The Importance of Financial

Well-being
Financial Well-being. What is it and what does it mean? Are you
earning enough? Are you saving enough?
These are questions we all ask ourselves. And they are the reason money is such a
huge source of stress for Americans.

In my experience, everyone wants to be able to provide for their family and plan for their
future. We often believe if we could make more money, we would be better off. But the
truth is that income alone does not determine financial well-being. Just as you learn
skills to perform at your chosen career, we all must develop the skills needed to
effectively manage our financial lives.

According to the Consumer Financial Protection Bureau (CFPB), financial well-being

contains these four components:

1. Control over day-to-day and month-to-month finances

2. Capacity to absorb a financial shock

3. On track to meet your financial goals

4. Financial freedom to make choices to enjoy life

Financial well-being is the foundation on which so many other aspects of a family’s life
are built. United Way of Greater Richmond & Petersburg believes that strong Financial
Well-Being has positive implications on educational achievement, contributes to better
health outcomes and builds a stronger community for all. Financially stable families are
able to work through all of our Steps to Success—from Basic Needs all the way to
Connected and Healthy Older Adults. It’s the life cycle United Way’s strategic framework
is built upon.

Financial well-being in our community

The Asset Poverty Rate is one of the closest measures we have to determine our overall
financial well-being as a region. The Asset Poverty Rate is the percentage of people who
do not have enough assets to survive above the poverty level for three months in the
absence of income. An unexpected expense such as a job loss, car repair or health
crisis could have a crippling effect on their financial well-being.
Within the United Way of Greater Richmond & Petersburg region,
the asset poverty rate is 22.3%.
In our  Indicators of Community Strength report, we look at additional data to assess
the financial health of our region—metrics such as the poverty and unemployment rates,
number of unbanked and underbanked households and number of families spending
more than 30% of their income on housing.

How do we improve financial well-being?

Household Sustainable Income. Individuals and families need to have enough income
to meet their basic expenses and have an opportunity to save for the future. In the
Greater Richmond Metro Area, a single mother with two kids needs to make a minimum
of $19.33/hour to afford a two-bedroom rental home. In Virginia, the minimum wage is
$7.25/hour. A single earner would need to work a minimum of 109 hours a week to
afford a modest one-bedroom rental home. You can find more information at The
National Low Income Housing Coalition.

The rule of thumb has been a family should not spend more than 30% of their income on
housing. The problem is many low-income families and individuals are “housing cost
burdened,” which means much of their income is used to maintain housing, providing
very little room for other expenses such as food, healthcare, childcare and
transportation. Within the United Way region, 51% of renters are spending 30% or more
of their income on housing.

Effective Money Management. The first step to doing better is knowing how to do

better. Financial education teaches us how to create monthly budgets and how to
manage credit wisely. Understanding needs vs. wants, identifying take-home pay and
expenses and prioritizing payments are the first steps to creating manageable household
budgets. Once someone has a picture of their current financial situation, they can begin
to look at their debt, create a debt reduction plan and open checking and saving
accounts with mainstream banking resources. Many unbanked and underbanked
households do not use a mainstream banking service due to past banking history and
location of the banking service to the community. By utilizing mainstream banking
services, people will spend less in monthly fees than those that use Alternative Financial
Services (AFS).

That’s why it is important to advocate with mainstream banking institutions to provide

supports like “second chance bank accounts” and “mobile banking vehicles” to visit low
income neighborhoods. According to a 2016 report from Prosperity Now, “These
predatory financial products threaten unbanked and underbanked households with future
financial insecurity: the average underserved household has an annual income of
$25,500 and spends about 10% of that (over $2,400) on AFS fees and interest.” Imagine
what an extra $2,400 could do for an underserved family!

Savings. To create long term financial sustainability, families and individuals must invest
in savings and build assets as a part of their financial well-being plan. Emergency
savings funds allow you to handle unexpected emergencies. Lack of such funds can
create tremendous setbacks—both for monthly expenses and long-term financial
planning. Asset development is the process of increasing financial or tangible resources
such as savings, a home or investment in education or businesses. These resources are
an investment in your future and the future of your children. Similarly, retirement
accounts are an investment in your quality of life as an older adult. For more about
saving and asset development, read our companion piece, Saving: Why it Matters.

How United Way helps

Our goal at United Way is to support systemic and programmatic efforts to assist low-
income households achieve financial stability and build wealth. United Way has two very
important initiatives within the Financial Well-being component of our Steps to
Success.

THRIVE: A Financial Stability Collaborative for the Greater Richmond

Region
THRIVE’s mission is to support efforts to assist low-income families and individuals in
building wealth and achieving financial stability through financial literacy, savings, asset
development and household-sustaining employment.

THRIVE has three objectives:

 Enhance collaboration, information-sharing and capacity-building among local

programs and organizations that assist low-income residents in building wealth
and achieving financial stability. We do this via the THRIVE Service Provider
Network.

 Generate more resources and support (financial, volunteer and otherwise) for
local initiatives that work to increase access to the key building blocks of financial
opportunity for low-income residents. We do this via the THRIVE Financial
Stability Fund.

 Increase public awareness of financial stability issues and advocate for greater
access to financial stability opportunities. United Way serves as a Community
Champion for Prosperity Now, a national non-profit with a mission to ensure
everyone in our country has a clear path to financial stability, wealth and
prosperity. Community Champions are groups that coordinate a network or
coalition and are committed to advancing policy.

Volunteer Income Tax Assistance

United Way’s Volunteer Income Tax Assistance (VITA) program promotes financial well-
being, one of United Way’s nine Steps to Success. Our VITA program provides free tax
assistance for low- to moderate-income families and individuals. Our team of staff and
volunteers prepare income tax returns for qualifying families and individuals and
advocate for the Earned Income Tax Credit (EITC). Our work ensures that tax returns
are accurate and everyone receives their full refund and avoids unclaimed tax credits,
fees for tax preparation services and refund anticipation loans. Learn more here.
How You Can Help
 Give to support United Way’s work in the Financial Well-Being Step to Success.
Use the “Investment Options” tool to direct your gift to Financial Well-being.

 Become an advocate for greater access to financial stability resources. Share

this article on Facebook, email it to friends and colleagues or print it and read it to
someone who might miss it online.

 Volunteer. Our Volunteer Income Tax Assistance program is always looking for
volunteers. Find opportunities here.

Achieving and maintaining financial well-being is important for families and individuals,
as well as our entire region. Stronger families make for stronger communities. Stronger
communities encourage stronger schools. Stronger schools lead to better prepared
students, which leads to better prepared adults.

Author Credit: Katina Williams