March 23, 2016 Reading Time: 3 minutes

Financial wellness is a term being used more and more these days, but a big piece of the puzzle is missing. As we at AIER have thought about how to help individuals make choices that safeguard their economic freedom and well-being, we’ve begun instead to use the term economic wellness.

What is the difference between financial wellness and economic wellness? It’s an important distinction.

First, let’s define financial wellness. A recent report by the Consumer Financial Protection Bureau offers two defining characteristics of financial wellness programs. First, they are comprehensive, focusing on a complete picture of an individual or household’s financial well-being, rather than a single goal or type of saving. Second, these programs are focused on behaviors rather than information.

It’s important, for example, to know what a 401(k) is, but the desired outcome is actually making monthly contributions that take advantage of tax benefits and help bring about a secure retirement. Most programs focus on a combination of budgeting, saving and investing, employee benefits and planning for emergencies.

While we wholeheartedly support the growing number of such programs, important elements are missing. We use the term economic wellness to capture an approach that includes the suite of concepts discussed above, but that adds at least two critical dimensions:

  1. Understanding of the economy and one’s role in it
  2. Investments in important but less tangible assets (such as human capital)

Economic wellness includes the idea that in order to truly live a free, independent and fulfilling life, you need a greater familiarity with the world beyond yourself.

We believe that individuals will make better choices regarding economic wellness when they understand themselves as economic actors in households, industries and the economy. When people understand that they are paid based on the value they create (demand) as well as the number of other potential workers in a field (supply), they are more likely to take proactive steps to tap into that value. For instance, such understanding and motivation might make people notice unmet demand in their area for qualified workers with some skill, then go out and acquire that skill.

This motivation also manifests in investments that aren’t captured by numbers in bank or financial statements. Broadly defined as human capital, these investments include education and training, career building and networks of other people. Networks are a great example not typically considered in financial wellness programs. Not only do overall demand and supply matter in job outcomes, but a successful match often depends on the worker knowing someone aware of the opening or someone at the company.[1] Networks, both professional and personal, are hugely important.

Here at AIER, we are working to build an economic wellness program that promotes understanding of the state of the economy, and gives people the tools to make the right decisions. AIER has long worked to enhance our readers and members’ economic freedom and well-being. We look forward to continuing that tradition in the months and years ahead. .

In my next post, I’ll look at how some groups of Americans who need this content the most are currently being served the least.

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[1] For instance, I learned about AIER when a friend got to talking to someone they met at the gym.

Max Gulker

Max Gulker

Max Gulker is a former Senior Research Fellow at the American Institute for Economic Research. He is currently a Senior Fellow with the Reason Foundation. At AIER his research focused on two main areas: policy and technology. On the policy side, Gulker looked at how issues like poverty and access to education can be addressed with voluntary, decentralized approaches that don’t interfere with free markets. On technology, Gulker was interested in emerging fields like blockchain and cryptocurrencies, competitive issues raised by tech giants such as Facebook and Google, and the sharing economy.

Gulker frequently appears at conferences, on podcasts, and on television. Gulker holds a PhD in economics from Stanford University and a BA in economics from the University of Michigan. Prior to AIER, Max spent time in the private sector, consulting with large technology and financial firms on antitrust and other litigation. Follow @maxg_econ.

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