Subjective financial knowledge, prudent behaviour and income

Abstract

PurposeThe purpose of this paper is to study how subjective and objective knowledge of finance, behaviour in managing personal finances and socio-economic status affect financial well-being.Design/methodology/approachThe financial well-being score is constructed in quantitative financial literacy survey data from Estonia as the arithmetic mean of four statements on a five-point scale. Four hypotheses are tested in multiple regression analysis.FindingsSubjective knowledge has a stronger relation with financial well-being than objective knowledge. Financial behaviour score and income level correlate with financial well-being.Research limitations/implicationsThe paper contributes to literature on financial literacy, subjective financial knowledge and financial well-being. In future research, psychological factors and future orientated financial well-being should be included, and their relationship to subjective well-being could be analysed further.Practical implicationsThe results highlight the importance of subjective knowledge and sound behaviour for improving financial well-being. Providers of financial services should address these more in the design of their services and communication.Social implicationsPolicymakers developing national strategies for financial education need to address subjective financial knowledge for increasing financial well-being in society.Originality/valueKnowledge, behaviour and subjective knowledge have not been used simultaneously in the analysis of financial well-being in Europe before.