The impact of financial literacy on financial well-being: a systematic literature review

doi:10.21203/rs.3.rs-5187088/v1

Download PDF

Systematic Review

The impact of financial literacy on financial well-being: a systematic literature review

https://doi.org/10.21203/rs.3.rs-5187088/v1

This work is licensed under a CC BY 4.0 License

Version 1

posted

You are reading this older preprint version

Read the latest preprint version →

Background: The harsh reality of financial difficulty can be concerning, requiring that an opportunity to break free from these limitations be seized at the earliest opportunity. This systematic literature review was therefore necessary to enhance understanding of financial literacy as a means of achieving financial well-being, and to carefully examine the extant literature in order to unravel the key themes and future research agenda of the impact of financial literacy on financial well-being.

Methods: Following the PRISMA guidelines, we searched the Scopus database from inception to August 16, 2024 and included articles that had the key words: financial literacy, financial education, financial outcome, financial well-being, economic outcome, economic well-being in their titles, abstracts, or keywords. After applying various inclusion and exclusion criteria, 35 articles were included in the final review. The synthesis was performed in a narrative way. Descriptive and thematic analysis were conducted to answer the research questions.

Findings: The study showed that numerous studies have consistently found financial literacy to significantly influence financial well-being. Other variables such as financial behavior, pronounced behavioral elements such as non-impulsive future-oriented behavior and impulsiveness, and financial socialization were discovered as having significant influence on financial well-being. The following themes were developed in answer to the research questions: financial literacy and its determinants; the influence of financial literacy on financial well-being; the impact of financial socialization on financial well-being; the interplay of financial literacy, psychology, and behavioral economics; digital financial literacy in contemporary contexts, and emerging trends. The study made some future research recommendations.

Implications: Future research can build on this work to improve our understanding of financial literacy’s impact on financial well-being and help create effective strategies to support individuals and families.

Finance

Other Public Policy

Public Administration

Financial literacy

financial education

financial outcome

financial well-being

economic outcome

economic well-being

The harsh reality of financial difficulty can be concerning, having a significant impact on the social, psychological, physical, and developmental needs of families (1,2). An opportunity to break free from these limitations should therefore be seized at the earliest chance (3). This context underscores how crucial it is to comprehend financial literacy as a means of achieving financial freedom and empowerment.

According to the human capital theory posited by Gary Becker (2009), investing in human capital increases earning potential and boosts productivity (3,4)(3). Financial literacy emerges as a crucial factor within this field, as it equips individuals with the requisite knowledge and competencies for making well-informed financial decisions (5,6). By focusing on this area, scholars can make significant advancements in financial outcomes for diverse groups of people (7).

It is encouraging to see scholars becoming more interested in exploring the effects of financial literacy (8,9) on the financial well-being of individuals and households, as research in this area holds potential for substantial benefits (10). Despite the growing body of literature, existing studies on the influence of financial literacy on financial well-being have often been fragmented (11–16). This gap presents an opportunity for more research. This study attempts to synthesize common themes from the literature to give a better understanding of how financial literacy affects financial well-being across diverse demographics.

Moreover, having an understanding of the critical factors that could significantly impact one’s financial well-being is essential (17,18). Comprehending these interdependent elements can result in more significant studies and more comprehensive approaches to enhance financial literacy and improve overall financial well-being (19–21).

Lastly, it is critical to stay up to date on trends in the development of this field. As economic landscapes change, so does the difficulties people have managing their finances. By examining emerging trends, researchers can ensure that their findings remain relevant and applicable to contemporary issues in financial literacy and financial well-being(22) (22,23).

Therefore, it is both vital and timely to research the relationship between financial literacy and financial well-being. It holds much promise of enabling individuals and families to overcome financial obstacles and achieve long-term economic security.

1.1 Objectives

The primary objective of this review was to examine the extant literature on the influence of financial literacy on financial well-being. Thus, this systematic literature review aimed to answer the following questions.

What is the impact of financial literacy on financial well-being?
What are the key themes in the research on the impact of financial literacy on financial well-being?
What are the proposed areas of future research?

2.1 Method of Review

This systematic review was conducted following the Preferred Reporting Items for Systematic Reviews and Meta-Analyses (24). We sought to find peer-reviewed articles that show the impact of financial literacy on financial well-being.

