Financial capability and wellbeing of vulnerable consumers

Nilton Porto,Jing Jian Xiao

doi:10.1111/joca.12418

Abstract

AbstractConsumer financial capability can be defined variously by different researchers. In this study, financial capability is assumed to have three components, financial knowledge, financial behavior, and financial skills. This study examines relative contributions of financial capability components to financial wellbeing among vulnerable consumers. With data from the National Financial Wellbeing Survey commissioned by the Consumer Financial Protection Bureau (CFPB), results show that among financial capability components, financial behavior contributes the most to financial wellbeing of the whole sample, followed by financial skill and financial knowledge. In addition, group differences surface when subsamples in terms of age, poverty status, confidence, and fraud victim status are examined. Results suggest that for low‐income consumers, encouraging them to engage in desirable financial behaviors is more important than teaching them financial knowledge and skills. Findings have implications for financial educators, practitioners, and policymakers to help them recognize the proper financial education or program to be delivered based on consumer vulnerability and components of financial capability.

Highlights

Consumer financial capability is a broad concept that includes financial knowledge, resources, access, and habits (Lin et al, 2016)
5 DISCUSSION This study used a large scale, nationally representative data in the U.S to examine relative contributions of three financial capability components to financial wellbeing in the whole sample and several subsamples in terms of age, poverty status, confidence, and fraud victim status
The findings suggest that three components of financial capability in the whole sample have differential relative contributions to financial wellbeing, in which financial behavior contributes the most, financial skill contributes the second most, and financial knowledge contributes the least to financial wellbeing

Summary

Introduction

Consumer financial capability is a broad concept that includes financial knowledge, resources, access, and habits (Lin et al, 2016). Financial capability includes financial knowledge and financial behavior (Xiao & O’Neill, 2016; Xiao & Porto, 2017). Associations between financial wellbeing and financial capability factors such as financial knowledge and financial behavior are examined by previous research (Hilgert et al 2003; Robb & Woodyard 2011; Shapiro & Burchell, 2012; Tang et al 2015; Xiao, Serido, & Shim, 2011a; Xiao, Tang, Serido, & Shim, 2011b). Research on the association between financial skill and financial wellbeing is emerging (CFPB, 2018; Bialowolski, Cwynar, & Cwynar, 2020). No previous research examined relative contributions of individual financial capability factors such as financial knowledge, financial behavior, and financial skill, to the financial wellbeing of vulnerable consumers. Results of this study have direct implications for consumer financial education design and delivery

Methods

Results

Conclusion