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How financial wellbeing and borrowing habits are linked

The Employer’s Guide to Financial Wellbeing found that financial wellbeing is a consequence of borrow, save and spend habits.


To better understand levels of financial wellbeing, we developed a Financial Fitness Score from 1 (not in control) to 5 (financial freedom) for an individual, based on the responses to 10 behavioural questions.


We found that 82% of those scoring 1 worry about their finances, whilst only 8% of those scoring 5 worry about finances. The higher the Financial Fitness Score the greater the financial wellbeing.


The distribution of scores across the UK population is:



Perhaps unsurprisingly, there is a strong link between an employee’s Financial Fitness Score and their borrowing habits. To understand this in more detail we asked about levels of outstanding debt and repayment behaviour.



The link between borrowing and financial wellbeing

The distribution of Financial Fitness Scores is bi-modal, meaning that there are two peaks, one at 2 and one at 4. Another example of bi-modal distribution is book prices on Amazon. There is one peak at $10 and another at $25, representing paperback and hardback book prices. They are both books, but a paperback is different from a hardback.


We have a similar situation with the Financial Fitness Score: 2’s and 4’s have very different financial attitudes and behaviours.


The table below summarises the key behavioural data. We found that the number of sources of borrowing doesn’t vary much but there are big differences in what happens after an individual takes on debt.


2 4
% who have financial worries 69% 22%
Number of sources of borrowing 1.9 1.5
Total borrowing across all sources £4,149 £1,732
% vs the national average debt (£4,113, The Money Charity, Oct 2018) 101% 42%
% refused a loan 43% 15%
Missed a payment in the last 12 months 30% 10%



It’s all about salary, right?

Not as much as you might think. Salary levels are certainly a factor in what Financial Fitness Score someone gets. There are a higher proportion of lower paid individuals getting a score of 2 than a score of 4.


However, it clearly isn’t as simple as more money equalling a higher score, and better financial wellbeing. Almost a third of people getting a score of 4 earn less than £25k pa and 25% of people with a score of 2 earn more than £40k pa.


This table shows the proportion of people with each Financial Fitness Score within different salary ranges.


2 4
Get paid less than 20k 37% 22%
Get paid less than 25k 48% 32%
Get paid less than 30k 60% 43%
Get paid less than 40k 75% 63%



If not salary, then what?

Whereas salary had a relatively low level of influence over an individual’s Financial Fitness Score, financial literacy had a large impact. People with a score of 2 gave an average of five reasons that stopped them from being more financially literate, compared with 2.7 for those with a score of 4 and <1 for those with a score of 5.


Finances being a “scary topic” was by far the most common reason for people with lower scores.


So what does this tell us? It suggests that providing access to engaging, easy-to-understand financial education could help break down some of these literacy barriers. This, along with good value alternatives to traditional lending, can go a long way in helping people build better financial habits and take positive actions that have a positive impact on their lives


Learn more in the Employer’s Guide to Financial Wellbeing.

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