Databases. Data was extracted from Scopus, the biggest library of academic literature abstracts and citations (25) because it has been demonstrated to yield the greatest number of relevant peer-reviewed articles that meet the critical standards for indexing quality, showing its unique ability to capture research that are not included in other databases (26–28). The search was conducted on 16 August 2024 at 10 pm for records from inception to 16 August 2024.

Rules for inclusion. The concept of financial literacy was the focus of the first set of keywords in the search strategy. The search included financial literacy and financial education. The second set of keywords in the search strategy focused on financial well-being. This set included financial outcome, financial well-being, economic outcome, and economic well-being. We did not restrict the parameters of our search to a particular beginning timeframe in order to include all relevant scholarly articles available at the present moment (29). For an article to be eligible for consideration in the review, it was required to have a combination of terms from both sets (financial literacy and financial well-being) in its title, abstract, or keywords.

Rules for exclusion. We imposed certain limitations to automatically eliminate papers that failed to satisfy our objectives.

The search began using the keywords: “financial literacy” OR “financial education” AND “financial outcome” OR “economic outcome” OR “economic well-being” which resulted in 465 records (including articles, book chapters, reviews, conference papers, letters and conference reviews)

We limited our search to only articles – thereby excluding book chapters, conference papers, reviews, books, letters, editorials, data papers, and conference reviews. We further excluded articles in press thereby ending up with only peer-reviewed published articles. Next, we selected journal-sourced articles, thereby excluding book series. Given the researchers’ limitation to use of only the English language, the search was restricted to only articles in English – yielding 326 results in total. We then exported a CSV file of the articles based on our research objectives. The comprehensive search query is presented below.

TITLE-ABS-KEY ( ( "financial literacy" OR "financial education" ) AND ( "financial outcome" OR "financial well-being" OR "economic outcome" OR "economic well-being" ) ) AND ( LIMIT-TO ( DOCTYPE , "ar" ) ) AND ( EXCLUDE ( PUBSTAGE , "aip" ) ) AND ( LIMIT-TO ( SRCTYPE , "j" ) ) AND ( LIMIT-TO ( LANGUAGE , "English" ) )

Selection process. Next, we analyzed the articles extracted using the average citations received per year to identify the most influential papers based on the average citation per year of 10 or above. This resulted in 44 articles. Papers published in the year 2024 that had five and above citations were also included, increasing the total number of papers to 47. After reading the titles and abstracts of the 47 studies, 12 were excluded, leaving 35 for inclusion in the final review. The reasons for their exclusion were based on their irrelevance in answering the research question. This method demonstrates that the study selection process was systematic and focused on clear inclusion and exclusion criteria rather than subjective opinion thereby increasing the validity and dependability of the review’s conclusions. Figure 1 displays the PRISMA flow chart showing the inclusion and exclusion criteria.

Data collection process

After modifying the data collection forms used by Suhrcke et al. (2011) and Antwi et al. (2024), the lead reviewer (PKAA) created a data extraction form specifically for this systematic literature review and used the form to extract data from eligible studies, while a second author (BA) reviewed the extracted data (30,31)(30). Any differences were handled through discussion, and if any information was unclear, we sought clarification from the other authors.

Synthesis

Due to the heterogeneity of the studies included, we performed a qualitative synthesis of study findings rather than conducting a meta-analysis. The synthesis was performed in a narrative way. Microsoft Excel was used to help analyze the literature clearly under various sections. Thematic analysis was done to categorize and analyze key concepts, report on studies across the themes, and highlight potential concerns and opportunities for future research (32–35).

VOSviewer version 1.6.20 and R-Biblioshiny were used for the descriptive analysis of the data, which consisted of the final 35 articles that were downloaded from Scopus and included in the review. First, R Studio was loaded and the Bibliometrix R package was installed. Typing biblioshiny () into the R terminal opened the Biblioshiny application. A web application called Biblioshiny gives non-programmers access to R's Bibliometrix package. Utilizing VOSViewer version 1.6.20, an application designed to produce and display bibliometric maps, the contribution of authors and nations to the research field was examined (36–39).

3.1.1 Descriptive Analysis

This section offers a descriptive analysis of the studies reviewed. Key aspects such as the number of scientific publications produced each year, the most cited papers, and the contributions of different countries and journals, among others, were highlighted to track the publication trends in the field. Overview analysis from R-Biblioshiny indicated that 88 authors were involved in the publications – of which four are single-authored. There were 2.66 authors per document. The international co-authorship was 31.43%. There were 22 sources for the publications. The papers span 14 years from 2010 to 2024.

