The true cost of financial wellbeing

The true cost of financial wellbeing

James Silk
by James Silk

What is Financial Wellbeing?

Money problems are one of the key drivers for poor mental health. People with problem debt are significantly more likely to experience mental health problems – with nearly half (46%) of people in problem debt suffering from poor mental health. What’s more, there is significant stigma around both debt and mental health, meaning those impacted are less likely to ask for help, and therefore prone to becoming isolated and compounding the problem. The impact of money worries on an individual can be broad: stress, anxiety, depression, insomnia, increased alcohol consumption etc.

It’s clear that financial difficulty can cause poor mental health, but the reverse is also true – poor mental health can lead to worsening financial difficulty. This is a vicious circle. This typically results from de-prioritising money and budget management, making poor financial decisions, or inability to work due to poor mental health. This can lead to a greater reliance on credit, reduced credit scores, and generally make life more expensive for those affected.

So, what can we do to improve financial wellbeing?


Financial literacy is a surprisingly large issue in the UK, with around one-third of the population defined as financially illiterate using World Bank criteria. Not understanding the implications of your financial or lifestyle decisions can have a knock-on effect on your finances in the long term.

Information provided by financial institutions has been notoriously indigestible – long form pamphlets filled with jargon often written in a way as to appease banks’ legal departments. We are now seeing information delivered in a much more consumer friendly format, with AI based chatbots able to answer any customer clarification questions instantaneously. However, this change has a way to go before it encompasses the entire financial landscape.

There are a number of educational websites that provide information for individuals across a range of finance capabilities, such as World of Money and Investopedia. Fintechs have also spotted the gap in the market to improve financial literacy. GoHenry is starting at the roots by providing children with a Visa debit card alongside simple money management lessons and parental controls to provide a foundational level of financial literacy from a young age.

Money management tools:

Hand in hand with education, comes the need to give people the tools to help them manage their money effectively. Most of us are juggling multiple bank accounts, savings and mortgages with separate banks, and bills and monthly subscriptions coming in from several suppliers. A missed bill or unexpected expense can easily topple the whole house of cards.

Fintechs such as Lumio are providing customers with the tools to ease and personalise money management. Lumio builds on top of Open Banking, adding an extra layer of intelligence that helps customers save and invest every penny they can afford. The app offers tailor made technology that fits around customers’ lifestyles – a person by person solution to track, save and invest smarter than ever before. 

Support from employers:

The vicious circle of poor financial wellbeing is something that employers should very much want to break. Poor employee mental health costs employers too – one in three workers aged between 25 and 34 report money worries have affected their work. Given that we spend a great deal of our lives at work, and that in most cases peoples’ primary source of income comes from work, there is a large scope for employers to drive real positive change here.

As a minimum, employers should be providing employees with education and information, in line with what we have discussed above. Where employers are small, or don’t have the resources to provide directly, they should be able to lean on free resources or point their staff in the right direction. A key part of this, is encouraging employees to be proactive in managing their financial wellbeing and be open when they are having issues. Employers would rather the individual speaks up and asks for support if they are struggling.

When an employee does struggle, employers have a few routes they can take to support. This could take the form of paying for sessions with a financial advisor or providing an advance on their salary. Given that only 28% of people have a savings buffer equal to three months’ income, and many people live pay cheque to pay cheque, providing a small advance on a salary can prevent someone having to rely on high interest payday loans.

Fintechs have risen to cover the gap in the market caused by antiquated monthly payroll processes, and lack of financial education offered by employers. FastP.A.Y.E gives employees the flexibility to drawdown on earned wages ahead of the traditional monthly pay cycle, which is fully configurable by the employer. The solution is normally free for employees and can measurably improve staff retention. FastP.A.Y.E also provide employees with access to financial education, as well as a number of tools like a budget planner, savings calculator, and benefits assessment which helps an employee check their eligibility and apply for various in work benefits and grants).

Early identification of those struggling financially:

Catching issues early is key to preventing the vicious cycle of worsening finances and associated wellbeing.

In many cases, when a customer gets into difficulty from a financial wellbeing perspective, their first move will often be to seek support from new credit products. This is often done to pay off existing lenders and could be anything from payday loans to credit card balance transfers. This is an opportunity for financial institutions to truly understand the root cause for a customer taking out a new product and point customers in the direction of advice and mental health support if needed. Open Banking and Open Finance provide institutions with the tools to build a fuller picture of an individual’s financial situation and understand what behaviours led them to apply for additional credit.

But what about during the middle of the customer lifecycle? What about the financial institutions a struggling customer already has a relationship with? One solution is for lenders to carry out ongoing regular monitoring of customers’ financial situation to identify any issues early on. This would allow the lender the opportunity to restructure the loan, or provide payment holidays, to break the vicious cycle before the problem worsens. Again, this is also a great trigger point to be guiding customers to mental health and wellbeing support.

Woodhurst’s ventures arm is currently incubating a fintech that uses Open Banking and other data sources to provide early warning of credit delinquency to lenders in real-time. Prewarning lenders of delinquency enables them to be better placed to engage customers with personalised debt solutions that reduce default risk and create better outcomes for customers.

What’s next?

Searches for ‘financial wellbeing’ have been steadily increasing over the last 5 years. The global pandemic has also shone a light on the combined issues of mental health and financial distress, as millions were simultaneously left without work and forced to stay in their homes. Awareness is the first step in tackling the issue – going forward we need to see widespread adoption of solutions that support individuals. We will explore these solutions in more detail in future blogs. Watch this space.

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