While one may exhibit prudence in saving, meticulous financial management, and judicious spending habits, it doesn't automatically equate to genuine financial  and health and resilience. The journey to financial health and resilience is replete with distinct pain points, each necessitating specific strategies.

An individual might save diligently for a rainy day, only to be confronted with unexpected emergencies, mounting medical bills, or sudden job loss. Savings and investments also come with new challenges today. Low interest rates hinder savings growth, while inflation erodes their real value. Market volatility, driven by economic uncertainty, technology, and geopolitics, poses considerable risks. Meanwhile, financial literacy gaps, tax complexities, and rising cybersecurity issues owing to the increased dependency on technology hinder the adoption of good financial practices. Adaptability and informed decision-making are crucial in addressing these issues. Financial resilience doesn't revolve around evading such situations but planning for such instances with caution and foresight, and weathering them. 

The Financial Health Whitepaper by UNCDF shows that a person's financial well-being is influenced by a mix of personal factors like their income, spending habits, age, and gender, as well as external factors like their living situation, social connections, access to financial services, and the overall economic conditions. Many BFSI institutions today still rely on traditional metrics like credit scores or savings balances to gauge financial resilience. However, financial health is a far more dynamic concept. It is influenced heavily by personal circumstances and economic fluctuations. Adding to this is the subjective nature of risk tolerance and behavioural biases, which further complicates assessments.

An Open-Source Tool For Accurate Measurement Of Financial Health and Resilience

We need a holistic approach integrating both quantitative and qualitative dimensions to gauge true financial resilience of individuals. To address this requirement, the Community for Financial Health has built the  Financial Health Scorecard. The open-source Scorecard is not only a valuable resource for financial institutions but is also available to the public as a self-assessment tool. 

Individuals can utilise this tool to gauge their own financial health and make informed decisions to improve their overall well-being. The Scorecard dynamically adjusts to the user's unique profile , applying relevant weightages and asking pertinent questions.

As the Financial Health Scorecard evolves, it will continue to refine the indicators based on ongoing analysis and collaborations with various stakeholders across markets. This collaborative approach ensures that the Scorecard remains up-to-date and relevant, providing accurate assessments and actionable insights.

Assessing Financial Health with the Financial Health Scorecard

The Financial Health Scorecard asks a series of tailored questions, to extract nuanced insights within six key parameters that underpin an individual's financial health namely: savings, spending, borrowing, planning, resilience and decision-making. The survey takes a nuanced approach to gauging the financial health of the user. For instance,  it includes the impact of debt levels while differentiating between high-interest liabilities and more manageable obligations. This distinction, while seemingly subtle, harbors implications for financial resilience. The tool also asks about the different income streams and the saving habits that the user relies upon, which not only showcases prudence but also an enhanced capacity to construct financial safeguards and anticipate future emergencies. 

The questionnaire is designed to assess one's ability to handle economic challenges. It achieves this by conducting financial stress tests that simulate diverse fiscal scenarios. These scenarios include questions about available liquid resources, aiming to address immediate financial needs without the necessity of resorting to debt or liquidating assets.

The tool places an equal emphasis on behavioural indicators and financial knowledge, which are overlooked factors in traditional assessment tools.  How does an individual track expenses? What are their spending habits? What is the depth of their financial acumen? The role of familial and social networks as potential lifelines during financial crises has also been considered.

Financial Health Scorecard Serves Multiple User Categories

The underlying measurement engine of the Financial Health Scorecard is currently being utilised for undertaking research across a spectrum of markets and accumulating data sets for further analysis. The tool is also offered to institutions that can use its framework to build a customised version based on the preferences of clients.  For the public, it serves as an important self-assessment tool with weightage being automatically adjusted according to different geographies.

The goal is to improve the algorithms of the tool and improve the indicators and weightage distribution for specific questions. The Community for Financial  Health has already engaged in partnerships with various stakeholders to improve the analysis of the tool.

We believe that the Financial Health Scorecard is a game-changer in the financial services industry, addressing the evolving complexities of assessing financial health. It champions a holistic approach, adapting to the dynamic nature of personal circumstances. Beyond the financial sector, it serves a broad spectrum of users- from researchers to the public- promising a paradigm shift in how we understand and enhance financial well-being. Community for Financial Health is actively collaborating with stakeholders to propel this transformation, making the Financial Health Scorecard a driving force for actionable insights in the fintech industry and beyond. If you have not yet taken the assessment you can take it by clicking here.