credit; retirement planning; and
investment income.
FINANCIAL
SECURITY
FINANCIAL
FREEDOM
Control lifestyle inflation; holds no debt;
healthy savings accounts; passive
income streams; diversified assets and
investment portfolio.
FINANCIAL
INDEPENDENCE
Control over one's time; large
financial nest egg; income
producing assets; passive
income streams; investments.
Source: Jason
Vitug, Founder of
Phroogal

Financial Wellness
Check-Up
http://definitionofwellness.com/dimensions-of-wellness/financial-wellness/

What Do These Five
Terms Have in Common?
• They all include goal-setting and planning in
descriptions of financially successful people. Examples:
“Planning ahead for predictable life events” is a component of
financial capability
Financial health includes “staying on track to meet long-term
goals”
People with financial well-being “are setting goals important to
them and working toward those goals”

Other Similarities
• Financial knowledge is useful, but is only one factor
• Measure basic financial tasks (e.g., spending, saving)
• Measure feelings such as control and confidence
• Emergency savings and savings for future goals
increase scores on measurement tools
• People with higher scores on measurement tools are
more financially resilient and able to achieve goals
• Education, employment, income, and age are key
factors in achieving financial wellness

“The Greatest Wealth is Health”
Virgil (BC)

Health and Financial
Behavior Relationships:
Rutgers Research

Personal Health and
Finance Quiz

Key Points About the Quiz
• High quiz score: Respondent is frequently
performing activities that health and financial
experts recommend
• Quiz questions: “Step in the right direction”
activities; not necessarily at the highest
recommended level
– Example: Investing $3,650 annually for
retirement

Health Questions1 = Never
2 = Sometimes
3 = Usually
4 = Always
Daily Health Behaviors:
___ 1. I eat breakfast before starting my day (e.g., work, school, or other daily activities).
___ 2. I avoid drinking sugar-sweetened beverages (e.g., regular soda and sweetened coffee, tea, or waters).
___ 3. I eat 3 ½ to 4 ½ cups of fruits AND vegetables daily.
___ 4. I get at least 7 hours of sleep per night.
___ 5. I eat at least 1-2 high fiber foods each day (e.g., whole wheat bread and pasta, oat bran, beans, lentils)
___ 6. I eat and drink fat-free and/or low-fat dairy products.
___ 7. I avoid high-calorie salad dressings, gravies, spreads, and/or sauces.
___ 8. I eat foods that are low in fat and/or saturated fat.
___ 9. I get at least 30 minutes of aerobic and/or muscle-strengthening physical activity at least 5 days per week.
___ 10. I read the Nutrition Facts Label on food products before making a purchase
Health Score: __________
• 10-16 points- Your health choices could be better, but don’t despair. It’s never too late to take action to improve your health.
• 17-24 points- You are doing a fair job of managing your health practices and have taken some steps in the right direction.
• 25-32 points- You are doing a good job and are above average in managing your health.
• 33-40 points- You are in excellent shape managing your health. Keep up the good work!
• Note: Items that you scored with a 1 or 2 are actions that you should consider taking in the future to improve your health.

Finance Questions
Daily Financial Behaviors:
___ 11. I follow a hand-written or computer-generated spending plan (budget) to guide my spending and savings.
___ 12. I maintain an emergency fund equal to at least three months of basic, essential household expenses.
___ 13. I save the equivalent of at least $1 daily ($365 annually) in loose change in a savings account and/or or jar.
___ 14. I invest the equivalent of at least $10 daily ($3,650 annually) in investment accounts and/or retirement plans.
___ 15. I avoid payday loans, car title loans, pawn shop loans, cash advances, tax refund loans, and other high-cost debt.
___ 16. I owe less than 20% of my monthly net income on monthly consumer debt payments (e.g., credit cards, car loans)
___ 17. I eat at least two meals a day prepared at home instead of eating out (excluding traveling).
___ 18. I use advertisements, coupons, promo codes, sales, web sites, and/or discounts to save money on purchases.
___ 19. I live below my means (i.e., spend less than I earn).
___ 20. I make written “to do” lists or specific plans to organize my financial goals, spending, and/or daily activities.
Financial Score: __________
Score Interpretation
• 10-16 points- Your financial choices could be better, but don’t despair. It’s never too late to take action to improve your
finances.
• 17-24 points -You are doing a fair job of managing your personal finances and have taken some steps in the right direction.
• 25-32 points -You are doing a good job and are above average in managing your finances.
• 33-40 points -You are in excellent shape managing your finances. Keep up the good work!
Note: Items that you scored with a 1 or 2 are actions that you should consider taking in the future to improve
your personal finances.
TOTAL (Health + Financial) Score: __________

