Financial Well-Being in the United States: The Roles of Financial Literacy and Financial Stress

Abstract

This paper examines the role of financial stress in explaining the relationship between financial literacy and financial well-being among individuals in the United States. The 2018 FINRA National Financial Capability Study dataset is used for the empirical analyses of this study. The results found that financial literacy was positively associated with financial well-being. The study also found that the association between financial literacy and financial well-being was mediated by perceived financial stress experienced by individuals. Additionally, the results from the moderated mediation model showed that while financial stress mediated the association between financial literacy and financial well-being, the association between financial stress and financial well-being was moderated by financial literacy. Financial education was positively associated with financial literacy in this study. The broader implications of the main findings of this study for individuals’ sustainable financial well-being are presented for policymakers, financial educators, and financial counselors and planners.

1. Introduction

Financial literacy is an important life skill often associated with consumers’ long-term financial sustainability and well-being. Furthermore, financial literacy has been connected to fundamental financial behaviors such as making informed savings and borrowing decisions [1] and investing attitudes and behavioral intentions [2]. Consumers nowadays have access to numerous new financial products and services that have become increasingly sophisticated over the past decade. During that same time, financial education has been an important topic of policy interest, particularly as a supplement to financial consumer protection and inclusion, with the goal of promoting financial sustainability and individual well-being [3]. Financial education is crucial for fostering financial sustainability and security, which are particularly important following the financial crisis and the resulting household financial instabilities triggered by the COVID-19 pandemic [4]. Despite efforts to expand the delivery of financial education courses at high schools, universities, and workplaces, the effectiveness of receiving financial education on individuals’ financial literacy, and whether financial literacy is associated with consumers’ financial well-being when they are financially stressed, has been relatively inadequately evaluated.

Financially literate individuals are better equipped to manage their everyday finances, are more resilient to temporary economic shocks, and are better prepared for their future financial needs over the course of their lifetime [5,6]. Previous studies have found that an inability to manage one’s finances can lead to a higher likelihood of reporting financial stress [7]. Moreover, some studies have found that financial knowledge is associated with financial well-being [8,9]. However, the association between comprehensively defined financial literacy and multidimensionally measured financial well-being, when mediated by financial stress, has not been studied in the existing literature. The current study fills in this gap in the literature by examining the association between different settings of financial education, financial literacy, and financial well-being when financial literacy is mediated by financial stress.

2. Literature Review

2.1. Financial Well-Being

Financial well-being has been conceptually described as an individuals’ perception of their everyday financial situation, the capability to weather short-term financial shocks, the perception of being able to meet their financial goals, and the flexibility to make financial choices and also consume leisure- and recreation-related activities and services [10]. Financial satisfaction and financial well-being have been used interchangeably in the extant literature [11]. Financial satisfaction has been defined as satisfaction with one’s current financial circumstances [12,13] and the sustainability of ones owned financial resources [14]. It is important to note that financial satisfaction depends on one’s perceptions and values at a particular point in time, such as being satisfied with one’s current finances. However, financial well-being entails sustainability against unexpected risks and relies on accumulated savings over a period of time to meet future demands [15]. There is a growing consensus that the ultimate outcome of individual financial literacy should be an enhancement in individual financial well-being [10,16]. Financial well-being is identified as a primary outcome of the OECDs’ definition of financial education [3]. In contrast to the majority of findings in previous literature, however, a few studies have detected a negative relationship between objective financial knowledge and financial well-being [17,18]. Those researchers noticed that financially literate individuals do not have worse financial conditions; rather, they are better equipped to identify deficits. The literature has also noted that financial well-being and financial satisfaction were associated with a variety of factors [13,19], including financial behaviors [11,20,21], financial stress [22], and socioeconomic factors [23]. To account for the different nuances associated with financial well-being, this study uses a multi-dimensional measure of financial well-being that was developed by the CFPB [10].

Previous studies in sustainability have suggested that resource-constrained corporations that prioritize investing in sustainable strategies that have lower implementation- and adoption-related costs are more successful in the long term [24]. Similarly, to have sustainable social welfare programs in the United States, it is important to create a more financially resilient population where the majority of the retiring adults have sufficient savings to experience sustainable well-being through their expected retirement life. Although it is not possible to improve the financial well-being of the overall population in the short run, investing in lower-cost grassroots-level financial education programs can help in improving peoples’ financial capability [25] and help individuals maintain sustainable financial well-being in the long run. Moreover, Liu et al. found that having a plan along with having financial and other resources was positively associated with a corporation’s ability to achieve its targeted level of energy efficiency over time [26]. It can be argued that investment in financial education and having sufficient wealth is similarly associated with more efficient management of individuals’ retirement portfolios over time. In a related study, Liu et al. found that corporations participating in financial markets were associated with significantly better corporate performance and financial health than corporations that were not participating in financial markets [27]. This is consistent with findings from the area of household finance, which found that individuals with greater financial literacy and asset holdings were able to sustain their portfolios longer upon retirement and were associated with greater financial well-being over time [28,29,30].

