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Financial Friday #149: Financial Wellness Proving to be an Elusive Goal

Friday, March 17, 2023   /   by Mario Daniel Sconza

Financial Friday #149: Financial Wellness Proving to be an Elusive Goal

Financial wellness is becoming one of the latest buzzwords as inflation and interest rates soar and Canadians increasingly struggle to balance their household budgets — but what exactly does it mean to be financially well?

Financial wellness refers to a state of well-being where an individual or a household has achieved financial stability and is able to meet their current and future financial obligations without undue stress.

It's not about being rich, having a certain amount of net worth, or achieving a specific financial goal. Rather, it is about having a sense of security and confidence in your financial situation and being able to manage financial challenges and opportunities as they arise over time.

To a large degree, our financial wellness depends on how well we are able to manage our money, including tasks such as budgeting, saving, using debt wisely, investing, and planning our retirement. Successfully handling those tasks will put us on the right track — but is that all we need to achieve financial wellness?

What is making Canadians so financially unwell?

High levels of debt: As mentioned earlier, Canadians have some of the highest levels of household debt in the world. This debt is primarily driven by mortgage debt, but Canadians also carry significant amounts of credit card debt, car loans, lines of credit (often secured by home equity), and student loan debt. The average non-mortgage debt in 2020 was around $23,000.

Income inequality: Income inequality is a significant issue in Canada, with a widening gap between the richest and poorest Canadians. This can make it more difficult for lower-income Canadians to achieve financial stability and security.

Housing affordability: Housing affordability is a major concern in many Canadian cities, with rising housing costs making it difficult to purchase homes or afford rental housing.

Lack of financial literacy: Many Canadians lack basic financial literacy skills in the areas of budgeting, saving, and investing for their future. This makes it difficult to effectively manage your financial life and leads to financial instability and plenty of stress. We don't believe financial knowledge by itself will solve all your money issues, but we have seen over and over again how even a little pre-emptive knowledge can make a huge difference. For example, understanding the benefits of a TFSA and starting from a younger age.... or investing in a low-fee all-in-one ETF instead of letting cash pile up for years in an RRSP with minimal interest rates.

What are the costs of poor financial wellness?

Poor financial wellness has significant costs with stress and anxiety topping the list by a mile. It can also affect your job performance, and personal or family relationships, and limit opportunities for education, career advancement, and other life goals.

Improving your financial wellness will require a number of changes — bettering your financial knowledge and skills would be a great start, but you will also have to stay motivated and your mental outlook and attitude toward money may also need to undergo some change.

A lot of us already know a few areas where we could cut back, but we often let procrastination, wavering motivation, and a YOLO attitude continue to adversely affect our financial life.


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