Research Papers
• O’Neill, B., Xiao, J.J., & Ensle, K. (2016a). Propensity to plan: A key to health and wealth?
Journal of Financial Planning, 29(3), 42-50. Retrieved from
https://www.onefpa.org/journal/Pages/MAR16-Propensity-to-Plan-A-Key-to-Health-and-
Wealth.aspx.
• O’Neill, B., Xiao, J.J., & Ensle, K. (2016b). Positive health and financial behaviors: The impact of
time expenditure behavior and avoidance. Journal of Personal Finance, 15(2), 41-51. Retrieved
from http://www.iarfc.org/documents/issues/Vol%2015%20Issue2.pdf
• O’Neill, B., Xiao, J.J., & Ensle, K. (2017). Positive health and financial practices: Does budgeting
make a difference? Journal of Family and Consumer Sciences, 109(2), 27-36.
• O’Neill, B., Xiao, J.J., & Ensle, K. (2017). Improving Health and Increasing Wealth: Research
Insights and Program Outreach. Journal of NEAFCS, 17, 11-23. Retrieved from
http://www.neafcs.org/assets/documents/journal/2017%20jneafcs%20final%202.pdf.
• O’Neill, B., Xiao, J.J., & Ensle, K. (2017). Reading nutrition labels: A predictor of health and
wealth? Manuscript accepted for publication by the Journal of Human Sciences and Extension
(October 2018).
• O’Neill, B., Xiao, J.J., & Ensle, K. (2018). Positive Financial Practices: Do Diet, Sleep, and
Physical Activity Make a Difference? Accepted as a poster for 2018 ACCI annual meeting and
submitted to Journal of Family and Consumer Sciences.

Planning Behavior Study
• Correlation analysis was conducted between the health and
financial behavior indexes. The correlation was 0.46 at a
significance level of p < .05. This suggests that desirable
health and financial behaviors are moderately associated.
• Support was found for all three hypotheses in this study:
– Respondents who reported frequent planning behavior had
higher health behavior scores than others
– Respondents who reported frequent planning behavior had
higher financial behavior scores than others
– Respondents who had higher health behavior scores also had
higher financial behavior scores

Budgeting Study
• Explored relationships between the practice of
following a formal budget and frequency of
performance of positive personal health and financial
practices (N =942)
• The results suggested that consumers who reported
following a budget more often scored higher in both
the health and financial practice indexes
• Budgeting and weight control both require discipline.
People who budget their money may be inclined to
budget their calories; i.e., have a daily calorie
“allowance”

Nutrition Label Study
• New data set (7/15-7/16); N = 3,414
• Support was found for four hypotheses:
– There are differences in demographic characteristics
between those who read Nutrition Facts labels and others
(i.e., female, older, higher education and income)
– Respondents who reported reading nutrition labels had
higher health practice scores and higher financial practice
scores than others
– Respondents who reported higher health practice scores
also had higher financial practice scores

Personal Health and
Finance Quiz
Research Summary
• All hypotheses to date have been supported; a 6th
study is underway exploring health index associations
with emergency funds, saving, and investing
• Results clearly show associations between health
practices and financial practices
• Personal traits such as discipline, future-mindedness
and conscientiousness may be a key factor

12 Ways to Improve
Your Financial
Wellness

1. Have Enough Money to
Pay Expenses
• Can income be increased?
• Can expenses be reduced or eliminated?
• Both?
• No more than 15% to 20% of net pay for
consumer debt payments
– Credit cards and student, car, and family loans
• No more than 40% to 50% of net pay for
PITI or rent and consumer debt payments

2. Set Aside Money For
Emergencies
• Three to six months of expenses is recommended
but…
– Any savings is better than no savings
• Keep first 3 months very liquid (e.g., bank)
– Next 3 months liquid (e.g., T-Bill, MMMF)
– Next 6 months somewhat liquid (e.g., CDs)
– Beyond 1 year: longer-term CDs, T-notes, short term bond
funds (some volatility), line of credit