2.2. Financial Literacy

Financial literacy has been acknowledged as a strategy for sustainable individual financial well-being under the dynamics of changes in financial market conditions and changes in demographics and economic and regulatory environments for U.S. individuals and families [31]. Financial literacy is categorized as a combination of financial awareness, knowledge, skills, attitudes, and behaviors that enable individuals to make informed financial choices and eventually attain financial well-being [32]. Previous findings have observed that some populations struggle more with personal finance and generally have lower financial literacy levels. Prominent socio-demographic factors associated with lower levels of financial literacy include women, people who are younger and of advanced age, minorities, those with less than a college degree, newly financially involved individuals, and migrants [3,33]. Without a solid understanding of fundamental financial concepts, individuals are ill-equipped to cope with an unexpected financial shock [9] or make sound financial decisions on saving, investing, and borrowing [34].

Huston defined financial literacy comprehensively and argued that financial knowledge is an integral dimension of but is not synonymous with financial literacy [35]. The conceptual definition of financial literacy refers to the possession of the knowledge, skills, and confidence necessary to make responsible financial decisions [36]. However, prior studies on financial literacy have seldom covered a broad variety of measurements, leaving some aspects unexplored. As a result, the definition for this study of financial literacy encompasses both real financial knowledge and additional aspects, including subjective financial knowledge, perceived financial capability, and the goal of reaching financial confidence.

2.3. Financial Education

FINRA reported that American consumers tend to have inflated self-perceptions of their financial knowledge, which may discourage awareness of their financial education needs [37]. Research has shown that financial education results in an improvement in both objective and subjective financial knowledge and perceived financial capability [38], which aid in personal financial decision-making [39]. Financial education can empower individuals with the knowledge and skills essential to gaining access to financial markets, using accessible financial services, making better-informed decisions regarding the financial risks they may encounter [40], and sustaining better quality of life [41].

When and where financial education should be offered has also been a topic of discussion in the past decade. The OECD includes some forms of financial education in schools as a strategy to reach a younger-aged audience. The provision behind this strategy is reaching out to an entire generation before adulthood in a context conducive to learning and altering behaviors with the goal of creating beneficial and sustainable spillover effects on households and the community in a cost-efficient manner [3]. Financial education has been shown to have a favorable effect on the credit practices of young adults aged 18–21, with that group having fewer defaults and higher credit scores [42]. Financial education provided by employers has been shown to encourage saving in general and for retirement [43]. The Department of Labor also established recommendations on offering employees sufficient information to make prudent retirement decisions as the use of employee-directed retirement plans and a transition from defined benefit plans to the defined contribution plans have surged [44].

2.4. Financial Stress

Financial stress can be defined as the perception of being unable to meet one’s financial obligations and having insufficient financial resources to meet one’s daily financial needs [45]. The COVID-19 pandemic has been shown to have had devastating effects on families’ financial stress due to unexpected changes in income and negative emotions such as fear and demotivation, which impair individuals’ and households’ general and financial well-being [46]. Evidence has shown that a decline in well-being can be due to increased stress [47]. Burnout and stress have detrimental effects on the psychological sustainability of individuals at work [48]. Financial stress is characterized as a state of physiological arousal combined with an unhealthy attitude toward thinking about, engaging with, or effectively managing one’s financial situation [49]. Research has suggested that financial education in the workplace can help employees manage their personal finances more effectively and alleviate financial stress [50]. Financial stress has been found to be directly and adversely related to financial well-being [11,51], and experiencing stressful events such as economic shocks, severe illness, job loss, and monetary loss associated with divorce, or the death of a spouse were other factors that have been associated with increased financial stress among individuals [52]. In one study, the negative association between financial stress and financial well-being was more pronounced in higher-income individuals [51]. Another study found that financial stress was negatively associated with financial well-being among low-income Malaysians [53]. In the workplace, financially stressed individuals were more likely to report lower pay satisfaction, were more likely to spend work time handling financial matters, and were more frequently absent from work [50].

3. Theoretical Framework

3.1. Financial Literacy and Financial Well-Being

Individual financial behavior has been linked to utility-maximization behavior in the economics literature [9,54,55]. The role of financial literacy in financial well-being can be examined by applying the theoretical framework developed in previous studies. Financial behavior and financial literacy are components of the financial decision-making processes that people use to improve their overall well-being over time. The economic concept of financial literacy is more nuanced. According to the permanent income hypothesis, people smooth out the temporary drops in their income by spending down their savings without needing to adjust their consumption behavior if the drop in income is expected to be short-term [56]. Conversely, if people earn more than their expectation in a certain year, they are more likely to save the surplus amount instead of changing their consumption behavior if the effect is short-term [56]. This concept is also consistent with the life cycle hypothesis of Ando and Modigliani [57], which posits that people tend to save during the high-income-earning phase of their life cycle and “dissave” during the low-income phase of their life cycle. Financial literacy provides individuals with access to sophisticated financial products and services to make desirable financial decisions, and thus to maximize their wealth-accumulation potential. Financially educated individuals are expected to be better at managing and growing their financial resources garnered during the high-income years and be better at sustaining their accumulated wealth when spending down their savings during the low-income-earning years [5,58]. Normatively, dissaving is expected to occur during the low-income-earning years upon retirement, or when faced with a sharp income drop, to smooth out one’s consumption. Loss of income, unexpected medical expenses, and other life-changing occurrences are examples of when dissaving is needed to smooth out consumption. Research has shown that individuals with higher levels of financial literacy manage their finances better during periods of economic uncertainty and appear to be better equipped to sustain their well-being through periods of income uncertainty [59].

