What Is Financial Wellness and Why It’s Not Just Important for Consumers

Families in the U.S. are wealthier than ever — with total family wealth quadrupling between 1989 and 2022, according to a report from the Congressional Budget Office. But this newfound wealth distribution has been anything but equal. The top 10% of households have 60% of the wealth.

According to MX research, 44% of consumers say they struggle to make ends meet. The stress of money and the widening wealth gap make prioritizing financial wellness more important now than ever before — for both consumers and their financial providers.

So what is financial wellness and why does it matter? This blog will answer every question about financial wellness and how financial institutions can help:

• What Is Financial Wellness?
• Examples of Financial Wellness
• What Is the Difference Between Financial Wellness and Financial Well-Being?
• Benefits of Financial Wellness
• How Financial Providers Can Promote Financial Wellness
• How MX Empowers Financial Providers

What Is Financial Wellness?

A quick search for “what is financial wellness” turns up many results — without a single agreed-upon definition. 

MX asked consumers how they define financial wellness and, unsurprisingly, the results were widespread  — and influenced by their past, present, and future. Financial wellness means different things to different people but each definition has a common thread: how well a person manages their money, if certain financial needs are met, and financial comfort.

The Office of the Comptroller of the Currency (OCC) gives a more practical definition of financial wellness: “having stable day-to-day finances, resilience to withstand shocks, and security for the future.” 

Rolling all of these definitions into one, financial wellness is defined as the ability to comfortably manage one’s finances.

Check out our blog Metrics and Mindsets: How Consumers Define and Measure Financial Wellness to learn more about how different genders and generations view financial wellness.

Examples of Financial Wellness

Because financial wellness is influenced by our past, present, and future, consumers can see practical application in each of these areas. Here are some examples of financial wellness practices for consumers:

Debt Management

Understanding our past money habits can help consumers on their journey towards financial wellness. Financial wellness can mean keeping debt at manageable levels or completely paying off debt.

Daily Spend Stability

Financial wellness is also about everyday money habits. Consumers should strive to live within their means. Budgeting and paying bills in full and on time can help consumers to control their daily spend — promoting financial wellness. 

Emergency Preparedness

Nineteen percent of consumers find that being able to save for the future defines financial wellness, according to MX. Consumers can look towards the future with emergency preparedness in mind. Being proactive about savings, contributing to retirement accounts, and setting financial goals are examples of financial wellness.

What Is the Difference Between Financial Wellness and Financial Well-Being?

Financial health, financial well-being, and financial literacy are all commonly used in conversations surrounding consumers and their ability to manage their finances effectively. Now that we’ve defined financial wellness, what is financial well-being? Financial well-being is the ability for a person to effectively meet all of their financial obligations. 

Financial wellness and financial well-being are 2 phrases can generally be used interchangeably. They all have the same goal, emphasizing the importance of proper financial management and how it can impact consumers.

Benefits of Financial Wellness

Financial wellness is a powerful goal. It’s a cause that will provide long-term benefits to consumers and financial institutions. Financially strong consumers lead to financially stronger businesses and communities. When people have the tools, resources, and knowledge to improve their financial health, it creates a win-win scenario for all parties involved.

Financial providers that invest in financial wellness tools will be able to connect with their customers on a deeper level and contribute to higher levels of financial well-being. This translates to higher customer engagement, retention, and loyalty — and drives business growth, higher deposits, and long-term stability. 

Benefits of Financial Wellness for Consumers

Able to Manage Day-to-Day Expenses

Financial wellness can benefit consumers right away. Fifty-five percent of consumers report that they are currently living paycheck to paycheck, MX recently discovered. Financial wellness can help consumers prepare for and handle upcoming everyday expenses to get out of the paycheck to paycheck cycle.

Prepare for the Future

Financial wellness can teach consumers important skills like saving, budgeting, and investing. Consumers that prioritize their financial health will become more prepared financially for unexpected life events. Ultimately, financial wellness will empower consumers to make more informed financial decisions that will have a lasting impact.

Mental and Physical Health

Fifty-one percent of consumers say money is their main source of stress, according to MX research. Financial wellness helps consumers to limit the stress caused by financial issues, offering them a greater sense of optimism and security. Because health and financial well-being are connected, investing in financial wellness can give consumers more fulfilling lives.

Benefits of Financial Wellness for Financial Providers

Stronger Customer Retention

There is rigorous competition within the financial services industry. So if a consumer doesn’t like something about their financial provider, they are more than willing to find one that is a better fit for them. In fact, MX found that 57% of consumers said they’d likely seek out a new financial provider if their current one couldn’t deliver on these most wanted features. Financial providers must be willing to increase their service offerings so that consumers are more willing to stick around long term.

Increased Deposits

Banks, credit unions, and other financial providers that work to promote financial wellness will have consumers that are financially healthier, making them more likely to pay off their loans and increase their deposits.

Data-Driven Insights

Financial institutions that partner with consumers on their financial journeys will gain access to greater insights based on additional consumer-permissioned data. This data’s power is two-fold. Banks will be able to better understand their customers, while also using that information to offer more relevant products and services that will help them to retain customers.

How Financial Providers Can Promote Financial Wellness

According to the Financial Health Network, 47% of unbanked households were considered financially vulnerable. Banks have the opportunity to turn the financially vulnerable population around through financial wellness promotion.

Financial providers should rethink how they are approaching financial wellness and its accessibility for their consumers. Thanks to today’s advances in technology across the financial industry, financial institutions have easier access to the tools that promote financial wellness. There are various ways that providers can promote financial wellness:

Connect the Dots

Do your consumers know where their finances stand? Financial wellness is nearly impossible without full visibility into financial accounts. The majority of consumers have various financial apps, so switching between them is an inefficient way to fully understand their financial state. By implementing an open banking solution to help consumers connect the dots across their various financial accounts, they’ll gain a 360-degree view of their finances.

Leverage Data to Better Engage and Inform

Even centralized financial data can be messy and hard to understand at times. Financial institutions that prioritize data enhancement will empower consumers to better understand their finances. Likewise, banks and credit unions will have more clarity into the data to tailor the right messages for the consumers at the right time.

Engage Through Personalization

Every consumer is different, so they should be treated that way. Understand who your customers are through their data and engage with them appropriately. Give your customers proactive insights or nudges to better manage spending, pay down debt, or increase savings based on their account activity. These insights can empower your customers to recognize how they can make more informed financial decisions.

Nudge Consumers to Action

Your consumers are sharing high amounts of information with you. Use it to your advantage. Did they recently connect a new account? Have they opened up a mortgage? Could they benefit from a deposit switch? With the right tools, you can understand more about your customers and act accordingly with targeted offers and services — helping you gain primacy.

How MX Empowers Financial Providers

MX found that 31% of consumers don’t feel financial providers do enough to support their financial needs. What can they do to better meet customer expectations? Jane Barratt, MX Chief Advocacy Officer, offered the solution when she said, “Data, or the lack thereof, can make or break financial wellness.”

MX helps financial institutions connect, analyze, engage, and act on consumer-permissioned data to create better customer experiences. MX’s suite of financial wellness tools can help you make the most of your financial data. Discover how MX helped VeraBank transform financial wellness across its customer base for a 65% increase in engagement.