Interview on Financial Well-Being with Stijn Derynck and ICAS Belgium

Archive, 2020: this interview was conducted during the first lockdown. The vision of financial well-being remains relevant; the references to the coronavirus measures do not.

We no longer live in a world that bears even the slightest resemblance to the world we lived in a few months ago. I remember we had dinner in a very small restaurant and talked about well-being, and financial well-being in particular. About what would happen if people only received 60% of their current salary...

The onset of the coronavirus and the economic lockdowns and shutdowns it has caused have turned all conventional wisdom upside down. Economic and financial security is, sadly, probably a thing of the past for many people and businesses for as long as no appropriate measures are taken.

Business closures, airline shutdowns, redundancies, quarantines, oil prices dropping below zero, the money printing presses running - every day, even every hour, it seems as if there is a new, frightening development stemming from the coronavirus pandemic. People are worried about themselves, their families and (apparently) their supply of toilet paper. And about their money and their financial well-being too.

So what does financial well-being actually mean?

Financial well-being is, according to the Consumer Financial Protection Bureau, “a state of being” in which a person:

• can fully meet their current and ongoing financial obligations;
• can feel secure about their financial future;
• and is able to make choices that allow them to enjoy life.

It can also be referred to as financial wellness and is the ultimate goal of financial education.

I define financial wellness more as a “real state”, not as a feeling in itself... it is a path towards reaching this “state”. Like financial health, you have access to financial products and solutions, you can defend your rights, you have a stable income, you have built up your wealth or are well on your way to building and growing it, and so on. I could go on for quite a while...

Financial health refers to things like budgeting and saving capabilities, net worth, and so on. That is different from financial wellness because it does not really include the aspect of emotional well-being or feelings that well-being does. So we strive for financial well-being and financial wellness, overall financial health and total well-being.

So how do you put the “concept of financial well-being” into practice during this lockdown?

In this difficult period, I have mainly concentrated on how to navigate the current storm and create a model, an adaptation of the model we have been using for some time now, to make it accessible to everyone. We will therefore be making our services available worldwide over the coming months.

I believe that everyone has the power to achieve a state of financial well-being, a state of financial wellness that is reached through financial education, empowerment, changes in habits, perseverance and passion. A model to increase people’s financial confidence, promote financial well-being and help people preserve their wealth and even make it grow.

My new book will be published soon, we are creating financial well-being software solutions and working with other well-being partners, such as Wellways, to bring our solutions to the general public. In the coming months and years, the financial well-being of employees will become one of our main areas of focus. There is also the book I am writing with Robert van Beek, on building your financial confidence in 5 steps, and the conversation with Chris Budd, author of the financial well-being book, about these topics,... lots to do, plenty of work ahead.

People should not put all of their life goals on hold right now. Procrastination is the worst thing you can do if you have already made your plans and want to reach the goals you have set within a certain timeframe.

Financial stability is essential in all economic climates, and especially in these uncertain times. You cannot build a robust house on sand; a solid foundation, a stable base, is needed. In my book, “The Road to Financial Wellness”, I talk about Maslow and his relationship to the “Pyramid of Financial Needs”.

How should people deal with their financial anxiety and financial stress?

Financial well-being starts with a positive psychology, so YES, I like to think that there is a solution to everyone’s challenges, provided the person (or people) concerned is (are) willing to work on their situation and make the necessary changes. Short-term pain, long-term gain.

This is certainly different for every person and for every individual household. Someone who lives off their wealth and has financial security will experience financial anxiety differently from someone who rents a home and has no certainty about their next payslip.

Someone who has reached a level of financial independence may worry about their “stock portfolio”, or about the best moment to buy more assets, or about their property possibly falling in value, or about a tenant who can no longer pay the rent. Should this person invest their “extra” money? Certainly, but who has this “cash” at hand? Sadly, many people are not in a position to invest right now. Quite the opposite...

Take the case of the tenant, for example, who cannot pay next month’s rent, who has no financial buffer, who is not sure of their job or future earnings because the company they work for might downsize its workforce. Different approaches will be needed to find the right solution for that person’s situation.

Then there is the entrepreneur, who has to manage their personal finances and the company finances and, in the case of a company that focuses on the financial well-being of its employees, also the finances of all the people and their families who work for the company, directly or indirectly.

