What the heck is Financial Health anyway? And why is it important? Ask those questions in a room full of people and you will get an interesting array of answers!
Typically, when people respond to this question, they think of better financial plans, having some savings, having little or no debt and the ability to meet needs while having some wants met. Usually, there is consensus that good financial health means less worries and stress.
So, these are good descriptions of what having “good Financial Health” might look like – but they don’t really define the term. The Financial Health Institute, as our name would indicate, is very interested in the definition of Financial Health, probably because it is the cornerstone to everything that we do and hope to accomplish. And, so we‘ve spent a lot of time working on a definition that takes into account the full scope of what we think “Financial Health” means. We define it like this:
Financial Health is:
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.
Here’s why we define it this way.
The World Health Organization, on the other hand, defines “Health” as: “A state of complete physical, mental and social well-being and not merely the absence of disease or infirmity.” While in this definition, a person’s financial situation is, at best, implied, the World Health Organization does further elaborate on this concept in their explanation of Health Promotion.
Health Promotion is described as: “The process of enabling people to increase control over, and to improve, their health. To reach a state of complete physical, mental and social well-being (their definition of health), an individual or group must be able to identify and to realize aspirations, to satisfy needs, and to change or cope with the environment.
Health is, therefore, seen as a resource for everyday life, not the objective of living. Health is a positive concept emphasizing social and personal resources, as well as physical capacities. Therefore, health promotion is not just the responsibility of the health sector, but goes beyond healthy life-styles to well-being.”
A Resource For Everyday Life
Well now, that’s very interesting. “Health is seen as a resource for everyday life…Health is a positive concept emphasizing social and personal resources, as well as physical capacities.”
I like this definition as it would support what everyone I’ve ever discussed this concept with already knows – that is, health is an invaluable, intangible asset closely aligned with the ability of a person to maintain or grow financially and/or economically.
In the traditional sense of the term, Investopedia defines Financial Health as: “A term used to describe the state of one’s personal financial situation. There are many dimensions to financial health, including the amount of savings you have, how much you are setting away for retirement and how much of your income you are spending on fixed or non-discretionary expenses.”
You will note that “health” in this definition refers to one’s financial situation, and not to the soundness of one’s body or mind. And when I bring up financial health, in almost all contexts, this is what people think about.
But I think this definition is too narrow. I think there is a tendency to put our finances into one silo, our health into another. Yet, your personal finances and all of your financial decisions impact so many other areas of your life and we want to begin to draw attention to these intersections.
Focus on Financial Health
Health and finances are dynamic, always changing, in flux, up and down. Your personal financial situation can be unhealthy and the result of that can lead to problems in other areas of your life.
Your personal health can be poor and that can lead to significant financial issues. So we want to help people focus on “Financial Health” and examine more closely how a person, family or organization uses their finances and economic resources and ultimately how their decisions, behaviors, routines and habits impact their overall well-being.