Financial Well-Being Index model Development Methodology 

The Financial Well-Being Index model was created based on over 10 years of Financial Well-Being research, analytics and impact measurement, with its foundation the Financial Well-Being Framework published in 2016. The Financial Well-Being Model is deliberately simple. It provides a simple, transparent financial well-being score for households that can be applied across many countries and populations.

It is based on three indicators and is a very strong, validated model with the three indicators accounting for 88.9 percent in the variance in the financial well-being construct. All indicators are significant at a 95% confidence interval, with p-values less than 0.05. The weighting for the model will be fixed for ease and transparency.

A person or household’s financial well-being score is complemented by their overall personal well-being score. This is an average score across six well-being dimensions, measured and tracked by Financial Resilience Institute since 2017.

  • The Financial Well-Being Index model is based on a linear regression model developed based on the Financial Well-Being Framework and Financial Well-Being studies. It was developed based on an iterative process to regressing and evaluating many indicators against self-reported financial well-being measure, using the multiple linear regression technique.
  • In the end, 3 variables were determined to account for 88.9 per cent of the variance in the household financial well-being construct as of June 2024.
  • The regression model’s indicators (independent variables) are all significant at a 95% confidence interval, with p-values less than 0.05.
  • The model has been validated against 2024, 2023 and 2022 Financial Well-being Studies data. This has revealed consistency in results represented by a strong R-squared and highly similar weights of the independent variables as predictors of financial well-being.
  • The weighting for the level of financial well-being indicator is 65%. The weighting for the borrowing for everyday expenses indicator is 25% and the household savings rate indicator is 10%.
  • Weightings are fixed and are being shared transparently so that any organization, country or individual can understand and measure financial well-being.

There were many stages of Financial Well-Being Index model development and validation:

  1. Development of the Financial Well-Being Framework (2016);
  2. Development and analysis of the Financial Well-Being Studies (2017-2024) with validation of key indicators of financial health, financial resilience, financial stress, financial well-being and overall well-being;
  3. Identification of potential indicators plus reference to academic research from Professor Elaine Kempson based on her Financial Well-Being conceptual model;
  4. Eloise Duncan of the Institute has conducted hundreds of qualitative interviews with households around their financial well-being between 2016 and 2024 plus focus groups;
  5. Data collection for Financial Well-Being and overall well-being score development was conducted between 2017 and 2024;
  6. Regression model development with different combinations of potential indicators tested and evaluated between August and October 2024;
  7. Indicator selection and
  8. Model validation levering a multiple linear regression model technique.
Top-Line Results from February 2023 Index