The Importance of Financial Well-being

Financial Well-being. What is it and what does it mean? Are you earning enough? Are you saving enough?

These are questions we all ask ourselves. And they are the reason money is such a huge source of stress for Americans.

In my experience, everyone wants to be able to provide for their family and plan for their future. We often believe if we could make more money, we would be better off. But the truth is that income alone does not determine financial well-being. Just as you learn skills to perform at your chosen career, we all must develop the skills needed to effectively manage our financial lives.

According to the Consumer Financial Protection Bureau (CFPB), financial well-being contains these four components:

  1. Control over day-to-day and month-to-month finances
  2. Capacity to absorb a financial shock
  3. On track to meet your financial goals
  4. Financial freedom to make choices to enjoy life

Financial well-being is the foundation on which so many other aspects of a family’s life are built. United Way of Greater Richmond & Petersburg believes that strong Financial Well-Being has positive implications on educational achievement, contributes to better health outcomes and builds a stronger community for all. Financially stable families are able to work through all of our Steps to Success—from Basic Needs all the way to Connected and Healthy Older Adults. It’s the life cycle United Way’s strategic framework is built upon.

Financial well-being in our community

The Asset Poverty Rate is one of the closest measures we have to determine our overall financial well-being as a region. The Asset Poverty Rate is the percentage of people who do not have enough assets to survive above the poverty level for three months in the absence of income. An unexpected expense such as a job loss, car repair or health crisis could have a crippling effect on their financial well-being.

Within the United Way of Greater Richmond & Petersburg region, the asset poverty rate is 22.3%.

In our  Indicators of Community Strength report, we look at additional data to assess the financial health of our region—metrics such as the poverty and unemployment rates, number of unbanked and underbanked households and number of families spending more than 30% of their income on housing.

How do we improve financial well-being?

Household Sustainable Income. Individuals and families need to have enough income to meet their basic expenses and have an opportunity to save for the future. In the Greater Richmond Metro Area, a single mother with two kids needs to make a minimum of $19.33/hour to afford a two-bedroom rental home. In Virginia, the minimum wage is $7.25/hour. A single earner would need to work a minimum of 109 hours a week to afford a modest one-bedroom rental home. You can find more information at The National Low Income Housing Coalition.

The rule of thumb has been a family should not spend more than 30% of their income on housing. The problem is many low-income families and individuals are “housing cost burdened,” which means much of their income is used to maintain housing, providing very little room for other expenses such as food, healthcare, childcare and transportation. Within the United Way region, 51% of renters are spending 30% or more of their income on housing.

Effective Money Management. The first step to doing better is knowing how to do better. Financial education teaches us how to create monthly budgets and how to manage credit wisely. Understanding needs vs. wants, identifying take-home pay and expenses and prioritizing payments are the first steps to creating manageable household budgets. Once someone has a picture of their current financial situation, they can begin to look at their debt, create a debt reduction plan and open checking and saving accounts with mainstream banking resources. Many unbanked and underbanked households do not use a mainstream banking service due to past banking history and location of the banking service to the community. By utilizing mainstream banking services, people will spend less in monthly fees than those that use Alternative Financial Services (AFS).

That’s why it is important to advocate with mainstream banking institutions to provide supports like “second chance bank accounts” and “mobile banking vehicles” to visit low income neighborhoods. According to a 2016 report from Prosperity Now, “These predatory financial products threaten unbanked and underbanked households with future financial insecurity: the average underserved household has an annual income of $25,500 and spends about 10% of that (over $2,400) on AFS fees and interest.” Imagine what an extra $2,400 could do for an underserved family!

Savings. To create long term financial sustainability, families and individuals must invest in savings and build assets as a part of their financial well-being plan. Emergency savings funds allow you to handle unexpected emergencies. Lack of such funds can create tremendous setbacks—both for monthly expenses and long-term financial planning. Asset development is the process of increasing financial or tangible resources such as savings, a home or investment in education or businesses. These resources are an investment in your future and the future of your children. Similarly, retirement accounts are an investment in your quality of life as an older adult. For more about saving and asset development, read our companion piece, Saving: Why it Matters.

How United Way helps

Our goal at United Way is to support systemic and programmatic efforts to assist low-income households achieve financial stability and build wealth. United Way has two very important initiatives within the Financial Well-being component of our Steps to Success.

THRIVE: A Financial Stability Collaborative for the Greater Richmond Region

THRIVE’s mission is to support efforts to assist low-income families and individuals in building wealth and achieving financial stability through financial literacy, savings, asset development and household-sustaining employment.

THRIVE has three objectives:

  • Enhance collaboration, information-sharing and capacity-building among local programs and organizations that assist low-income residents in building wealth and achieving financial stability. We do this via the THRIVE Service Provider Network.
  • Generate more resources and support (financial, volunteer and otherwise) for local initiatives that work to increase access to the key building blocks of financial opportunity for low-income residents. We do this via the THRIVE Financial Stability Fund.
  • Increase public awareness of financial stability issues and advocate for greater access to financial stability opportunities. United Way serves as a Community Champion for Prosperity Now, a national non-profit with a mission to ensure everyone in our country has a clear path to financial stability, wealth and prosperity. Community Champions are groups that coordinate a network or coalition and are committed to advancing policy.
Volunteer Income Tax Assistance

United Way’s Volunteer Income Tax Assistance (VITA) program promotes financial well-being, one of United Way’s nine Steps to Success. Our VITA program provides free tax assistance for low- to moderate-income families and individuals. Our team of staff and volunteers prepare income tax returns for qualifying families and individuals and advocate for the Earned Income Tax Credit (EITC). Our work ensures that tax returns are accurate and everyone receives their full refund and avoids unclaimed tax credits, fees for tax preparation services and refund anticipation loans. Learn more here.

How You Can Help

  • Give to support United Way’s work in the Financial Well-Being Step to Success. Use the “Investment Options” tool to direct your gift to Financial Well-being.
  • Become an advocate for greater access to financial stability resources. Share this article on Facebook, email it to friends and colleagues or print it and read it to someone who might miss it online.
  • Volunteer. Our Volunteer Income Tax Assistance program is always looking for volunteers. Find opportunities here.

Achieving and maintaining financial well-being is important for families and individuals, as well as our entire region. Stronger families make for stronger communities. Stronger communities encourage stronger schools. Stronger schools lead to better prepared students, which leads to better prepared adults.

Author Credit: Katina Williams