Measures of financial health or wellbeing are increasingly being adopted to shed light on how individuals and groups are faring in their financial lives. For those new to the concept, financial health captures the financial side of individuals’ and families’ ability to thrive in society.
Financial health can be understood as the extent to which a person or family can smoothly manage their current financial obligations and have confidence in their financial future and is typically conceived as being made up of three elements: smoothly managing short-term financial obligations and consumption needs, being capable of absorbing financial shocks and staying on track to reach longterm goals, such as purchasing a home or securing retirement income. A fourth, more subjective element, is often included in the definition and involves feeling confident and in control of one’s finances.
Drawing on the predominant definitions of financial health, in 2016, FSD Kenya developed the multi-dimensional financial health index (MFHI) – an experimental measure to gauge the financial health of adults using the nationally representative FinAccess survey. The MFHI uses a set of nine indicators derived from several of the questions in FinAccess and combines those indicators into an overall index using an aggregation methodology derived from Oxford’s multi-dimensional poverty index.
Using three rounds of FinAccess data, this paper documents how financial health among adults in Kenya changed between 2015 and 2021 and explores some of the plausible drivers that explain those trends. It concludes with a discussion of some of the policy areas that can help establish a more stable foundation upon which individuals and families can build financial health and become more resilient to economic, climate and health risks.