3.1.2 Highly Cited Papers

For an article to be selected for inclusion in this study, it had to have a minimum average of ten citations per year, except for 2024 published publications, which required at least five citations. The authors, publication year, and average number of citations are presented in Figure 2. Notably, Huston (2010) achieved the highest average yearly citation count, with a total of 68 citations (40). Following closely are Kumar et al. (2023) with 39, and Xiao and Porto (2017) with 28 average yearly citations (41,42).

3.1.3 Yearly Scholarly Output

The R-Biblioshiny diagram in figure 3 illustrates the annual scientific output of the articles included in the study. Significantly, the field experienced a pronounced increase in the number of relevant articles published in 2019, with only one article published in each of 2010, 2013, and 2018, the field experienced a significant increase in the number of relevant articles published in 2019. From one article in 2018 to five each in 2019, 2020, and 2021. Although the number of relevant articles published declined in 2022, the count rose again to four in 2023, with 2024 indicating a promise of a similar number of publications. This noteworthy growth reflects the growing attention of researchers and academics in the study area.

3.1.4 Contributions of various countries to the study

Furthermore, the contributions of various countries to the study were analyzed; the United States (USA) contributed the most documents (17) to the field with a total link strength of 1459. India and China follow with 7 documents, 1232 total link strength, and 5 documents, 730 total link strength, respectively. The most impactful studies have, thus, been conducted outside South America and Africa. Table 1 below, developed from the authors’ analysis from VOSviewer displays the top 19 countries actively participating in the research on the impact of financial literacy on financial well-being.

Table 1. Contributions of various countries to the study

Number	Country	Documents	Citations	Total Link Strength
1	USA	17	2526	1459
2	India	7	336	1232
3	China	5	637	730
4	Malaysia	2	21	571
5	UAE	2	50	637
6	UK	2	95	548
7	Turkey	2	133	249
8	South korea	1	13	96
9	France	1	64	199
10	Australia	1	31	188
11	Canada	1	31	188
12	Netherlands	1	124	173
13	Estonia	1	85	142
14	Italy	1	72	162
15	Lebanon	1	58	146
16	Switzerland	1	44	106
17	Latvia	1	23	84
18	Greece	1	91	67
19	Russian Federation	1	31	65

Source: Author’s analysis from VOSviewer

3.1.5 Most influential scholars in the field

Figure 4 illustrates the strength of the contributions made by various scholars to the research area; this aids in identifying the influential writers in the field and acknowledges their legacy (43). Lusardi Annamaria is the most influential author in the field with a total link strength of 3,184 and 196 citations (see Appendix 2). She is followed by Mitchell O. S. with 1,995 and 95 total link strength and citations respectively, and Xiao J. J. with 1,811 and 83 total link strength and citations respectively. Researchers in this field will find it useful to pay attention to the authors above – among the others mentioned in developing various aspects of the study.

3.1.6 Most Relevant Sources

Emerald Publishing’s journal “International Journal of Bank Marketing” leads in the publishing of articles in the field with eight documents; they are followed by Springer’s Social Indicators Research with four articles, and two each by Wiley’s International Journal of Consumer Studies and Journal of Consumer Affairs, and Taylor and Francis’ European Journal of Finance. Figure 5 below displays the most productive journals in the field.

3.2 Themes identification from influential papers

Following Braun and Clarke (2012) and Fitz-Koch et al.’s (2018) studies, six themes were developed in answering the research questions (32–35). Table 2 provides a summary of the elements under each category. The detailed findings of these six developed themes utilized in these significant articles follows.

3.2.1 Financial Literacy and its determinants

Definition and Measurement of Financial Literacy

The existing body of literature underscores the ongoing discourse concerning the definition and measurement of financial literacy (44). Huston (2010) endeavored to develop a standardized metric for assessing financial literacy and explained financial literacy as an assessment of an individual’s comprehension and application of information pertaining to personal finance (40). Zhao and Zhang (2020) adopted Remund's (2010) definition, which highlights the comprehension of essential financial principles and the competency to oversee personal finances effectively (45,46). Lyons and Kass-Hanna (2021) further expanded this framework by incorporating the importance of digital literacy. The research indicates that financial literacy encompasses not only knowledge but also the skills and confidence necessary for managing financial resources effectively (47).

