From short-term financial well-being to long-term financial security

Financial well-being (FWB) is the extent to which an individual feels that their financial situation provides them with security, future stability, and freedom of choice. Recent research has helped to better define and understand FWB, and researchers find that income, education, and liquid savings all contribute positively to FWB levels.

Understanding what factors are associated with increases and decreases in FWB is key to helping people move from their current financial situation to long-term financial security, and what policy interventions might advance this goal. This article examines how FWB changes over time, which factors and behaviors are most predictive of large increases or decreases in FWB, and whether these relationships may have changed after the onset of the COVID-19 pandemic.


The analysis pursues these questions using multiple waves of survey data over a four-year period before the onset of the COVID-19 pandemic and then in May 2020. The data comes from the Understanding America (UAS) study, a nationally representative study. , probabilistic Internet panel. Pre-pandemic measures of financial well-being use the Consumer Financial Protection Bureau’s (CFPB) 10-point financial well-being scale. The scale is designed to comprehensively measure subjective FWB, including (a) feeling in control of day-to-day and month-to-month finances, (b) ability to absorb a financial shock , (c) being on track to achieve financial goals, and (d) having the financial freedom to make choices that allow you to enjoy life.


Over an observation window of almost four years before the pandemic, the research found that around 30% of individuals in the sample experienced a large increase or decrease in FWB. Importantly, evidence suggests that modifiable financial behaviors, more than demographic characteristics, are associated with improved FWB. People who plan ahead financially, maintain manageable debt, save regularly in liquid accounts, and spend less than their income are both more likely to experience a large increase in FWB and less likely to experience a large decrease in FWB than their non-committing counterparts. in these behaviors.

Although the COVID-19 pandemic has significantly altered the economic landscape, the analysis finds similar associations between these behaviors and FWBs measured after the onset of the pandemic. Finally, there is also evidence that stimulus payments may have helped offset some negative financial impacts of the pandemic – people who had received the first economic impact payment at the time of the survey were less likely to have experienced a decrease in FWB compared to those who did not receive the stimulus, and this effect was particularly pronounced for those who experienced a reduction in income.


The study indicates that modifiable characteristics and behaviors are predictive of better future financial stability, suggesting that investments in these factors can help improve long-term financial security.

Suggested quote: Burke, Jeremy. From short-term financial well-being to long-term financial security. Washington, DC: AARP Public Policy Institute, May 26, 2021.

Sarah J. Greer