![]() ![]() This makes intuitive sense, as savings can be seen as both an outcome of having routinely positive cash flow, and a key form of financial stability in its own right. Early research by the CFPB found that liquid savings is the single variable most highly correlated with financial well-being. Liquid savings are a particularly valuable barometer of financial security. Personal resources provide the opportunities to invest in family well-being, asset building, and economic mobility. Not only do readily accessible savings protect against material hardship, they also provide the material resources and mental bandwidth for people to be able to weather smaller financial shocks without getting knocked off track from working toward their longer-term goals. Having personal financial resources boosts financial security a lack of them pushes people into instability. When people reliably have more income – from any source or combination of sources – than the cost of meeting their basic needs, then they can pay their bills and still have extra money to put into savings. On the other hand, losing a job or having hours reduced or facing a major medical or other expense are key predictors of declining financial health and well-being. Gaining employment, a raise or promotion, or simply more predictable and less volatile income are key factors found to increase financial health and well-being. Quite simply, this means income minus expenses, and this forms the basis of how households experience their financial situation. Routinely positive cash flow is the foundation of people’s financial life. The First Pillar: Routinely Positive Cash Flow In actuality, financial security rests on three interconnected pillars. Namely: the ways money comes into a household (labor income and non-labor income), and all the ways it goes out (debt payments and expenses) and benefits. While savings are a key indicator and source of financial security, in taking a snapshot only of a household’s personal resources at a point in time, we miss two interconnected pillars that enable households to achieve – or fail to achieve – financial security. ![]() At its most basic level, there are three pillars of financial security: routinely positive cash flow (income that typically exceeds core expenses) personal resources (savings and financial cushions) and public and private benefits. What it Takes to Have Financial Security - Reallyīut thinking about financial well-being as simply the amount of money people have on hand at a given moment is deceptive, and when we fail to dig deeper, we risk creating poor policy. ![]() We think of financial security as an outcome goal – a state of being that exists when the key components are in place. In a nutshell, financial security means having enough money and resources to comfortably meet your needs and obligations, protect you from shocks, pursue your goals, and enjoy life – both in the present and the future. In our work we have adopted the Consumer Financial Protection Bureau’s consumer-driven definition of financial well-beingas our north star, so we use the terms “financial security” and “financial well-being” interchangeably. What We Think of When We Say “Financial Security” ![]()
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