Association for Public Policy Analysis & Management

Background: Research suggests positive pathways from financial capability factors (e.g., financial skills and behaviors) to financial well-being. The strength of these associations, however, may be affected by individuals’ opportunities to access financial products and services. Such opportunities are important factors influencing financial well-being as proposed by the Consumer Financial Protection Bureau (CFPB), and also a component of general financial capability as defined by the US Financial Literacy and Education Commission (FLEC). Previous studies show that individuals with financial access are more likely to apply their financial knowledge and skills to improve financial well-being. Financial access may provide the necessary conditions to nurture positive pathways from financial capability factors to financial well-being. This study aims to test how opportunities to access and use financial products and services intersect with financial knowledge, skills and behaviors to influence financial well-being.

Methods: The study uses the data from the 2016 National Financial Capability Survey collected by the CFPB. The dependent variable of financial well-being is a 10-item scale created by the CFPB on individuals’ perception of financial status. The independent variables are financial skills, financial knowledge, and access to financial services. Financial skills are indicated by a 10-item scale (e.g., tracking spending) initiated by the CFPB. Financial knowledge is measured by a 10-item scale (Knoll & Houts, 2012) assesses respondents’ understanding of various financial concepts. Financial access is a measure that counts the different types of financial products individuals have (e.g., bank accounts, retirement accounts). Four linear regression models are conducted. Model 1 uses three independent variables to predict financial well-being, and Model 2 adds the interaction terms of financial access with financial knowledge and skills. Models 3 and 4 use the same specification of Model 2 on individuals with household income below and above the 200% of federal poverty line, respectively.

Results: Model 1 suggests that financial access (b=1.28, p<.001), knowledge (b=.44, p<.05), and skills (b=4.86, p<.001) are positively associated with financial well-being. In Model 2, the interaction term between financial access and skills has a statistically positive regression coefficient (b=.73, p<.001); for those receiving financial services, the association between financial skills and well-being becomes stronger. After adding the interaction term between financial access and knowledge, the main effect between financial knowledge and well-being becomes insignificant (b=-.18, p= .664), but the interaction term is positively associated with the dependent variable (b=.21, p<.05). In other words, financial knowledge is not associated with well-being unless respondents have access to financial services. Results on low-income and higher-income individuals are comparable to those of Model 2. Compared to higher-income individuals, financial access and its interaction with financial skills have stronger associations for low-income respondents.

Conclusion: Supporting the general concept of financial capability, financial access, knowledge and skills all are positively associated with financial well-being. In addition, financial access moderates the relationships between financial well-being and financial knowledge and skills, particularly, for low-income individuals. Findings suggest that, to promote financial well-being, it is critical to ensure that all individuals access appropriate financial services.