3.2. Mediating Role of Financial Stress

Financial stress can have a significantly negative effect on consumers’ financial well-being [11]. According to Kim and Garman, financial stress has a negative association with various correlates of life satisfaction and well-being [50]. Financial literacy provides individuals with the ability to understand financial information and enables them to make more informed financial decisions [60]. Financial literacy is also a determining factor in the financial choices and financial outcomes of individuals [35]. It is therefore expected that financial literacy also plays a protective role during periods of income uncertainty.

As a corollary to the above, it is therefore expected that financial stress will have a mediating effect on the association between financial literacy and financial satisfaction. Other studies have found that financial literacy moderates the association between financial stress and well-being [61]. Although the association between financial literacy and financial satisfaction has been examined in previous studies [13], the mediating role of financial stress in the association between financial literacy and financial well-being is less clear. This study fills in this gap in the literature by examining the direct association between financial literacy and financial well-being, as well as the indirect association between financial literacy and financial well-being when mediated by financial stress.

3.3. Theoretical Elaboration of Behavioral Finance

Rational choice theory posits that individuals with greater financial literacy are better prepared to understand and synthesize financial information and are more likely to make normative financial decisions [62] that maximize their expected utility or financial well-being. According to expected utility theory (EUT), rational individuals make economic decisions that maximize their utility or well-being [63]. However, in the presence of incomplete information or uncertainty, people may make irrational choices leading to distortions in their utility-maximization decisions [64]. Hence, it is possible that when people experience financial stress, they are uncertain of their future expected financial outcomes. As a result, they may develop a lower perception of their financial well-being. Thus, decisions made under uncertainty, or with incomplete information, may constrain one’s expected well-being. In behavioral finance this violation of normative theory is also known as bounded rationality [65]. Hence, the otherwise-rational expectation that greater financial literacy will be positively associated with financial well-being might be distorted when mediated by financial stress or uncertainty, leading to a lower expected financial well-being. Furthermore, it is possible that the negative association between financial stress and financial well-being can be moderated by financial literacy because the financially literate individuals are expected to have a better understanding of their detrimental financial situation, resulting in a more negative perception of their financial well-being.

Thus, the probable conjecture based on the findings from past research [11,13,61] is that the association between financial literacy, financial stress, and financial well-being might be better explained through a moderated mediation framework. It can be expected that, while financial stress mediates the association between financial literacy and financial well-being, financial literacy also likely moderates the negative association between financial stress and financial well-being. Furthermore, this study extends the framework used in Huston [35] for developing and testing the hypotheses. Financial literacy can be conceptualized as a life skill that comprises a knowledge dimension that includes an individual’s measured financial knowledge and an application dimension that includes an individual’s ability and confidence in their ability to apply and use their financial knowledge in real-world situations [35]. In this framework, financial education is considered a mechanism to increase an individual’s stock financial knowledge or its application, thus helping build their financial literacy. Financial literacy comprising the knowledge and application components plays a role in increasing an individual’s financial well-being or utility over the course of their lifetime.

As shown in Figure 1a, the present study extends this framework by examining the mediating role of financial stress in the association between the financial literacy and financial well-being of individuals. Furthermore the study also examines the moderated mediation of the financial literacy, financial stress, and financial well-being of individuals (Figure 1b).

The hypotheses that are tested based on the theoretical framework developed in this study are as follows:

Hypothesis 1 (H1):

Financial education is positively associated with individuals’ financial literacy when controlling for other socio-demographic characteristics.

Hypothesis 2 (H2):

Financial literacy is negatively associated with individuals’ financial stress when controlling for other socio-demographic characteristics.

Hypothesis 3 (H3):

Financial literacy is positively associated with individuals’ financial well-being when controlling for financial education, financial strain, and other socio-demographic characteristics.

Hypothesis 4 (H4):

Financial stress mediates the association between financial literacy and financial well-being after controlling for other financial education, financial condition, and socio-demographic characteristics.

Hypothesis 5 (H5):

Financial literacy moderates the mediation of financial stress with financial well-being after controlling for other financial education, financial condition, and socio-demographic characteristics.

4. Methods

4.1. Data

This study used the 2018 U.S. state-by-state NFCS dataset released by the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation. FINRA has performed a cross-sectional survey and released the survey dataset triennially since 2009, in consultation with the U.S. Department of the Treasury, to explore the comprehensive financial capability of American adults [37]. NFCS surveys concern key measures of financial capability and assess how these indicators change according to underlying financial circumstances, financial literacy, and demographic, behavioral, and attitudinal characteristics. The 2018 wave of the NFCS included a total sample of 27,091 U.S.-based adults. After excluding respondents who answered “prefer not to say” or “don’t know” to questions on this study’s analytic key variables of interest, the total sample size was reduced to 21,985 in Model 1 and 12,612 in the remaining models.