3. Set Written Financial
Goals
• Provide incentive to save and “reality test” for vague
dreams
• Set a specific deadline date and cost figure
– “Save $10,000 for a new car in 5 years [year]”
• Calculate benchmark progress indicators
– “Save 2,000 per year for five years”
• Review and revise periodically

41
4. Follow a Written
Spending Plan
• Income = Fixed expenses (including
savings) + Flexible expenses + 1/12 of
Occasional expenses
• “Running balance method” includes irregular
expenses (e.g., property taxes) and irregular
income and “extra” paychecks
• Start by tracking income and expenses
• Review and revise as needed

5. Know Your Federal Marginal
Income Tax Bracket
• 2018 federal marginal tax rates: 10%, 12%, 22%,
24%, 32%, 35%, and 37%
• Use tax rate to calculate after-tax return:
– Tax-equivalent yield = tax-free yield divided by (100%-
marginal tax bracket)
– Example: 4% (tax-free yield) divided by (100% - 22%) or
.78 = 4/.78 = 5.13%

6. Calculate Your Net Worth
• Assets: everything you own
– Liquid (cash assets)
– Investment (e.g., IRAs, stocks)
– Tangible (property)
• Debts: everything you owe
– Short-term (paid off in a year or less)
– Long-term (e.g., mortgage)
• Provides a “snapshot’ of your finances:
http://njaes.rutgers.edu/money/pdfs/networthcalcworksheet.pdf

7. Save/Invest Regularly For
Long-Term Financial Goals
• Mutual fund/stock automatic investment plan (AIP)
– Example: $50 withdrawn from checking account on 15th of
month to buy shares
• Tax-deferred employer retirement plan
• Employer credit union
• Checking to savings account transfers
• Other accounts

8. Increase Savings When
Salary/Earnings Increase
“Kick it up a notch” when…
– You receive a raise or bonus
– You get a higher-paying job
– When a spouse enters the workforce
– When you get a new source of income (e.g., home-based
business)
– When expenses (e.g., child care) end

46
9. Establish a Personal
Retirement Savings Account
• Individual Retirement Account
– Traditional IRA
– Roth IRA
• Employer tax-deferred retirement plan
– 401(k)s- For-profit corporations
– 403(b)s- Schools and non-profit organizations
– 457 plans- State, county, and local government
– TSP- Federal government and service members
• SEPs, SIMPLEs, Keoghs for self-employment

10. Diversify Your Investments
• More than one type of asset class (i.e., stocks, bonds,
cash, real estate, etc.)
• Different investments within each asset class (e.g.,
stock in different industry sectors)
• Already diversified investments
– Mutual funds
– Exchange traded funds (ETFs)

11. Purchase Adequate
Insurance For Big Risks
• Purchase insurance according to “large loss principle”
• Large potential losses include:
– Liability
– Disability
– Destruction of home
– Large medical expenses
– Loss of household earners’ income

49
12. Comparison Shop For
Major Purchases
• Follow “The Rule of Three”
– Check at least three competing product or service providers
– Make an “apples to apples” comparison
• Always ask “Is this the best price/fee available?”
• Inquire about available discounts
• Time purchases for better deals

A Financial “Physical” Is As
Important As Medical Physical
• Can assess problems
– High debt level
– Lack of disability insurance
– Lack of investment diversification
• Can evaluate progress toward goals
• Can help identify action steps
• Can provide motivation to change

Key Financial
Wellness Indicators
• Having money when you need it
• Living within your means
• Saving money regularly for emergencies and goals
• Investing to achieve long-term goals
• Having no debt or manageable debt
• Having adequate insurance for financial risks
• Preparing up-to-date legal documents

25 Financial Check-Up Metrics
http://www.cefe.illinois.edu/JCE/archives/2013_2014_vol_30/20
13-2014_vol_30_pg13-29_ONeill.pdf

Final Thoughts
• Financial wellness encompasses many areas
of personal finance
– Examples: Banking, borrowing, and budgeting
• There are many action steps that people can take to
improve their financial fitness
• Pick a few action steps that work for you
• Small steps make a difference
• Get help when needed

54
Comments? Questions?
• For daily financial information, follow me on Twitter
@moneytalk1
• Slides will be e-mailed along with a link to a brief
evaluation survey

Financial Wellness Presentation at Rutgers

More Related Content

What's hot

Similar to Financial Wellness Presentation at Rutgers

More from Barbara O'Neill

Recently uploaded

Financial Wellness Presentation at Rutgers