Evidence-Based Interventions for Financial Well-Being

Abstract

Money concerns are detrimental for well-being. A recent study found that about 40% of one’s overall well-being is explained by financial well-being (Netemeyer et al. 2018). By social science conventions, variables that can explain more than 25% of the variance in an outcome are considered as having a large effect. This means that a large portion of the differences in overall well-being across people are explained by their differences in financial well-being. But to give a sense of how large the effect is, other important domains of life such as one’s job, relationship, and health together explain about as much as financial well-being alone.

Most people suffer or will suffer because of money problems. Recent surveys suggest that about 60% of Americans now live paycheck to paycheck, and one in four have had problems paying their bills since the pandemic outbreak. Before the pandemic, only about half of Americans had the savings on hand to handle an emergency expense of $1,000 outside their budgets. Most people are very much aware of the importance of building emergency savings, but, despite all good intentions, fail to do so (a prime example of the intention-action gap).

For practitioners and organizations interested in improving the state of people’s financial well-being, this chapter reviews the impact and effectiveness of four of the most commonly applied interventions: financial education, rules of thumb (heuristics), planning prompts, and peer influence.