Every person has their “life story”, real life stories that are being written today.

The wheel of life is a simple exercise to gain more insight into your total well-being, and it is where we start in all of our financial well-being coaching programmes. A simple exercise that people can easily do at home to gain insight.

My best advice is to take your life and your finances into your own hands. Start by organising your life, get an overview of your financial situation as it stands right now, make use of the support packages offered by the government and start reducing all non-essential spending.

A good starting point can be creating your household budget and drawing up a balance sheet of your wealth, taking stock of your assets and liabilities.

What influences people’s financial well-being?

External conditions

External conditions could refer to the health of the economy in general and the public and private mechanisms within the economy that support us financially. Our social system in Europe is a good thing. It was introduced by Otto von Bismarck, who used it to placate the working class and weaken support for socialism. But that is a subject that would take us too far... we are not talking about politics, but about well-being.

Losing a job, for example, is a terrible thing to go through - but it would be much worse if we did not feel safe in the knowledge that government benefits exist to help us through this period of unemployment.

Knowing that there is support for people in financial difficulty can contribute to our overall well-being and counteract financial stress. Support from the government, from social institutions and from family members is crucial, even if we cannot meet in person.

I like to draw attention to the concept of “family/friends financial well-being”: in times like these, people who have a good family network should come together as a team (in their own homes) and work on the total well-being of each family member or good friend. If you do not have this network, improve your relationship with your family and friends, even in these times. Seize opportunities. Yes, this is the time to call that person you have not seen in a long time to ask how they are and whether they are safe and well. Build your social network by helping others; this will contribute to their well-being, and by doing good you will feel better yourself too. If you feel good and have done good things for other people, the universe will give you much more in return. An important lesson I have learnt is never to ask for anything before you have given something.

Household factors

Household factors are a more personalised set of circumstances. They can relate to our income, savings, wealth, health or debt obligations - or those of the people we live with. Your social environment.

If you have a large mortgage compared with your income, for example, that can have a negative influence on your sense of well-being. Many financial institutions offer the option to “freeze” capital repayments on mortgages because of the covid-19 pandemic.

Besides the household, a small side note: owners of small and large businesses also have options to maintain their financial balance and, much more importantly in the short term, to keep their cash flow and working budget in order and under control.

Individual factors

Individual factors are the most personalised influences on financial well-being. This could be your knowledge of the financial system and the economy, or simply your personality, your passion, your motivation, your appetite for work, your saving and spending habits.

If you are by nature a rather nervous or anxious person, it can be harder for you to feel financially healthy than it is for someone who is naturally more confident. The level of financial stress and the way we act on it differ from person to person.

It also depends on the stage of life you are in. A person of working age may feel more financially secure than someone who is retired, simply because of the advantage of a steady income from work.

All of these factors contribute to everyone’s financial well-being.

This is a difficult time for all of us, there is no getting around that. But with a good understanding of how these factors affect how we feel about money, we can understand how to improve our personal situation and feel more financially secure. And that is the first step towards building our long-term success through investments!

The coronavirus is challenging our financial security. What should those who can barely make ends meet, or not at all, do? And what should those who do have money do with it? Start investing?

I am not going to give investment advice, but not so long ago, in a previous working life, I was an asset manager for private banking clients and wealthy families. Our slogan was: an investment in your knowledge is the best investment. People need to invest in their knowledge in order to achieve the best results. First gather the information, and then act on it. Do not just start investing and buying shares without a good plan for your financial future. Before you can even think about investing, it is important to make sure your financial well-being is on track. So first you need to get your financial life in order.

Financial literacy is the knowledge that goes hand in hand with making good financial decisions; yet financial literacy does not mean that you will automatically achieve a state of financial well-being.

Financial education is a means of increasing financial knowledge and connecting people with the information they need to make positive and healthy financial choices.

How do you safeguard your personal finances in these times?

One of the first steps in managing your money effectively is understanding how you spend it. This can help you make informed decisions about your budget, but also pay off any debts and build up a nest egg more quickly.

Categorising your spending is key. Spending can be divided into one of the following two categories:

• needs: rent, mortgage and other debt repayments, food, energy, etc.
• wants: eating out, travel, new clothes, etc.

