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In mid-May, Boris Marte, Head of the Vienna-based ERSTE Foundation, and Marianne Schlögl, Manager of Strategic Partnerships, visited the Johan Skytte Institute of Political Studies at the University of Tartu. They visited Toomemägi in the spring due to a collaboration that started nearly two years ago with Research Fellow in Behavioural Policy Leonore Riitsalu and her research team. Together, they are trying to find ways to improve the financial well-being of people and societies, specifically from people’s point of view. The financial well-being initiatives so far have primarily taken the view of the financial world and tried to translate it into human language, mainly through communication and financial education. However, this approach has not led to significant results.
Startling conversation in Tyrol
The cooperation between an Estonian researcher and an Austrian foundation began in the Alpine village of Alpbach, where the European Forum Alpbach (EFA) conference takes place every year. These brainstorming sessions for developing a strong and democratic Europe have taken place every summer since 1945, bringing together policymakers, entrepreneurs, representatives of non-governmental organisations, artists, and researchers. In the summer of 2021, Riitsalu attended EFA financial literacy retreat due to her previous work as a financial literacy researcher and consultant. There she was introduced to Boris Marte, with whom she discovered that they shared startlingly similar concerns about financial well-being. The foundation managed by Marte is a shareholder of Erste, a large banking group operating in Central and Eastern Europe.
Banks are rethinking their role in today’s world; instead of being providers of banking services, they are trying to become financial health centres. However, the transformation is still in its infancy because there is no clear understanding of this financial well-being or health, let alone how it could be improved. According to Marte, this turnaround requires extensive research.
At the time, Riitsalu was completing a financial well-being research project for the ING Bank. In an article published together with Professor Fred van Raaij of Tilburg University, they discussed several bottlenecks in understanding and measuring financial well-being. However, neither researchers nor banks had reached the point of offering evidence-based solutions at that time. Therefore, Riitsalu had troubled her mind with the same questions as Marte and realised the need for a paradigm shift without seeing the possibility of carrying out such a large undertaking. Therefore, they agreed to embark on a world-changing scientific project together on understanding, measuring, and influencing financial well-being.
A human-centric approach to increasing financial well-being.
At the end of 2021, as a result of the conversation in Alpbach, the University of Tartu and the ERSTE Foundation signed a cooperation agreement. As the first step of a research project lasting three years and with a total budget of more than one million euros, the research team members first reviewed the latest scientific literature and studies conducted for policy-makers and banks on the nature and development of financial well-being.
Based on this extensive review, including more than 120 sources, the article The bottlenecks in making sense of financial well-being has been published. In summary, financial well-being research often overlooks the human perspective and relies too heavily on numbers. It is important to understand what individuals value in their lives to find effective solutions for sustaining and bettering financial well-being. This means that the world of people should be translated into the language of the financial world, not the other way around.
As a next step, research group members Rauno Pello (Estonian Business School), Adele Atkinson (University of Birmingham) and Leonore Riitsalu planned a large-scale qualitative study that helps to do just that. In the summer of 2022, a total of 630 semi-structured interviews were conducted in seven Central and Eastern European countries (Austria, Croatia, Czechia, Hungary, Romania, Slovakia, and Serbia) in a highly diverse sample. The researchers presented the primary analysis of the results in Bratislava in January of this year to the representatives of the ERSTE Foundation and the banks of the seven participating countries.
The presentation and research report sharply criticised the current approach and emphasised that financial well-being primarily means peace of mind and is completely subjective in nature. This means that offering banking services, financial literacy, and measuring assets numerically is insufficient. A human-centric approach revealed that financial well-being has three important components: security, freedom, and pleasure, which are influenced by temporal and social factors. An article on the more comprehensive results of this stage will be submitted to a scientific journal before Midsummer’s Day. These results can then also be published in more detail.
Bank and foundation representatives found noteworthy points during the Slovakia presentation. Firstly, until now, the dominating approach for improving financial well-being has been seen to be offering banking services and financial literacy, shown to be only a few of many approaches needed. Secondly, most people consider their homes as their most valuable asset, while investments in securities and other financial assets are rarely mentioned. Health, education, career, and family are often viewed as separate from the financial realm, yet humans see them as investments.
Next steps
This year, the focus of the work has been the deeper analysis of individual and contextual differences. The funder´s representatives and colleagues from the banks will first learn these results on 26 June in Prague.
As a next step, the researchers aim to study how people’s subjective assessments of the elements of financial well-being are related to their objective bank data – the amount of savings, assets and liabilities, their financial behaviour and habits. As a preparatory step, a measure for evaluating the three elements of financial well-being is currently being tested. Next, researchers hope to partner with one of the Erste group banks to conduct a study linking the subjective assessment to objective financial data after getting the research design approved by a research ethics committee.
In the third year of research, the project team will develop and test interventions to enhance financial well-being. The aim is to develop tools and implications that benefit a wide range of stakeholders, including public/private sectors, policy-makers, non-profits, foundations, and private companies. It also goes well beyond the financial world, involving providers of mental health services, social services, education, counselling, and many other services.
Written by: Mart Alaru. The translation of the article was funded by the European Regional Development Fund through Estonian Research Council.