4.2. Dependent Variables

4.2.1. Financial Well-Being

The CFPB abbreviated scale was used to construct the financial well-being variable in this study. The first three items on the questionnaire were (a) “Because of my money situation, I feel like I will never have the things I want in life”, (b) “I am just getting by financially”, (c) “I am concerned that the money I have or will save won’t last”. The respondents were asked to rate the statement’s accuracy in describing them or their circumstance. All were reverse-coded, with 0 indicating the statement described them completely and 4 indicating the statement did not describe them at all. The other two items were (d) “I have money left over at the end of the month”, and (e) “My finances control my life”, which were reverse-coded. The respondents were asked to rate the frequency with which these two statements applied to them, where 0 meant never, and 4 meant always. Summing the five measurement items yielded a total response value ranging from 0 to 20, which was then converted into a score ranging from 0 to 100 after integrating the age factor and the administered format.

4.2.2. Financial Literacy

The dependent variable was the respondents’ financial literacy index, including four indicators of financial literacy following the definition recommended by prior studies [66]. The four indicators were: (a) objective financial knowledge (0–6); (b) subjective financial knowledge; (c) perceived financial capability (1–7); and (d) financial goal-reaching confidence (1–4). The objective knowledge variable was constructed using the summation of correct responses to the six financial literacy questions, which ranged from 0 to 6. The time value of money, compounding interests, inflation, bonds and stocks, mortgage, and diversification topics were all covered in six financial knowledge questions. Second, subjective financial knowledge was assessed using the following question: “On a scale from 1 to 7, where 1 means very low, and 7 means very high, how would you assess your overall financial knowledge?” Perceived money management skill was measured through a single question: “How strongly do you agree or disagree with the following statements? I am good at dealing with day-to-day financial matters, such as checking accounts, credit and debit cards, and tracking expenses”. Responses ranged from 1 (strongly disagree) to 7 (strongly agree). Financial goal-reaching confidence was estimated using a scale ranging from 1 (not at all) to 4 (very confident) in respondents’ optimism on their ability to attain a financial goal. The financial literacy index was created by summing the Z scores for objective and subjective financial knowledge, perceived financial capability, and financial goal-reaching confidence. The index measurement method was adopted from a prior study [38].

4.2.3. Financial Stress

Three variables suggestive of financial stress were utilized for this study. The three variables were assessed using a 7-point Likert scale and were constructed using the following financial stress-related questions from the 2018 NFCS: (a) “I worry about running out of money in retirement”, (b) “Thinking about my personal finances can make me feel anxious”, and (c) “Discussing my finances can make my heart race or make me feel stressed”. The last two variables were new additions available exclusively in the 2018 wave. A higher score for each variable indicates a higher level of financial stress. The financial stress index was created by summing the scores of statements from 1 to 7 for these three variables and resulted in a score range of 3 to 21.

4.3. Independent Variables

Financial Education

Financial education was measured in a combined manner in this study. The financial education variable was generated by first identifying a binary indicator (1/0) of whether the financial education program at a high school, college, or workplace was explicitly offered and if the respondents participated in it. The respondents were then asked to indicate the specific sources of financial education, including from school-offered programs (high school or college) and employment (workplace). The 2018 NFCS captured an additional financial education variable: the total number of hours devoted to financial education. The following question determined the variable of hours of financial education: “In total, how many hours of financial education did you receive?” The possible answers were 1–2 h, 3–10 h, or more than 10 h, with ordinal coding. This variable was only applicable to those who participated in financial education.

4.4. Socio-Demographic Characteristics

This study included a set of socio-demographic characteristics as control variables. Age (categorically 18–24, 25–34, 35–44, 45–54, 55–64, and over 65), gender (male = 1), racial/ethnicity (simplified to categories of white = 1), marital status (single, married, divorced/separated, or widowed), educational attainment (high school or less, some college, college degree, or postgraduate degree), income level (categorically less than $15,000, $15,000–$25,000, $25,000–$35,000, $35,000–$50,000, $75,000–$100,000, $100,000–$150,000, or more than $150,000), and presence of dependent children (at least one = 1) were included in the statistical analysis procedures.

4.5. Empirical Model Specification

The descriptive statistics of the sample were first run to examine the data. Then, four sets of OLS linear regression (OLS) models were run to empirically test the hypotheses developed in this study, as described below:

The first regression model examined the association between financial literacy and financial education after controlling for socio-demographic characteristics, such as educational attainment, income, gender, race, marital status, dependent children, and income, among the control variables.

Model 1:

$$\begin{gathered} \mathrm{Financial} \mathrm{literacy} \mathrm{index}={\mathrm{FE}}_{\mathrm{i}}{}^{\prime }\mathrm{\Gamma }+{\mathrm{X}}_{\mathrm{i}}{}^{\prime }\mathrm{B}+\mathsf{\epsilon }\mathrm{I} \\ \mathrm{Financial} \mathrm{literacy} \mathrm{index}=f(financial education,socio\_demographic) \end{gathered}$$

where:

FE = vector of financial education variables;

X = vector of socio-demographic variables;

e = error term.