When making decisions about your spending, it is a good idea to keep this distinction in mind. Giving priority to your needs over your wants can be a way to start cutting back on your spending.

It can also be useful to break your spending down a little further. It is up to you how you divide up your spending, but here are a few ideas to start with:

• food
• rent/mortgage
• transport
• bills
• going out
• fitness
• childcare
• travel
• shopping

Add up your spending

If you look back at your bank statements for the past three months, you can see the total amount you spent in each of the categories. You can then divide this amount by three to get an idea of how much you spend on average per month in each category.

Tip: Try to take into account any irregular costs that did not occur within those three months, such as the renewal of your TV subscription, car tax and insurance.

Consider where you can make changes

Can you recognise yourself in these average amounts? Do you spend too much at the weekend and then have to scrape by during the week? Could you save more if you cut back in certain areas?

You may find it easier to cut back on some things than on others. For example, it will probably be easier to spend less at the supermarket than to reduce your rent or mortgage. But that does not mean you cannot make plans to reduce some of your bigger costs over time if you feel you need to.

Extra info / definitions

Financial vulnerability refers to a person’s inability to deal with emergency expenses at short notice, as many people around the world are experiencing as a result of COVID-19.

The basic need for security is directly related to financial well-being, because if someone does not have minimal access to things like shelter, food and transport, that affects their overall sense of well-being and safety.

Food insecurity generally refers to a person’s ability to access enough nutritious food. With the current pandemic, our communities’ access to food parcels and other resources has probably changed, so look for new ways to meet this urgent need.

Housing insecurity refers to a person’s access to consistent, affordable housing. It can look different depending on the situation, ranging from homelessness and staying with friends to frequent changes of address as a result of economic instability or fluctuating costs.

Income volatility is defined as “a year-over-year change in annual income of 25 percent or more”. For students and hourly workers, income volatility could even occur on a weekly basis, depending on how they are paid.

Can you give a few suggestions for managing money in times of crisis?

• Find out what the national and local government is offering you in this time of crisis.
• Find out whether adjustments to financial and other contracts are possible as a result of unforeseen and unavoidable circumstances (hardship clause).
• Review and draw up a budget to manage the new conditions imposed by the crisis.
• Rebuild a savings buffer over time.
• Take advantage of lower interest rates and falling stock markets.
• Use online technology to manage your money, compare terms and look for the best offer available.
• Manage your debt.
• Watch out for fraud and scams.
• Look after yourself and your health.

What should you do if your income drops sharply because of the coronavirus?

If your household has experienced a drop in income, there are several things you can do:

Create a household budget, cut costs, talk to your lenders, do not be too hard on yourself and take advantage of the benefits that are offered and available.

Redo your budget

When your household income changes, it is time to review your budget. You can use a spreadsheet or an app that does the maths for you. Find out what your new income will be, and write down all your current expenses. Using a budget will help you see how much money you need to cover any critical expenses, and whether the income you receive will still be enough.

Once again, cut costs where you can

Once you have worked out the difference between what you earn and what you spend, you can try to close the gap between income and expenditure by cutting unnecessary costs. Some of these costs will already have fallen as a result of the coronavirus measures - such as reduced spending on transport, eating out and social activities. There are other ways to reduce your spending too.

Talk to your lenders

Debt is usually an obligation that you are required to pay, even if your income changes. That is different in the current situation, so it is worth talking to your lender to see whether they can offer some kind of repayment plan. You can also look at whether you can consolidate your debt at a lower rate, freeing up some extra money each month.

Do not be too hard on yourself

It is okay if you feel you are going backwards financially right now. The coronavirus pandemic is a serious situation, so it is normal to be worried. Everyone is going through similar problems and the government is working hard to provide health and financial support.

Take advantage of the benefits and support that are available

The coronavirus pandemic is so unusual that the usual rules around benefits and entitlements have changed to support more people.

Should we teach our children more about finances and financial well-being in these coronavirus times?

How do we teach financial literacy in financially uncertain times? There is no easy answer to this question. When it comes to personal finances during a crisis like this, the best thing we can do is teach the basic principles of saving and budgeting. The lesson of prevention may seem like cold comfort right now, but it can help learners of all ages and economic backgrounds prepare for future success. And it will be key to helping them deal with future economic setbacks.

