Predicting Financial Well-Being Using the Financial Capability Perspective: The Roles of Financial Shocks, Income Volatility, Financial Products, and Savings Behaviors

Efforts to improve family financial well-being usually employ individual-level, knowledge-targeted educational efforts. However, the availability and appropriateness of financial products, fluctuations in the frequency and amount of income (income volatility), the experience of costly unplanned events (financial shocks), and the habits necessary to set aside money for future use (savings behaviors), particularly for those of low income, may play important roles in a family's financial capability and thus well-being. Drawing upon a financial capability framework, this paper assessed structural, interactional, and behavioral predictors' roles in influencing financial well-being. The study used data (N = 5000 +) from the Financial Well-Being Survey and structural equation modeling techniques. Results indicate that saving habit and amount (i.e., behavioral factors) have a far stronger relationship with financial well-being than financial shocks and income volatility and the use of financial products (i.e., structural or interactional factors). These findings suggest that efforts to promote financial capability and thus improved financial well-being should not neglect behaviorally-oriented financial education and intervention programs and policies that encourage savings for families at all income levels.