Shapers of Financial Literacy

Numerous studies have investigated the factors that affect the financial literacy of individuals over time. Gilenko and Chernova's (2021) study on the impact of financial literacy on the savings behavior of Russian high school students identified a number of variables, such as parental influence, educational resources, and socioeconomic background, that impact teenagers' degree of financial literacy. They found the greater a mother's educational level, the higher the chance of her adolescent being financially literate. This positive role of the parent’s education and influence confirms Philippas and Avdoulas (2020) earlier studies, where they found Greek university students whose fathers have upper high school degrees, BS degrees, or MS/PhD degrees have 3.5 times, 3.1 times, or 2.2 times, respectively, higher possibility of being financially literate than those whose fathers have no education (48,49).

Karakurum-Ozdemir et al. (2019) in their investigation to understand financial literacy and its variations among diverse demographic and socioeconomic cohorts in five developing countries found an individual’s level of education to be a significant determinant of financial literacy - with higher educational attainment linked to greater financial literacy (50). Their findings were confirmed by Mavlutova et al.’s (2022) investigation which discovered those with greater levels of education also have the highest levels of financial literacy and investment inclination in their research that aimed to investigate how the COVID-19 pandemic has affected Latvians' inclination to invest in assets that satisfy environmental, social, and governance (ESG) standards as well as variables affecting investors' decisions based on their level of financial literacy (51). Gilenko and Chernova (2021) further confirmed a strong positive correlation between higher academic achievement and financial literacy (48).

Additionally, Ward and Lynch (2019) examined how the division of financial responsibilities among romantic partners affects individual financial literacy over time. They found that in early-stage relationships, financial responsibility and financial literacy are unrelated; rather, it is influenced by factors such as free time availability, non-financial contributions to the relationship, and relative expertise in non-financial domains. As relationships progress, individuals with higher financial responsibility tend to increase their financial literacy, while those with lower responsibility do not experience similar growth. This suggests that individuals learn about finances on a "need-to-know" basis (52).

Meier and Sprenger (2013) also found a person's desire to pursue financial literacy is significantly influenced by their time preferences. This suggests that those who discount the future heavily are less inclined to invest in their financial education, with those who place a greater value on future rewards (those with a higher discount factor) likely to participate in financial education programs (53).

Karakurum-Ozdemir et al. (2019) also found a lack of proficiency in the official language to be a significant barrier to achieving financial literacy (50).

Gilenko and Chernova’s (2021) studies further found better performance at school, the use of digital tools such as ATMs, online wallet, knowledge of financial fraud, and access to mobile bank, and perceived financial literacy to significantly and positively relate to financial literacy. They as well found having a part-time job to significantly influence financial literacy (48).

Zhao and Zhang’s (2020 study demonstrated that parental financial socialization had stronger influences on the financial skills and financial self-efficacy aspects of financial literacy than financial knowledge suggesting that more attention should be paid to the practical and psychological dimensions of financial literacy when assessing the effectiveness of financial literacy programs (46).

3.2.2 Financial Well-Being and its predictors

Development of Concept: Financial Well-Being

Various studies have explored the concept of financial well-being. Mahendru (2020) proposed a comprehensive framework that integrates both objective and subjective dimensions of financial well-being. He explained financial well-being as an individual's capability to meet immediate monetary obligations and future needs (financial security), combined with their sense of financial autonomy (financial freedom) (54).

Collins and Urban (2021) found that financial well-being generally improves with age and income; however, it varies significantly across different demographic groups. They highlighted that negative financial events detrimentally impact well-being, while positive behaviors can enhance it (55).

Predictors of Financial Well-Being

The relationship between financial literacy and financial well-being has been a focal point in various studies. French and McKillop (2016), for instance, examined the role of money management skills and numeracy—key components of financial literacy—in influencing wealth disparities among low-income households. Their findings indicated that effective money management is a crucial determinant of consumer debt behavior and household net worth. Interesting, they noted that numeracy had a negligible influence on these outcomes. This relationship was especially strong after restricting the sample to individuals who are involved in household financial decision-making while accounting for potential endogeneity (56). In contrast to the negligible influence of numeracy on consumer debt behavior and household net worth found in French and McKillop’s (2016) research, Cole et al.’s (2016) research which focused on high school students found that more mathematics instruction promotes improved credit management, higher involvement in the financial markets, and high investment income (57). This divergence in outcomes indicates that more research is required to explore the underlying causes of this contradiction.

