Financial Happiness Barometer
Research by Professor Marion Debruyne and Professor Frank Goedertier at Vlerick Business School
The Vlerick Centre for Financial Services – Optima Corporate Partnership
Optima believes in combining academic insights with management techniques and business realities so there is a clear fit with Vlerick as partner for this “Financial Planning Practice” Chair. The research will broadly look at how customers make decisions regarding their finances - “the Consumer Decision Journey”. Through an exchange of knowledge and practical insights between the two parties, Optima will learn how to leverage their existing knowledge to move to the next level. The Chair will lead to a substantial contribution towards strategic insights for Optima and innovative management research insights for Vlerick.
Which factors influence the financial happiness of the average Belgian?
For young and old alike, financial happiness contributes to happiness in general.
However, the average Belgian is not making a great deal of effort to achieve this financial happiness. A good income is essential, but other factors also influence the feeling of financial happiness. This study, a collaboration between Optima and Vlerick Business School, focuses on the relationship between financial happiness, financial worries and financial decisions.
Are Belgians financially happy?
Almost one third of Belgians (32%) are unhappy with their financial situation, while 38% consider themselves happy. Although people in the baby-boomer generation currently feel happiest about their financial situation, they have the least optimistic view of the future (in comparison with generation X and generation Y). They only expect their finances to deteriorate from now on. On the other hand, although young people are the least financially happy group at the moment, they are still hopeful about the future. They expect to achieve greater financial happiness in the years ahead.
Figure 1. Financial Happiness – Belgian Population
Who is financially happiest?
People with a high income are also financially happiest.
People who are married, form part of a two-income family and have a college degree have the highest chance of achieving financial happiness. If other influencing factors are not taken into account, a large majority of financially happy people appear to be male (64%). Happiness is enhanced by the feeling of being in proper financial control and feeling self-confident when it comes to making financial decisions. People who like to spend money often also appear to be financially happier. People who avoid risk also tend to be less financially happy!
Does money make you happy?
Financial happiness is essential to us all. After all, financial happiness contributes to a feeling of ‘happiness’ in general. The higher the income, the higher the level of financial happiness and the happier the person will be in general! This applies to young and old alike. Baby boomers are the happiest from a financial point of view and are therefore also happier in general.
However, this does not mean that money always makes you happy. From a certain income level upwards, an even higher income does not increase the level of happiness. For example, the impact of the income level on financial happiness is far higher in the net family income class from €2000 to €3000 than it is in the family income class from €4000 to €5000. In other words: earning €1000 more if you earn €2000 will make you financially happier than increasing your income by €1000 if you earn €4000. At even higher income levels, the impact of more income on financial happiness is even lower.
Money and emotions
Money is an emotionally charged topic, and this is clearly reflected in the figures. The feeling most frequently associated by Belgians with their financial situation is “alert”. Nonetheless, only 32% say they feel “interested”. 17% even say they are not interested at all. Many Belgians feel rather negative about their financial situation. 21% feel “anxious” and 22% feel “nervous”. One third of Belgians also feel “determined” about their financial situation.
Figure 2. Money and Emotions – Belgian Population
13% of Belgians constantly worry about their financial situation and 22% do so on a regular basis. 1 in 4 Belgians worry about losing their job. Among young people, this is mainly the case in the lower income groups, but in the case of the older generation it is mainly the higher earners who worry about losing their job. The consequences of these financial worries are stress, poor sleep and a negative effect on family relationships.
However, this does not mean that people often spend a lot of time actively managing their finances. 2 out of 3 Belgians spend a maximum of 4 hours per month managing their financial situation, and 1 in 4 will even spend less than 1 hour per month!
Who can people turn to?
The average Belgian has little confidence in financial players. In fact, 1 in 4 Belgians even have no confidence in the banks at all! Relatively speaking, people tend to have more confidence in the comparison websites. Belgians are clearly looking for objective information. But who do they turn to for advice? Despite the poor level of confidence in banks, many Belgians still consult their banker about financial decisions. For the higher earners among the older generations, the trio of accountant, notary and asset manager also holds sway.
Focus on Gen Y
30% of Gen Y do not feel they are good at planning their financial future. Nonetheless, they still do not ask financial experts for advice. They tend to turn to family and friends instead. In the case of young people with a high income, this is even a very clear trend. Young people are risk-averse. Compared with older generations, they feel that investing in shares and bonds involves more risk.
How do people manage their money?
The average Belgian sticks well to his or her budget, makes sure not to take on extra debt and rarely lies awake at night planning his or her will. However, only 30% feel they have a financial plan in place which will make it possible to achieve their goals. Saving for retirement is popular with the majority of the Belgian population!
The average Belgian keeps well away from shares, bonds and funds (2 out of 3 will not invest in shares, bonds or mutual funds). However, the financially happy group of Belgians tends to invest much more actively in these risk classes, with 8% even investing on a very active basis. In line with these results, the average Belgian considers shares the most risky and a savings account the least risky option. Investing in real estate is also regarded as relatively “safe”. Older people with low incomes are most likely to make financial decisions without a great deal of prior analysis (32%). Young people with high incomes, on the other hand, are least likely to make financial decisions without a great deal of analysis beforehand (13%).
Conclusion: does money make you happy?!
To a certain extent, a higher income does lead to more financial happiness and more happiness in general. However, the average Belgian is not making a great deal of effort to achieve this financial happiness. The average citizen is only moderately interested in financial matters.
Where do Belgians get their information when they need to make an important financial decision? Comparison websites are essential, but family and friends are also a source of advice, mainly for young people. Older people tend to place more trust in the traditional providers of professional services, such as accountants, notaries, lawyers, asset managers, bankers and financial planners. Nonetheless, they also consult websites.
Young people are remarkably risk-averse, even if they have a high income. This applies both to the market players (bankers, asset managers, brokers, planners) and the products themselves. Compared with older generations, they feel that investing in shares and funds involves more risk.
On average, older people tend to be financially happier. They feel in control of their finances. On average, they take more risks, which increases their financial happiness. More than the average Belgian, baby boomers with a high income tend to have a plan which contains clearly defined financial goals and focuses on maintaining their current standard of living.
On average, people with a college degree also tend to be financially happier. Being married, forming part of a two-income family and having a college degree also increases the chance of financial happiness. A large majority of financially happy people are men.
In general, it can be stated that both young people and older people worry about their financial future. Young people worry about their job and older people worry about their next of kin.
How can people become (financially) happier?
A good income is essential, and a good education gives people the best chance of achieving this. Once a person has a good income, a sense of being in control of his or her personal financial situation is crucial if financial happiness is to be achieved. Control is achieved by formulating concrete goals which take into account their own standard of living and that of their next of kin, in the short and long term.
It therefore seems that people do benefit from a financial plan, preferably as early as possible in their professional lives. The study shows that people with a financial plan of this kind have more chance of achieving financial happiness and happiness in general. A plan increases their feelings of pride, determination and enthusiasm when it comes to their financial situation. In turn, this increases the feeling of financial happiness and to a certain extent also the feeling of happiness in general.
About the study
1100 Belgians participated in the study by means of an online questionnaire. The sample was representative of the Belgian population with regard to the following criteria:
- Age: Baby boomers (’46-’64), Gen X (’65-’81), Gen Y (’82-’94).
In order to enable analyses for the higher income class specifically, an extra sample was also recruited in this segment (> €4000 net family income = 10% of the Belgian population).