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Johan Skytte poliitikauuringute instituut

An Estonian-Dutch study: Financial well-being can be achieved anywhere

The following summary is written by Marian Männi, first published in researchinestonia.eu

An Estonian-Dutch study showed that coming from a wealthier country doesn’t solely determine financial well-being, but rather individual differences and context are more critical.

Financial experts usually say you should save money and invest, avoid loans, find alternative sources of income, and save or invest even more! Reality is much more complex than that. Researchers say these tactics may work for some but not for everyone.

Learning about money is essential, but there is no guarantee that it will lead to financial well-being. Financial well-being points to how someone sees their financial situation and what they expect in the future but is not synonymous with personal wealth. Financial competence has a role in it but is one of many factors that affect it, including personality, age and life changes, attitudes and values, socio-economic status and contextual influences.

To understand this, Estonian behavioral scientist Leonore Riitsalu and Dutch psychologist W. Fred van Raaij decided first to explore how people in 16 countries around the world assess their current and future financial well-being, and which differences emerge. 

The results of that study were recently published in the Journal of International Marketing.

Riitsalu and Raaij wondered whether typical studies even illustrate the full picture of a person’s financial well-being. Some researchers see it as an objective term that describes a person’s wealth, whereas to others it’s a perceived ability to maintain current living standards and reach a desired future lifestyle. A third perspective is that it’s a combination of both subjective and objective aspects.

In previous research, financial well-being has been shown to have the most significant effect on subjective well-being. It determines many aspects of our lives, hence, why we should (and do) pay so much attention to it.

Many frameworks and conceptualisations have been developed in recent years. There have been studies exploring what financial well-being means in different countries, but international research is still lacking. Drawing conclusions based on data collected in a single country may not be sufficient as it does not give enough space to assess the contextual factors. This is why Riitsalu and van Raaij collaborated with ING bank and asked them to add a block of questions on financial well-being to their annual international savings survey in 2019. The goal was to assess the two parts of financial well-being: current money management stress and expected future financial security.

Respondents were asked to rate on a five-point scale how much the proposed 10 financial well-being statements described them. The countries included developed countries like Australia and Turkey and developing countries such as  the Philippines and Romania. Among other examples of the current money management stress statements: “Because of my money situation, I feel I will never have the things I want in life.”, “My finances control my life.”, and “I am unable to enjoy life because I obsess too much about money.

Other statements concerned future financial expectations: “I am becoming financially secure.” and “I have saved (or will be able to save) enough money to last me to the end of my life.”

The researchers found that no clear patterns emerge when comparing the two components of financial well-being between different nation-states. Country borders, they concluded, don’t determine well-being monetarily, suggesting age is a more significant factor than territory. “When everyone can belong to global communities through media and communications platforms, people are less influenced by what the people around their immediate surroundings say or do. Your physical presence doesn’t determine who you’ll compare yourself with,” Riitsalu said.

They also found that younger people are at the same time more stressed about their finances in the present but also perceive their future to be more financially secured. It may be that they are investing into their future at the cost of today’s well-being, or it may be myopia, optimism and overconfidence that make them optimistic about the future. They also found, not surprisingly, that high income earners tend to be more financially satisfied, and interestingly, the more people trusted their government, the less stress they had on their finances. They also discovered that people from collectivist societies are less anxious about their financial future, possibly because they can lean on others, such as friends, family and community, Riitsalu explained.

The study summarises how more money doesn’t automatically mean more satisfaction with your financial situation and expectations. In Riitsalu’s view, lifestyle choices and personality traits such as being determined and future-oriented matter more.

This article was funded by the European Regional Development Fund through Estonian Research Council.

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