4.6. Mediation Analysis

Based on the theoretical framework of this study, financial literacy (FL) is expected to be associated with financial well-being (FWB). However, financial literacy is hypothesized to have a negative association with financial stress (FS), and the association between financial literacy and financial well-being will be mediated by the perceived financial stress experienced by respondents. The association between financial literacy and financial well-being is therefore anticipated to be mediated by financial stress. Hence, the mediator (financial stress), treatment (financial literacy), and dependent variables (financial well-being) are fitted in a linear regression model, and the mediation effect is estimated following Baron and Kenny [67], as follows:

E[FWB|FL, FS, cov] = γ₀ + γ_1.FL + γ_2.FS + γ₃^Tcov

(1)

E[FS|FL, cov] = b₀ + b_1.FL + b₂^Tcov

(2)

where:

FWB = outcome variable financial well-being (dependent);

FL = financial literacy (treatment);

FS = financial stress (mediator);

cov = other covariates.

The direct, indirect, and total effects of financial literacy on FWB can be calculated as:

Direct Effect (DE) = γ₁;

Indirect Effect (IE) = b₁.γ₂;

Total Effect (TE) = DE + IE.

4.7. Moderated Mediation Analysis

The next regression model estimates DE, IE, and TE when the treatment variable financial literacy interacts with the mediation variable financial stress [68,69]. The results provide information on the moderating effect of financial literacy on the association between financial stress and financial well-being:

E[Y|FL] = α₀ + α_1.FL

(3)

E[Y|FL, FS] = β₀ + β_1.FL + β_2.FS + β₃FL.FS

(4)

E[FS|FL] = γ₀ + γ_1.FL

(5)

These results are further decomposed into the following components, following Vanderweele [70]: the direct effect, the treatment effect of financial literacy on financial well-being due to interaction with financial stress, the treatment effect due to the mediation of financial stress and the interaction of financial stress and financial literacy, and the treatment effect due to the mediation of financial stress.

5. Results

5.1. Descriptive Statistics

The descriptive statistics for this study are shown in

Table 1. Descriptive Statistics.

	Mean	St. Dev.	Min	Max
FWB	54.922	14.743	22	87
Fin Literacy
Obj_FinK	3.116	1.687	0	6
Sub_FinK	5.127	1.354	1	7
Fin_Cap	5.759	1.527	1	7
Finconfident	3.035	0.875	1	4
Fin Educ
Hours Finedu	2.489	0.704	1	3
Schsetedu	0.397	0.489	0	1
Worksetedu	0.359	0.480	0	1
Fin Stress	13.118	5.489	3	21
SocioDemog
Age18to24	0.103	0.304	0	1
Age25to34	0.173	0.378	0	1
Age35to44	0.167	0.373	0	1
Age45to54	0.172	0.378	0	1
Age55to64	0.181	0.385	0	1
Age65oldr	0.203	0.403	0	1
Male	0.441	0.497	0	1
White	0.742	0.438	0	1
Marital Status
Single	0.297	0.457	0	1
Married	0.534	0.499	0	1
Divornsep	0.126	0.331	0	1
Widowed	0.044	0.205	0	1
Hasdepen	0.355	0.478	0	1
Education
HSlow	0.277	0.448	0	1
Somecol	0.268	0.443	0	1
Coldegr	0.324	0.468	0	1
Pstgd	0.131	0.337	0	1
Income
USD15k	0.112	0.316	0	1
USD15k_25k	0.104	0.305	0	1
USD25k_35k	0.108	0.311	0	1
USD35k_50k	0.145	0.352	0	1
USD50k_75k	0.194	0.396	0	1
USD75k_100k	0.142	0.349	0	1
USD100k_150k	0.127	0.333	0	1
USD150kab	0.068	0.252	0	1

. The results indicate that the average financial well-being score was 54.92 (mean = 54.922; SD = 14.743). Also, on average, the respondents answered about half of the six objective financial knowledge questions correctly (mean = 3.116; SD = 1.687). The mean subjective financial knowledge score was a little over 5 on a scale ranging from 1 (minimum) to 7 (maximum) (mean = 5.127; SD = 1.354). The financial capability score was 5.75 (mean = 5.756; SD = 1.527) on a range of 1 (minimum) to 7 (maximum). The financial confidence score was 3.035 (mean = 3.035; SD = 0.875) on a scale ranging from 1 (minimum) to 4 (maximum). Respondents on average received approximately 2.5 h (mean = 2.489; SD = 0.704) of financial education every week. Approximately 40% of the respondents received financial education when they were in school (mean = 0.397; SD = 0.489), and approximately 36% received financial education in the workplace (mean = 0.359; SD = 0.480). On a scale ranging from 0 (minimum) to 21 (maximum), the average financial stress score was 13.118 (mean = 13.118; SD = 5.489). The results from the financial strain variables reveal that about 23% of respondents had unpaid medical bills (mean = 0.229; SD = 0.420), 9% had to withdraw money from their retirement accounts (mean = 0.086; SD = 0.280), about 20% experienced an income drop in the past year (mean = 0.198; SD = 0.399), about 19% had delinquent debt with a debt collector (mean = 0.188; SD = 0.391), and about 12% had to take a loan during retirement (mean = 0.116; SD = 0.320).

