We are what we measure, by Chris Budd

This blog post has been written by IFW founder Chris Budd.

We tend to prioritise that which we can measure. As a result, we focus our attention on the measurement of things, rather than the thing itself.

We can see evidence of this all around us. TV shows that provide scores for dancing (surely the opposite to the maxim ‘Dance as if no one is watching’); apps that allow us to measure performance times when running or cycling; governments prioritising economic growth over wellbeing because they can measure it.

On that last point, there is a famous quote from Bobby Kennedy in the 1960s when talking about using GDP as a measure of the performance of an economy:

“It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country; it measures everything in short, except that which makes life worthwhile.”

If we measure something, it means that we are prioritising it. But are we measuring the right things?

Size is important – to a point

When it comes to money, what we tend to measure is how much of it we’ve got. What do we do with this information?

We can use it to compare ourselves to others, in order to obtain an indication of how successful we are. Nothing wrong with that – to a point. It can, however, have a negative impact on our wellbeing when we start making ‘having more than others’ an objective.

Knowing how much money we have can be extremely important, as it helps us to make decisions about our future. Having a cash flow forecast, for example, which tests potential future scenarios and reveals a number, which in turn provides clarity over the financial plan.

Even this, however, can lead to measurement thereafter being focussed on how much our wealth has gone up by, in the form of investment returns. Like GDP, the amount of money we have is only one indicator as to how happy we are – and it is not the most important indicator.

The Financial Wellbeing Pulse provides a way to bridge this gap. It enables advisers to measure whether their clients’ relationship with money is helping them to make great financial decisions – and by great, I mean financial decisions that are helping them to be happier, not just wealthier.

Applying the measurement

There are several ways that this information can be applied. It can be used to track progress over time, and thereby enable an adviser to demonstrate the effect that their advice is having – not just on their clients’ investments, but on their wellbeing.

This has a massive Consumer Duty impact, as advisers can now show the FCA the impact of their advice.

It also solves one of the main problems that I hear from advisers interested in financial wellbeing, which is how to raise the subject with their clients. As well as providing a score, the Pulse provides the client with a report. This raises issues that the client might like to consider, in conjunction with their advisor. When the client turns up for the meeting, therefore, they are ready to talk about issues other than pensions, tax and investments.

The adviser also has a clear idea of what the client will want to talk about. The Pulse therefore sets the agenda for the wellbeing conversation.

Re-setting priorities

Money is an enabler, a tool which can lead to security, strengthen social relationships, and provide time which can then be used for personal fulfilment.

Too often, however, money has become the objective, and therefore the focus of a client’s meeting with their adviser. By measuring wellbeing, and not just the size of somebody’s portfolio, we can put money back in its proper place.