Given the great concern about our health, why should children be thinking about financial literacy right now?

We should all receive more financial education. Even I learn new things or gain new insights every day. Financial literacy is much like health; in fact, we sometimes call it “financial health”. And as with health, prevention is better than cure. Now is a good time to talk about the fact that shocks can happen, landing us in a difficult situation we could never have predicted. Illness happens. Jobs are lost. It is important that we apply prevention - saving and budgeting - so that we are better able to cope with crises like this one.

What should we teach children to prepare them for the future?

One thing we learn from our personal finances is that we need to have a savings buffer. We should always have something in our piggy bank. Children should know the story of the ants and the grasshoppers. When it was summer and everyone was happy and having fun, the ants put food aside. When winter came, the ants could cope. Like the ants, we need to make plans for the future and put money in our piggy bank in case of a sudden need or an emergency. Too many Americans rely on the flexibility of the labour market. If you ask them how they deal with shocks, they say: “I’ll get a second job.” Sadly, many people do not have this option. You cannot go to a restaurant right now and say: “Hey, I can work more hours.”

People also borrow, which provides liquidity, but without insurance. If you borrow in an emergency, for example by maxing out your credit card, you get money, but at a higher price. You do not want to pay high costs in times of need. The best way is to always set money aside. We should have three to six months’ worth of savings, because that is the surest way of being able to get hold of your money. How does this translate into a lesson for children? Put money in that piggy bank, because we may have a wish for the future or an emergency.

How can we teach these lessons to children?

Little ones need to learn what money is. If you think children are not interested in money, give them a piggy bank and you will turn that child into a banker straight away. They should learn this simple concept: money lets you buy things. You put money away to save for the things you want to buy. In secondary school you learn about compound interest on a savings account. The sooner children learn these concepts, the better.

We also need to teach the simple concept of having a budget. We are all limited by a budget. It is not about what our wishes are. If you ask me, I would love to have the biggest possible house with a garden. But the reality is different: what I can buy depends on my means. That is a very important lesson for children: your choices are limited by your means.

To help children with their budget, parents can give their children a weekly allowance and let them manage the money themselves. If they want to buy a takeaway pizza (because they are sheltering indoors), they have to decide whether their budget allows it. This is a good moment to instil a sense of limits. Children will then understand why parents do not buy them every toy they want. They will also understand that money is something you earn and that it does not simply come out of the wall.

Should parents and teachers be careful about how they talk to children about the financial crisis?

We do not want children to associate personal finances with fear and crisis. It is quite the opposite: personal finances can help us get through a crisis. Now is the time to teach children the basic principles of saving and budgeting. We are on a ship going through a storm, but this is not the time to talk about storms. This is the time to talk about navigating the ship.

What about teaching about the stock market?

Too often, personal finance is associated with the stock market. I teach a personal finance course. In the first class I ask the students, “What do you think the course is about?” They think it is about the stock market and investing. But personal finance is not only about that. It is more about setting goals and knowing how to reach them. It is about saving, and understanding that we can make that savings amount grow over time. Financial literacy is about making good decisions, taking care of ourselves and achieving our dream of having financial security throughout our life cycle, which all comes down to happiness. That is what personal finance should be about.

I do not want children to think that the stock market is something that crashes. The stock market is a way for us to improve our capacity to grow our wealth, and there are risks attached to that. The stock market can go up and down. There are great opportunities for growth, but also for loss. We need to be aware of the risk when we invest.

Do you have any words of comfort from an economic perspective?

More than ever, we need comfort. These are difficult days. But we are not in a permanent crisis. We are in a serious crisis that will pass. We will get through this. I want to remind everyone that we recently lived through a crisis. If you remember, 2008 was a terrible year. The stock market fell by 50 percent. We had an unemployment rate of 10 percent. Previous generations were also hit by shocks and came through them. And today we have a great advantage. We have knowledge. The reason we did not have another Great Depression (we called it the Great Recession) is that we learnt from the past. We have many interventions to monitor monetary policy. We now have so much information at our fingertips and can inform people and keep them up to date every minute of the day. I take comfort in that knowledge.

Do you have questions about your financial well-being or your wealth? Then get in touch with the Financial Well-Being Academy.