In this study, approximately 10% of the respondents were between the ages of 18 and 24; 17% were between the ages of 25 and 34; 17% were between the ages of 35 and 44; 17% were between the ages of 45 and 54; 18% were between the ages of 55 and 64; and 20% were 65 or older. Approximately 44% of the sample were male, and 74% were white. In this study, 30% of the respondents were single, 53% were married, 13% were divorced or separated, and 4% were widowed. Also, 36% of the respondents had a dependent child they had to take care of, 28% had educational attainment of high school or lower, 27% had completed some college education, 32% had a college degree, and 13% had been to graduate school. The distribution of income reveals that about 11% had an income lower than $15,000, 10% had income between $15,000 and $25,000, 11% had income between $25,000 and $35,000, 15% had income between $35,000 and $50,000, 19% had income between $50,000 and $75,000, 14% had income between $75,00 and $100,000, 13% had income between $100,000 and $150,000, and 7% had income above $150,000.

5.2. Factors Associated with Financial Literacy

Table 2. OLS Regression of Financial Literacy.

		Coef.	SE	Sig
Fin Educ	Hours Finedu	0.3563	0.0443	***
	Schsetedu	0.5262	0.0662	***
	Worksetedu	0.5773	0.0651	***
Socio Demog	Educ (Ref: Hslow)
	Somecol	0.8186	0.1032	***
	Coldegr	1.0387	0.1017	***
	Pstgd	1.3299	0.1222	***
	Income (Ref: USD15k)
	USD15k_25k	0.1551	0.1468
	USD25k_35k	0.4710	0.1450	***
	USD35k_50k	1.0649	0.1317	***
	USD50k_75k	1.2125	0.1287	***
	USD75k_100k	1.6448	0.1347	***
	USD100k_150k	1.8020	0.1394	***
	USD150kab	2.2015	0.1588	***
	Male	0.6605	0.0621	***
	White	0.1960	0.0688	***
	Married	0.0239	0.0716
	Has Dependent	−0.2657	0.0712	***
	Age (Ref: Age 18 to 24)
	Age 25 to 34	0.2544	0.1067	**
	Age 35 to 44	0.2217	0.1145
	Age 45 to 54	0.4449	0.1146	***
	Age 55 to 64	0.9548	0.1181	***
	Age 65 oldr	1.4806	0.1215	***
	Intercept	−2.2859	0.1701	***

Where, ** p < 0.01; *** p < 0.001.

shows the regression results of the factors associated with financial literacy. The results indicate that the number of hours of financial education received (beta = 0.356; SE = 0.044), having received financial education in school (beta = 0.526; SE = 0.066), and having received financial education at the workplace (beta = 0.577; SE = 0.065) were positively associated with financial literacy. Educational attainment was also significantly associated with financial literacy. Compared to those respondents with educational attainment of high school or lower, those who attended some college (beta = 0.818; SE = 0.103), had a college degree (beta = 1.038; SE = 0.101), or had attended graduate school (beta = 1.330; SE = 0.122) were positively associated with financial literacy. Compared to those respondents with an income lower than $15,000, those with an income of $25,000 or higher were positively associated with financial literacy. Being male (beta = 0.661; SE = 0.062) and being white (beta = 0.196; SE = 0.069) were positively associated with financial literacy. Having dependents (beta = −0.266; SE = 0.072) was negatively associated with financial literacy. Compared to those who were between the ages of 18 and 24, respondents who were aged 25 to 34, 45 to 54, 55 to 64, and 65 or older were positively associated with financial literacy.

5.3. Mediation Analysis

5.3.1. Financial Stress and Financial Literacy

The results shown in

Table 3. Financial Literacy and Financial Well-being Mediated by Financial Stress.

	Fin Stress			Fin Well-Being
Variables	Coef.	SE	Sig	Coef.	SE	Sig
Fin Literacy	−0.718	0.013	***	1.224	0.026	***
Finstress				−1.564	0.012	***
Some Col	0.825	0.086	***	−1.141	0.158	***
Col Deg	0.529	0.085	***	−0.675	0.156	***
Pst Grad	0.678	0.112	***	−1.199	0.206	***
USD15k_25k	0.583	0.142	***	−0.068	0.260
USD25k_35k	0.444	0.142	***	1.533	0.259	***
USD35k_50k	0.172	0.135		2.916	0.247	***
USD50k_75k	−0.256	0.132		4.551	0.242	***
USD75k_100k	−0.195	0.143		6.105	0.262	***
USD100k_150k	−0.872	0.150	***	7.156	0.274	***
USD150kab	−2.080	0.175	***	9.029	0.320	***
Male	−0.687	0.064	***	−1.050	0.117	***
White	0.355	0.224		0.136	0.865
Married	−0.173	0.073	**	0.671	0.134	***
DepChild	0.987	0.075	***	−1.658	0.914	***
Age25to34	1.106	0.129	***	−1.637	0.936
Age35to44	0.708	0.131	***	−2.170	1.240
Age45to54	0.584	0.129	***	−2.164	2.235
Age55to64	−0.326	0.129	**	1.239	1.236
Age65oldr	−1.894	0.130	***	1.546	1.239
Intercept	12.798	0.148	***	74.869	0.310	***

