November 2022

We’re all aware that your physical and mental health can affect your overall wellbeing and how you feel about life, but the concept of financial wellbeing may be less familiar. However, with the impact of the pandemic and now the cost of living crisis, looking after your financial wellbeing is more important than ever

What do we mean when we talk about financial wellbeing and why does it matter? 

When you come to us for financial advice, we understand that the ultimate aim isn’t just to make money for the sake of it. You want to feel in control of your financial situation, have a sense of security about your day-to-day and long-term finances and be able to use your wealth as a tool to attain your life goals.

This is what financial wellbeing is all about. It’s having enough money to meet your obligations, both now and in the future, as well as to set some aside to cope with any unexpected events and being able to do the things you enjoy and make you happy, like planning a holiday, buying a new car or helping your family. 

Money worries on the rise

Unfortunately, not everything to do with our finances is within our control. The pandemic made many of us realise that our finances are more at risk from unexpected events than we’d previously thought. 

And the feeling of lack of control has been further intensified by current concerns around higher food prices, rising energy bills, increases in interest rates and the prospect of an economic recession. A study from the Office of National Statistics recently revealed that around three in four adults (77%) feel very or somewhat worried about the rising costs of living1, while Aegon found that far more people are worried about their finances now than they were during the pandemic (63% v 36%)2.

Against this backdrop, it wouldn’t be surprising if your sense of financial wellbeing had taken a hit. If you’re working you may be worried about job security, potential redundancy and the need for a plan to secure your income in later life. If you’re retired, you might be anxious about how to cover your outgoings when inflation is rising rapidly. 

These worries about money can affect us all, even those in relatively comfortable financial positions. The Employer’s Guide to Financial Wellbeing 2020-21 found similar levels of financial anxiety between those with salaries of £10,000 to £30,000 (27%) and those with over £90,000 (24%)3.

In uncertain times, your adviser can use tools such as cashflow modelling to help you visualise the impact of inflation or the effect of a drop in income on your financial position. It can show you how your wealth is likely to change over time or how different levels of income will impact your longer-term finances to make it easier to understand the different options.

Identifying your financial vulnerabilities

Even in relatively stable times, your personal situation can impact your feeling of financial wellbeing. Everything from having children, divorcing, or dealing with bereavement, to coping with a health condition, looking after elderly relatives or managing a sudden loss of income can disrupt your sense of control.

The Financial Conduct Authority (FCA), which regulates financial advisers in the UK, describes the different circumstances that can impact your financial wellbeing as characteristics of financial vulnerability and found that over half (53%) of all UK adults show one or more of these characteristics[3]: It outlines four main areas that drive financial vulnerability and has put guidance in place to make sure that advisers look out for these characteristics to ensure the advice we provide is suitable for your personal situation.

The four groups are:

While you would, hopefully, tell us if you are faced with circumstances that directly impact your finances like divorce or redundancy, you may not consider mentioning something like the death of a loved one. Similarly, while your adviser will be aware of an obvious disability, they may not immediately recognise a more ‘hidden’ health condition like depression, or one that may worsen over time like hearing loss or dementia. Yet any of these things could affect your long-term financial wellbeing and impact your adviser’s ability to deliver the best possible outcomes.

By working with a financial adviser, you’ve already taken an important step to protect your financial wellbeing. Life is unpredictable, and that’s why being prepared financially to help you cope with the unexpected is so important. But it can be difficult for advisers to identify some of the characteristics that contribute to financial vulnerability and could impact your long-term financial wellbeing, so it is crucial that you let your adviser know of any changes to your circumstances. 

It can also sometimes be difficult for you to know whether the things you are dealing with in your life are likely to affect your financial plan. Your adviser will be interested in hearing about your wider life, goals and aspirations and you should try to be as open and honest as you can, even if you’re not sure if the things you discuss will have any impact on your finances. That way, your adviser can adjust your plan whenever necessary, giving you the reassurance that your financial future is in the best hands and making sure you have one less thing to worry about.

Next steps

Your financial adviser is key to helping protect your financial wellbeing through the services we provide. If you want to discuss your financial plan, or circumstances that may impact it, you don’t need to wait until your annual review. We’re here to help, so please get in touch.