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insight

Consumer financial capability and financial satisfaction

Evidence type: Insight i

Context

Previous research has shown how financial satisfaction is a key component of life satisfaction, with some research going as far as to suggest that financial satisfaction is an indicator of overall welfare or wellbeing. Research in this area has typically concentrated on the links between financial satisfaction and income, relative income, household characteristics, financial circumstances and perceived income adequacy. This research differentiates itself by looking at the relationship between perceived consumer financial capability and self-reported financial satisfaction.

The study

This 2013 peer-reviewed paper examines the associations between consumer financial capability and financial satisfaction in the United States. It uses data from the 2009 National Financial Capability Study that consists of three linked surveys:

  • A national survey: a nationally representative telephone survey of 1,488 American adults.
  • A state-by-state survey: an online survey of over 28,000 adults (approximately 500 per state, including District of Colombia);
  • Military Survey: An online survey of 800 military members and spouses/partners.

This study focussed on the state-by-state data. The survey asked questions about financial satisfaction, financial capability, financial literacy and financial behaviour, as well as demographic and socio-economic characteristics. The dataset was weighted to be nationally representative of the United States. The final sample size was 26,900. The analysis techniques included descriptive statistics, bivariate analysis including analyses of variance, and multiple regression analysis that interrogated the independent effect of each variable of interest.

Key findings

The average self-reported financial satisfaction score across all of the respondents was 4.5 (out of ten).

  • The average scores (on a seven-point scale ) were 5.6 for self-perceived financial capability, 5.0 for subjective financial knowledge and 5.6 for perceived mathematic ability.
  • Higher levels of financial literacy were positively associated with higher levels of financial satisfaction, while negative financial behaviours were correlated with lower levels of financial satisfaction.
  • The findings suggest that subjective financial knowledge has a stronger relationship to financial satisfaction than objective knowledge.
  • Desirable financial behaviours increased financial satisfaction while risky financial behaviours decreased it.
  • The analysis suggests that financial behaviour and subjective financial knowledge are stronger predictors of financial satisfaction than perceived financial capability.
  • The results show that the majority of respondents had a high level of objective knowledge, but a relatively low level of financial satisfaction.
  • The paper suggests that the findings have several generic implications for improving consumer financial wellbeing, including:
    • Ensuring financial education programmes emphasise ‘action-taking’;
    • Encouraging consumers to avoid risky financial behaviour;
    • Engaging in desirable financial behaviours;
    • Improving financial self-efficacy.

Points to consider

Methodological strengths and limitations:

  • This report is based on a large sample that is weighted to be representative of the wider US population, and the robust methodology (including statistical testing) suggests the reader can have a fair degree of confidence in the results.
  • However, only one question is used to measure perceived financial capability, a limitation acknowledged by the authors. While the question appears logical, financial capability is a multi-dimensional concept which research has shown cannot be fully captured through one survey question.
  • This dataset is cross-sectional. To determine the direction of causality between financial capability and financial satisfaction, longitudinal data would need to be analysed.

Relevance:

  • This report is relevant to all stakeholders, academics and policymakers who are interested in the links between financial satisfaction and financial capability. It is of particular relevance to those immersed in a US policy landscape.

· Generalisability/transferability:

  • The findings in this paper are nationally representative of people in the US, and therefore are not directly applicable to the UK. However, some of the knowledge acquired and subsequent implications may be transferrable to and helpful for informing UK policymakers.

Key info

Year of publication
2013
Country/Countries
USA
Contact information

Jing Jian Xiao, Ph.D. University of Rhode Island Cheng Chen, M.S. Renmin University of China Fuzhong Chen, M.S. Renmin University of China