Household Financial Capability and Economic Hardship: An Empirical Examination of the Financial Capability Framework

This study investigates the components and mechanisms of the financial capability framework using national representative data from the 2015 National Financial Capability Study with the structural equation modeling approach. We find financial socialization and financial education are significantly associated with both financial access and financial literacy, which are associated with positive financial behavior and negatively associated with economic hardship. We further find that financial access plays a more pronounced role in the mediation effects decomposition compared to financial literacy. Our findings demonstrate that financial capability lies in both the opportunity to act and the ability to act—with opportunity relatively more important than ability—and that financial capability is strongly associated with household experiences of economic hardship. Policies and programs should provide accessible and affordable financial products as well as enhance effective financial education and guidance to promote financial inclusion. SUPPLEMENTARY INFORMATION: The online version contains supplementary material available at 10.1007/s10834-022-09816-5.