Where, ** p < 0.01; *** p < 0.001.

indicate that financial literacy is negatively associated with individuals’ financial stress (beta = −0.718; SE = 0.013). Compared to those individuals with an educational attainment of high school or lower, attainment levels of some college (beta = 0.825; SE = 0.086), college (beta = 0.529; SE = 0.085), and graduate school (beta = 0.678; SE = 0.112) were positively associated with financial stress. Compared to the reference group of individuals with an income less than $15,000, those with incomes from $15,000 to $35,000 were more likely to experience financial stress, whereas individuals with incomes greater than $100,000 were less likely to experience financial stress. Being male (beta = −0.687; SE = 0.063) and being married (beta = −0.173; SE = 0.073) were negatively associated with experiencing financial stress. Individuals with dependent children (beta = 0.987; SE = 0.075) were positively associated with experiencing financial stress. Relative to the reference age group of 18 to 24, individuals with ages between 25 and 64 were positively associated with experiencing financial stress, and, conversely, individuals who were 65 or older were negatively associated with experiencing financial stress.

5.3.2. Financial Literacy and Financial Well-being Mediated by Financial Stress

The regression results for factors associated with financial well-being are shown in Table 3. The results indicate that financial literacy (beta = 1.22; SE = 0.026) was positively associated with financial well-being. Conversely, financial stress was negatively associated with financial well-being (beta = −1.564; SE = 0.011). The results also show that higher educational attainment was negatively associated with financial well-being (beta = −1.359; SE = 0.599). Among the income variables, relative to those individuals with an income of $15,000 or lower, those with an income higher than $25,000 were positively associated with financial well-being. The results also reveal that male respondents were negatively associated with financial well-being when compared with female respondents (beta = −1.050; SE = 0.118), whereas married respondents were positively associated with financial well-being (beta = 0.672; SE = 0.134). Having dependent children was negatively associated with financial well-being (beta = −1.658; SE = 0.138). The computed total, direct, and indirect effects of mediation of financial stress are listed in

Table 4. Mediation Effect.

Outcome	Treatment	Mediator	Total Effect	ACME	% Mediated
FWB	Fin Literacy	Fin Stress	2.375	1.226	0.516

.

5.3.3. Moderated Mediation Model of Financial Literacy, Financial Stress, and Financial Well-Being

The results of the regression analysis examining the moderation effect of financial literacy on financial stress is shown in

Table 5. Moderated Mediation Analysis of Financial Literacy, Financial Stress, and Financial Well-being.

	DV: FWB
Variable	Coef.	SE	Sig
Fin Literacy	1.668	0.058	***
Fin Stress	−1.543	0.012	***
FL*FS	−0.031	0.004	***
Other Controls	YES
Intercept	74.487	0.313	***

Where, *** p < 0.001.

. The results indicate that financial literacy is positively associated with financial well-being (beta = 1.668; SE = 0.058). Financial stress is negatively associated with financial well-being (beta = −1.543; SE = 0.012). However, the moderation effect of financial literacy when interacting with financial stress is significant and has a negative association (beta = −0.032; SE = 0.003) with financial well-being. When confronted with financial stress, those with higher financial literacy were more likely to reflect negatively on their financial well-being. The results of the moderated mediation analysis are also shown in

Table 6. Moderated Mediation Effect.

Outcome	Treatment	Mediator	Interaction	TE	DE	INTref	INTmed	NIE	Average Mediation	Average Direct Effect	% Mediated
FWB	Fin Literacy	Fin Stress	Fin Literacy × Fin Stress	2.381	1.275	1.252	1.128	1.106	1.117	1.263	0.469

. These results indicate that while financial stress mediates the association between financial literacy and financial well-being, the results also suggest that financial literacy moderates the association between financial stress and financial well-being.

6. Discussion and Implications

The results of this study confirm Hypothesis 1, that financial education is positively associated with financial literacy. This finding is consistent with the findings from prior studies that have found a positive association between financial education and financial literacy [35,38,44]. An additional contribution of this study is that it shows that the hours of financial education received and the financial education received at school or the workplace were all positively associated with financial literacy. These findings provide further support for the OECD’s plan to promote financial education in schools teaching students at a young age [3]. Similar to the findings from previous research [43,71,72], the findings from this study also provide support for providing financial education at the workplace.

The results from the mediation and the moderated mediation analyses also support the theoretical framework of this study and confirm Hypothesis 2, which states that financial literacy is negatively associated with financial stress. This association can be explained by the fact that financial literacy provides households with greater ability to synthesize their financial situation and likely helps them manage their finances better during periods of economic uncertainty [9,34]. Overall, there is a paucity of literature examining the association between financial literacy and financial stress among individuals. However, the negative association between financial literacy and financial stress found in this study is consistent with findings from an earlier study [73].

