What money can’t show: Measuring subjective financial well-being for better customer support
Individuals don’t just manage money, they manage the emotions that come with it. That’s why measuring subjective financial well-being is so powerful: it opens a window into how people actually experience their finances and therefore act on them. Let’s see how.
Unpacking the age-old question: can money really buy happiness?
Research has long established the link between money and happiness – in their famous 2010 paper, Kahneman and colleagues even identified the optimal income as $75k to maximise happiness. While the exact figure is no longer definitive due to socio-political and economic changes, the study highlights a broader principle: there exists a financial threshold to maximise happiness. This suggests that financial security is a baseline requirement for happiness, echoing Maslow’s hierarchy of needs – where essentials like food and water must be met before one can pursue higher-order fulfilment. Simply put, without money, even fundamental needs remain unmet. Therefore, measuring financial wellbeing becomes essential – because if happiness varies with money, so too will behaviour and decision-making.
This connection is particularly salient for young adults (18-29), whose financial wellbeing is considered critical. Indeed, the transition from adolescence to adulthood is marked by the achievement of challenging milestones, such as completing education, securing employment and leaving the parental home. Studying the financial wellbeing of emerging adults is therefore important because their situation is distinct from both adolescents and adults. As a result, researchers are increasingly focused on understanding how youths can achieve a better state of financial wellbeing6.
How financial well-being shapes financial behaviour: Thinking fast and saving slow
Every day, young adults have to make financial decisions. Some choices are driven by System 1 thinking: fast, intuitive, and automatic – like buying coffee. Others require System 2: slower, more deliberate thinking used for high-stakes decisions such as purchasing a home. Beyond immediate choices, emerging adults also need to start making intertemporal decisions, such as contributing to a pension or opening a savings account.
Financial wellbeing plays a crucial role in shaping these decisions and influencing behaviour. Young adults with low financial wellbeing may be more likely to rely on payday loans, struggle to keep up with student loan or hesitate to engage with long-term financial products like pensions. Conversely, those with high financial wellbeing are probably more likely to feel in control of their finances, regularly contributing to savings and comfortably exploring higher-risk financial products, with less emotional strain.
How we can measure financial well-being: The Multidimensional Subjective Financial Well-Being Scale
As outlined, emotions and money are deeply intertwined. This connection is reflected in the structure of financial wellbeing, which can be defined as a positive financial state encompassing both an objective and subjective dimension. The objective side refers to one’s economic resources – like income and assets – while the subjective side captures individuals’ emotional and cognitive evaluation of their financial situation.
Given this dual nature, the Multidimensional Subjective Financial Well-Being Scale (MSFWBS) has been identified as the most comprehensive instrument currently available to measure the subjective dimension of financial wellbeing among young adults. Originally developed in Italy, the scale has since been validated across eight WEIRD (Western, Educated, Industrialized, Rich and Democratic) countries, but has also shown validity in non-WEIRD contexts. However, to assess whether the scale is truly applicable across both developing countries, researcher Sorgente and colleagues are currently collecting data in several developing countries.
It is time to rethink standard customer needs: Going beyond with subjective well-being insights
This line of research holds clear practical value: an understanding of subjective financial wellbeing can equip financial services with deeper insights into clients’ needs and behaviours. Beyond traditional metrics like income, such measures can inform more tailored financial products and offerings. This aligns closely with the current mission of financial institutions – such as Lloyds and Monzo – which are actively working to support customers through personalised tools and inclusive services.
A validated measure of subjective financial wellbeing could therefore be a valuable tool for institutions, enabling them not only to deliver more targeted support, but also to design financial products in ways that better reflect the realities of their customers. By shifting from a top-down to a bottom-up approach, institutions can foster more meaningful relationships with their users. This, in turn, can enhance customers’ experience, build trust, and encourage loyalty. From a behavioural science perspective, this approach seems to tap into the powerful principle of reciprocity: when people feel understood and supported, it’s more likely they remain engaged and committed in return.
If you found this blog helpful, you might also enjoy our piece on The Quiet Revolution. To discover how your brand can enhance customer experience with these insights, get in touch with our team today.
