The relationships of financial literacy with both financial behavior and financial well‐being: Meta‐analyses based on the selective literature review

• Published date: 01 January 2023
• Author: Hyesun Hwang,Hyung In Park
• Date: 01 January 2023
• DOI: http://doi.org/10.1111/joca.12497

RESEARCH ARTICLE

The relationships of financial literacy with both

financial behavior and financial well-being:

Meta-analyses based on the selective

literature review

Hyesun Hwang

1

| Hyung In Park

2

1

Department of Consumer Science, Sungkyunkwan University, Seoul, South Korea

2

Department of Psychology, Sungkyunkwan University, Seoul, South Korea

Correspondence

Hyung In Park, Department of

Psychology, Sungkyunkwan University,

Humanities and Social Sciences Campus,

25-2 Sungkyunkwan-Ro, Jongno-Gu,

Seoul, South Korea.

Email: hi.park@skku.edu

Abstract

This study conducted meta-analyses of the relationships

between financial literacy and both financial behavior

and financial well-being. Peer-reviewed articles publi-

shed on financial literacy in the field of consumer stud-

ies were collected by July 29, 2020. Fourteen articles

were eligible for the meta-analyses. The results showed

positive relationships of financial knowledge with desir-

able financial behavior and financial well-being. Our

comparison of objective and subjective financial knowl-

edge indicated that subjective knowledge had stronger

relationships with both financial behavior and financial

well-being than objective knowledge. These two types

of knowledge also had different paths to financial well-

being in that subjective knowledge had both direct and

indirect effects on financial well-being through finan-

cial behavior, whereas objective knowledge only had an

indirect effect. The relationship between financial

knowledge and financial behavior appeared stronger in

cross-sectional data than in longitudinal data. The

implications of these results and possible directions for

future consumer science research were discussed.

Received: 10 February 2022 Revised: 23 August 2022 Accepted: 4 November 2022

DOI: 10.1111/joca.12497

© 2022 American Council on Consumer Interests.

222 J Consum Aff. 2023;57:222–244.

wileyonlinelibrary.com/journal/joca

KEYWORDS

financial behavior, financial literacy, financial well-being,

meta-analysis, objective financial knowledge, subjective financial

knowledge

1|INTRODUCTION

The neoliberal development of financial markets and the increasing uncertainty caused by the

global economic crisis have inevitably impacted consumers' economic stability, which is associ-

ated with a decline in consumer well-being (Deaton, 2012; Williams, 2007). As the complexity

of financial markets and the diversity of financial situations faced by individual consumers are

combined, the effective decisions of informed individual consumers have become critical to

improving their financial outcomes. This means that changes in the financial environment have

increased the burden and responsibility of consumers (Williams, 2007; Xiao & O'Neill, 2016).

Effective financial decision-making is a critical dimension of the “human condition”that deter-

mines not only financial well-being, but also overall subjective well-being (Vlaev &

Elliott, 2014). In this regard, the effect of financial behavior, such as decision-making, on finan-

cial well-being has been addressed; financial well-being, in turn, predicts overall well-being and

happiness by influencing various dimensions of life (Gutter & Copur, 2011; O'Neill et al., 2005).

The concept of financial well-being ultimately encompasses desirable financial outcomes,

which emphasizes the financial aspect of subjective well-being beyond the limitations of mea-

suring one's financial state with one-dimensional “income”in explaining the whole life of a per-

son (Vlaev & Elliott, 2014). Financial well-being is improved under the direct or indirect

influence of effective financial behavior based on relevant knowledge and skills (Joo &

Grable, 2004; Shim et al., 2009). With the increasing emphasis on consumer responsibility for

personal financial well-being, policymakers have been trying to improve their financial literacy

(Lee et al., 2020; Stolper & Walter, 2017).

Financial literacy is defined as an individual's ability to use and apply financial knowledge

to manage their financial lives (Huston, 2010; Kempson et al., 2005; OECD, 2014). Previous

studies have emphasized the enhancement of financial literacy as an antidote to consumers'

poor financial decision-making (Dew & Xiao, 2011; Hilgert & Hogarth, 2003; Hira, 2012;

Huston, 2012; Lusardi & Mitchell, 2011; Mandell & Klein, 2009; Totenhagen et al., 2019; Xiao,

Ahn, et al., 2014; Xiao, Chen, & Chen, 2014). These studies have mainly focused on financial lit-

eracy as a factor that promotes better financial behaviors and reduces the probability

of financial insecurity, ultimately leading to a desirable financial status, including better finan-

cial outcomes and satisfaction, namely financial well-being (Chu et al., 2017; Von

Gaudecker, 2015). The combined results of previous studies highlight the impact of financial lit-

eracy on financial behavior through which improvement in financial well-being can be ulti-

mately achieved. However, these two aspects have barely been investigated together and still

need to be addressed within a sequential and integrated framework.

This study aimed to comprehensively examine the relationships between financial literacy,

financial behavior, and financial well-being by conducting systematic meta-analyses of con-

sumer studies. Financial literacy, which is the core concept of this study, refers to the ability to

lead an overall financial life beyond a financially knowledgeable status. Thus, financial literacy

comprises a wide range of layers in terms of individual consumers' ability to use and apply

HWANG AND PARK 223