The finding that financial literacy is positively associated with financial well-being confirms Hypothesis 3 and is consistent with the findings from a number of previous studies that have found financial literacy to be positively associated with financial well-being and the satisfaction of households [13]. Findings from previous studies indicate that individuals who had greater financial literacy were able to accumulate more wealth over time and were able to manage their financial resources better during periods of financial uncertainty [5,58], which is possibly why financial literacy was positively associated with financial well-being. In the future, more studies are needed to examine this association between financial literacy and financial well-being across different economic cycles.

The results of this study also confirm Hypothesis 4, which states that financial stress plays a mediating role in the association between financial literacy and financial well-being. This is likely because individuals experiencing financial stress are uncertain of their future expected financial outcomes, which may lead to a lower perception of their financial well-being. Hence as explained by the concept of bounded rationality [65], the otherwise-rational expectation that greater financial literacy will be positively associated with financial well-being might be distorted when mediated by financial stress or uncertainty and may be associated with lower expected financial well-being. The direct association between financial literacy and financial well-being, as well as the significance of the indirect association, when mediated by financial stress is a new addition to the literature.

Furthermore, the results from the moderated mediation analysis conducted in this study confirm Hypothesis 5 and show that financial literacy moderates the association between financial stress and financial well-being. It is possible that individuals with higher financial literacy who experienced financial stress were better able to comprehend their financial constraints, and hence were more likely to reflect negatively on their financial well-being. This result is consistent with previous findings that financially savvy individuals were better positioned to spot deficiencies in their finances and consequently were more likely to reflect negatively on their well-being [17,18].

These findings support the need for policies to implement programs that will enhance financial literacy at grassroots levels to serve the greater goal of building financially sustainable and resilient communities across the country. The COVID-19 pandemic had deleterious effects on the finances of many low-to-moderate-income households. With the manifest increase in stress associated with the pandemic-related economic uncertainty, the importance of financial literacy as a moderating factor requires further policy focus. The findings of this study have implications for financial counselors and planners, as the significance of the association between financial literacy and financial well-being found in this study indicates that incorporating financial literacy and education-oriented financial suggestions and instructions when advising clients may benefit their perception of their sustainable financial well-being. Helping enhance clients’ capacity to comprehend financial information by providing them with greater financial education and coaching might enable them to better plan for future unanticipated financial or economic crises.

As an extension of previous research, this study established a significant association between financial literacy and financial education based on program setting (academic or workplace) and the total number of hours committed, which has been relatively underdeveloped and inconsistent in the literature. Our findings add to the growing literature on financial well-being by demonstrating that the mediating role of financial stress in the significant association between financial literacy and financial well-being and the significant association between financial stress and financial well-being varies by the degree of financial literacy. From a policy perspective, the findings from this study underscore the importance of improving financial literacy, given that it can contribute substantially to the attainment of the greater goal of sustaining the overall financial well-being of the population. The results of this study may assist policymakers in prioritizing their funding for financial literacy with the goal of developing greater economic sustainability and resiliency within communities in challenging times.

7. Conclusions

For researchers and practitioners, this article demonstrates the importance of financial education in fostering the development of a more financially resilient and economically sustainable community. Individuals who are financially literate will be better prepared to withstand financial stress as a result of unforeseen short-term economic shocks. Financial literacy plays a protective role and alleviates financial stress and anxiety. The findings of this study emphasize the critical need for researchers and policymakers to develop more effective and adaptable intervention programs and resources for individuals and families. Financial capacity in the population is necessary for overcoming information acquisition and processing barriers and developing confidence in reaching financial goals. Employers could assist their employees in managing financial stress and achieving financial well-being by providing effective financial education in the workplace. The key findings from this study support the importance of incorporating financial education as part of high school or university curricula and incorporating workplace programs for adults to build and enhance financial literacy. It is never “too late” to educate individuals on financial literacy.

The framework developed in this study provides theoretical support for future studies investigating the relationship between financial literacy, financial stress, and financial well-being. Future research should follow this line of work, which is of heightened importance given the potential impact of the economic downturn on the long-term financial sustainability and socio-psychological characteristics of individuals. For future research work, similar studies should be conducted longitudinally to develop a more robust and causal assessment of the evidence on the population. One limitation of this study was that it used a cross-sectional dataset. Using a longitudinal setting as an extension to the current study will allow for the identification of individual-level changes in financial well-being, which is especially helpful for understanding the role of financial stress before and after financial shocks and adversities. This study was conducted using data collected in the United States. It will be interesting to conduct future studies using data from other countries and compare them to the findings from the current study. Future research utilizing the theoretical framework built in this paper to examine data from multiple nations will provide stronger empirical evidence at the global level and bring greater attention to the importance of developing the financial sustainability and economic resiliency of the population at the grassroots level. This study confirmed that the number of financial education hours and the source of instruction, whether from educational institutions or the workplace, were all associated with a greater level of financial literacy. However, instructional delivery methods such as virtual classrooms, face-to-face training, and blended learning continue to evolve after the COVID-19 pandemic. There is also a need for future studies to examine the effectiveness of various delivery mechanisms of financial education, which could not be achieved in the present study due to the constraints of the dataset. More importantly, future research should examine which financial education topics should be included to create a more accessible, inclusive, and sustainable financial literacy ecosystem and strengthen financial resilience in an increasingly digital environment.