If I asked you, “On a scale of 1-10 where 1 = “not at all financially vulnerable” and 10 = “very financially vulnerable,” how financially vulnerable do you consider yourself to be?” how would you answer? Public policy makers(link is external)define a financially vulnerable consumer as “someone who, due to their personal circumstances, is especially susceptible to detriment.” With this perspective, an individual with a physical or mental disability, a long-term illness, someone who is older (over 80) or has low literacy or numeracy is considered as financially vulnerable.

I feel such a view limits the significance of financial issues that affect us. The truth is that we are all financially vulnerable to a lesser or greater extent whether we have disabilities or not. Instead, I like to think of financial vulnerability as “a slow-changing psychological state indicating the degree of the individual’s susceptibility to making bad financial decisions and experiencing negative financial outcomes.” Financial vulnerability applies to everyone and is a matter of degree.

In an ongoing research project, I have been compiling a list of factors that contribute to an individual’s financial vulnerability. Through this work, I want to figure out how we can reduce our financial vulnerability in a world that seems increasingly uncertain and hostile.

In this blog post, I want to share a list of five factors from my list that contribute to an individual’s financial vulnerability. Each item offers an opportunity to strengthen your financial condition and reduce your exposure to ill-advised money choices and outcomes.

1. Knowledge about how personal finances work, also known as financial literacy.

Economists have studied financial literacy for decades, and have found that a basic understanding of how personal finances work (e.g., stocks are riskier than bonds, but provide a higher return over the longer term) is crucial to making good financial decisions(link is external). Because many people have low financial literacy(link is external), improving factual knowledge about personal finance offers an entry point to taking charge of your finances. Here’s a list of resources(link is external) to improve your financial literacy.

2. A detailed understanding of one’s own financial situation.

A different form of financial knowledge is an understanding of your own current financial situation, e.g., how much money you take home each month, your monthly expenses, how much and what types of outstanding debt you have, your level of savings, etc. In my own research(link is external), we have found that a person’s financial self-awareness contributes to positive financial outcomes. If you don’t have it, it is worth sitting down and acquiring an in-depth understanding of what your current situation is, regardless of how good or bad it is. This self-knowledge will make you less financially vulnerable. Here’s a set of tools(link is external) to help you assess your financial condition.

3. Level of interest in the domain of personal finances.

Some people simply don’t care about the domain of money and personal finances. They tend to pay insufficient attention to money issues, making them prone to hasty or ill-thought-out decisions. If you belong to this group, treating your personal finances as you would treat gardening, cooking, wood-working, or your favorite hobby is one way to increase interest and involvement in this domain. Personal finance can be an acquired taste. Because of how important it is for your well-being, it is worth trying to acquire a taste for it.