Financial Satisfaction Is No Guarantee

If you feel like your finances are in good shape, you might be in danger. That's because, more often than not, feelings don't reflect reality. According to a study by the Center for Retirement Research at Boston College, "financial satisfaction is a poor indicator of financial well-being and can actually impede the achievement of financial well-being."

In the study, the researchers compared survey respondents' self-reported financial satisfaction with their actual long-term financial well-being (defined as having adequate medical and life insurance, saving for college and retirement, and paying off student loans and mortgages). They found a disconnect between feelings and reality. The feeling of financial satisfaction comes from day-to-day money matters (such as being employed, able to pay bills, not feeling burdened by debt, and having access to emergency cash) rather than long-term financial health. "Given this intensely present-minded focus of subjective assessments, satisfaction is a poor measure of financial well-being," the researchers concluded.

What can be done to eliminate this blind spot and improve the average American's financial security? The researchers suggest "greater use of defaults or mandates, or the transfer of responsibility from households to governments or employers, to reduce the nation's significantly increased reliance on individual household decision-making for basic financial well-being."

Source: Center for Retirement Research at Boston College, What Do Subjective Assessments of Financial Well-Being Reflect?