Consumer Financial Capability and Economic Wellbeing

Abstract

Consumer financial capability is an important factor for consumer economic wellbeing. Financial capability is an ability of applying appropriate financial knowledge and performing desirable financial behaviors to achieve financial goals and enhance financial wellbeing. Empirical research finds that financial literacy in many countries is much lower than expected. Consumers have also engaged in less than desirable financial behaviors. The chapter first discusses concepts of consumer financial capability, financial literacy, and financial behavior. And then introduces two specific behavior theories; the theory of planned behavior that is to help understand consumer behavior and the transtheoretical model of behavior change (TTM) that is to help change consumer behavior. The section also discusses how to apply these theories to help improve consumer financial knowledge, behaviors, and capabilities. Future research directions on how to improve consumer financial capability are then discussed in the following section.