Using Comparison for Good: The LIMRA Financial Wellness Index

March 2023

In Garrison Keillor’s fictional town of Lake Woebegone, “all the women are strong and all the men are good-looking.”   The psychology of this phenomena, colloquially, is known as “The Lake Woebegone Effect.”  Or, in more technical terms “Superiority Bias.”

It speaks to our tendency to overestimate our own achievements and talents relative to those of others, which may not be beneficial either to ourselves or others.

Of course, in order to do this realistically, we need a benchmark, or index.  And we are surrounded by them.  Relative to our own selves, we index height and weight, we index income, we index personalities. I could fill the word count for this article with the list of things we index about ourselves.   

Indices generally “score” or give us an average to be above or below.  They can be incredibly useful in helping us understand where we are, assess where we may want to be, and adjust our behaviors accordingly. 

With that in mind, to help people, their financial advisors, their financial providers, and even their employers assess and improve financial wellness, LIMRA has introduced the LIMRA Financial Wellness Index. 

The Index is an indicator of consumer financial wellness, or absence of financial stress. 

It assesses financial wellness for the general population and can be applied to a number of demographic variables. 

It is based on a common “definition” of financial wellness developed by LIMRA, PwC, and a task force of member financial services companies in 2020 as well as a February – March 2022 survey of 7,508 consumers.

The definition includes an emotional element, a practical and current element, and a forward-looking/planning element; more specifically, being confident in one’s financial situation, able to withstand unexpected expenses, and able to plan/act for a financially secure future.

To create the Financial Wellness Index, LIMRA analyzed the factors that feed into this definition:

• Financial stress, satisfaction, enjoyment, lifestyle, knowledge
• Ability to meet unexpected expenses
• Ability to retire on track and on own terms
• Savings/investment amount
• Appropriate protection/insurance

The resulting Financial Wellness Index score produces a single number assessment of average wellness on a scale of 0 – 10 (with 10 being the “most well,” with no financial stress, and 0 representing overwhelming financial stress).

The Index differs by demographic situation and life situation, offering useful comparisons upon which advisors and individuals can begin to understand their own financial wellness and plan and act (or not) to improve their situations. It offers deeper, richer understanding of financial wellness that begins with basic demographics. 

And even beyond the traditional demographic comparisons:

The LIMRA Financial Wellness Index has been calculated to present meaningful comparisons / conversation starters based on these and other measures, including race, employment, income and education.

Index materials, infographics and reports – all available HERE -- detail scores and add additional richness to the wellness analysis by incorporating basic physical/health-related and emotional wellness assessments.