September is self-improvement month – and many Georgians could stand to improve their financial wellness.
In a Georgia Credit Union Affiliates survey of 8,069 Georgians, respondents rated their financial wellness on average at 3.6 on a scale from one (lowest) to five (highest). And a majority of respondents – 68.6 percent – admit to having financial weak spots.
Georgia isn’t far from national trends. According to a U.S. Consumer Financial Protection Bureau study called Financial Well-Being in America, U.S. adults on average rate their financial well-being as a 54 on a scale from zero to 100.
The study found Americans with less income reported lower levels of financial wellness. Scores of 50 or less tended to come from respondents with a high probability of experiencing material hardship, mening they struggle to afford basic food and shelter. On the other hand, respondents who could easily afford the basics tended to give themselves financial wellness scores of 61 or more.
Experiences with credit also tend to contribute to a person’s sense of financial wellness, according to the CFPB’s study. Somebody who has been denied credit or who had been contacted by a debt collector will likely score themselves as having a lower level of financial well-being. About 11 percent of Georgians in the GCUA survey said they felt their biggest financial weak spot was a poor credit score.
Unfortunately, feeling financially unwell can affect more than consumers’ wallets. In a study from the American Psychological Association, nearly 72 percent of American adults reported feeling stressed about money at least some of the time and nearly a quarter said they experienced “extreme stress” about their financial situation in the past month.
Stress at that level isn’t healthy. According to the Mayo Clinic, chronic stress can cause headaches, weight gain and even heart disease. The APA also pointed out research that shows stress associated with financial problems strains cognitive abilities – meaning the person feeling financially unwell is more likely to make decisions that continue to lead him into unfavorable financial situations.
But there’s a silver lining. Regardless of income or credit score, the CFPB’s study found people who seek training and become financially literate tend give to themselves higher financial well-being scores.
The CFPB breaks financial literacy into two areas – financial knowledge and financial skill. Financial knowledge refers to a person’s understanding of financial concepts, including how credit works, when to refinance a house and the best way to set up a budget. Financial skill is a person’s ability to process financial concepts and other information, execute them appropriately and adapt them as necessary to stay on track.
The CFPB’s research team used existing methodology to measure both financial knowledge and financial skill in its respondents. The survey found respondents with higher levels of financial knowledge scored a 58 on the financial wellness scale. Those with lower levels of financial knowledge scored a 51 on average.
The gap was even more dramatic between adults with high and low levels of financial skills. Respondents with high levels of financial skill scored an average of 60 while those with low financial skill levels scored a 49 on the financial well-being scale.
- Tips to improve financial wellness:
- Create a plan. Decide where you want your finances to take you in the future and compare that to your current financial situation. Write down all the steps you’ll need to take to reach your financial goal and assign a time period to achieve each one.
- Automate savings. It’s a lot easier to resist spending money if you never see it hit your checking account. Set up an automatic transfer each paycheck from your checking account to savings. Experts suggest aiming to set away 6 months’ worth of income for emergencies. It’s also wise to put about 10 percent of your income toward retirement.
- Carry cash. Swiping a credit or debit card can make spending money feel a little too easy. Pulling out dollar bills for each purchase forces you to become more aware of how much you’re spending. Take out only a set amount of money each week to help stay within your budget and cut down on impulsive spending.
- Improve your credit score. A poor credit score will hold you back financially — even if you’ve cultivated healthy budgeting and spending skills. Pay off lingering debts and be sure to pay off all new expenses in a timely manner to improve your credit score. You may want to consider setting up automated bill pay so you don’t accidentally miss out on payment dates.
- Build financial literacy.You can’t be financially well if you don’t know how to be. Consider utilizing podcasts, books, articles and shows that teach financial concepts. For a more hands-on approach, research financial literacy events or classes hosted by credit unions or other financial institutions in your area. Several credit unions in Georgia have certified financial counselors who are trained specifically to help improve people’s financial wellness.
- Credit unions exist to help members reach financial wellness. For more information, visit asmarterchoice.org.
Regina Grant, director of the On the Rise Financial Center, said financial wellness often boils down to maintaining good habits.
The On the Rise Financial Center is an 501(c)3 non-profit guiding residents of the Historic Westside of Atlanta toward financial confidence.
“Financial sustainability and wellness hinges on behavior patterns more than anything else,” Grant said. “You have to realize it and admit it if you have bad money habits – and you have to be willing to take action.”
Sometimes, getting to that point of action can be difficult. Grant said she typically sees three main problems among clients who come to the center seeking financial counselling.
“A major barrier could be lack of resources. A lot of clients who come in are living less than paycheck to paycheck,” Grant said. “And then another one would be a lack of confidence. There was one client whose student loan issues we helped to resolve. When she came in, she just didn’t have the confidence or the strategy and know-how to help herself. She was willing, she just couldn’t turn the corner.”
The third barrier Grant often sees among clients is a lack of education and support to help turn that corner.
Grant said it’s important to understand that even those making significant paychecks can become financially unwell if they aren’t confident with and educated about their money.
“Just because they make a lot of money doesn’t necessarily mean they know what all their options and resources are,” she said. “They don’t necessarily have that confidence.”
Grant gives one main piece of advice to any of her clients who are feeling frustrated with their financial situation.
“I tell clients all the time, ‘There are only four things that are going to resolve your issue: time, commitment, money and patience,’” Grant said. “’Do you have those things?’”