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From Short-Term Financial Well-Being to Long-Term Financial Security

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Financial well-being (FWB) is the extent to which an individual feels that their financial situation provides security, future stability, and freedom of choice. Recent research has worked to better define and understand FWB, and researchers are finding that income, education, and liquid savings all positively contribute to FWB levels.

Understanding what factors are associated with increases and decreases in FWB is critical to helping people navigate from their current financial situation to long-term financial security, and what policy interventions might advance that goal. This paper examines how FWB evolves over time, what factors and behaviors are most predictive of large increases or decreases in FWB, and whether these relationships may have changed following the onset of the COVID-19 pandemic.


The analysis pursues these questions by using multiple waves of survey data over a four-year period prior to the onset of the COVID-19 pandemic, and then in May of 2020. Data are from the Understanding America Study (UAS), a nationally representative, probability-based Internet panel. The pre-pandemic measures of financial well-being use the 10-item Financial Well-Being Scale from the Consumer Financial Protection Bureau (CFPB). The scale is designed to comprehensively measure subjective FWB, including (a) feeling in control of day-to-day and month-to-month finances, (b) having the capacity to absorb a financial shock, (c) being on track to meet financial goals, and (d) having the financial freedom to make choices that allow one to enjoy life.


Over a nearly four-year window of observation prior to the pandemic, the research found that approximately 30 percent of individuals in the sample experienced a large increase or decrease in FWB. Importantly, the evidence suggests that modifiable financial behaviors, more so than demographic characteristics, are associated with improving FWB. Individuals who plan ahead financially, maintain manageable debt loads, routinely save in liquid accounts, and spend less than income are both more likely to experience a large increase in FWB and less likely to experience a large decrease in FWB than their counterparts who do not engage in these behaviors.

Though the COVID-19 pandemic significantly altered the economic landscape, the analysis finds similar associations between these behaviors and FWB measured after the onset of the pandemic. Finally, there is also evidence that stimulus payments may have helped offset some negative financial impacts of the pandemic—individuals who had received the first economic impact payment at the time of the survey were less likely to have experienced a decrease in FWB relative to those who had not received the stimulus, and this effect was particularly pronounced for individuals who had experienced a reduction in income.


The study indicates that modifiable characteristics and behaviors are predictive of improved future financial stability, suggesting that investments in these factors may help improve long-term financial security.

Suggested citation: Burke, Jeremy. From Short-Term Financial Well-Being to Long-Term Financial Security. Washington, DC: AARP Public Policy Institute, May 26, 2021.

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