Chu et al.’s (2017) studies analyzed how financial literacy influences household portfolio selection and investment returns, which are critical measures of financial well-being. By categorizing financial literacy into basic and advanced levels as established in previous studies, (58,59), they found that households with higher levels of financial literacy, especially advanced literacy, had a greater propensity to invest in mutual funds. Conversely, households exhibiting overconfidence were more likely to invest solely in stocks rather than diversifying their portfolios with mutual funds. Notably, higher financial literacy was associated with a greater likelihood of positive investment returns (60).

In a different context, Philippas and Avdoulas (2020) explored the factors influencing financial well-being, financial fragility, and financial literacy among university students in Greece. They found male students, students who maintain comprehensive expense records, and those whose fathers possess a high level of education tend to exhibit a greater degree of financial literacy, and so demonstrate superior capacity to manage unexpected financial disruptions, highlighting its crucial role as a determinant of the financial well-being for university students (49).

Thomas and Gupta (2021) further researched how social theories and financial literacy could improve the financial well-being of workers. Their work emphasized the moderating effect of knowledge sharing, underscoring the crucial role that financial literacy plays in enhancing the overall financial wellness of employees (61).

Expanding on this theme, Sconti (2024) initially examined the influence of financial literacy on the capacity of households to effectively manage their financial obligations in Italy and subsequently investigated any differential impacts of financial literacy on female-headed households. The research found a strong correlation between higher financial literacy and an increased likelihood of meeting one's needs with ease. While the effect of financial literacy on financial stability was similar for both men and women, female homeowners were found to be approximately 10% less likely than their male counterparts to attain financial stability (62).

Additionally, Lone and Bhat (2024) researched the influence of financial literacy on the financial well-being of faculty members within business schools. They highlighted the mediating role of financial self-efficacy which was explained as the confidence of an individual to make informed financial decisions (63). Notably, they opted for subjective metrics for all constructs instead of objective metrics, due to the recognition of the intrinsic limitations associated with objective measures in capturing personal experiences. Their findings indicated that financial awareness exerted the most significant influence on financial self-efficacy among the three dimensions of financial literacy: financial awareness, financial experience, and financial skill. Furthermore, they discovered that financial self-efficacy explained 68% of the variance in financial well-being. This relationship suggests that while there is a direct link between financial literacy and financial well-being, it is partially mediated by financial self-efficacy (64).

In Mahdzan et al.’s (2022) investigation into the determinants of subjective financial well-being among low-income Malaysian households, they found that financial behavior had the largest effect compared to financial stress, financial literacy, and locus of control. This confirmed Zhao and Zhang’s (2020) earlier studies in which they found financial behavior had the strongest direct impact on an individual’s financial well-being in the USA (46). Surprisingly, while the impact of locus of control was minimal, they found an adverse correlation between financial literacy and subjective financial well-being, although the size of the effect was small. The researchers explained that for low-income individuals, higher knowledge about finances possibly might lead to more worry and dissatisfaction about their financial situation (65).

Also, Zhu and Xiao (2022) investigated the relationship between financial education and ownership of high-risk financial assets, while examining mediating factors. They determined that the quantity of high-risk financial assets possessed by a household exhibited a positive correlation with financial education. Moreover, they found this association was mediated by factors such as financial literacy, the pursuit of economic and financial knowledge, and risk tolerance (66).

Going on to another facet of financial well-being, Gilenko and Chernova’s study (2021) which examined the relationship between financial literacy and the saving behaviors of Russian high school students – a component of financial well-being revealed that neither student’s gender nor family income had a significant impact on savings; age, however, had a negative impact on saving (the univariate probit-model showed this effect to be significant at the 10% level). They also highlighted that a mother’s educational attainment positively influenced her teen's likelihood of being financially literate, which subsequently affected the teen's likelihood of saving money. Working a part-time job was statistically significant for the promotion of saving habits among students. The study, however, found higher academic achievement strongly correlated positively with financial literacy but did not directly impact saving behavior. The researchers concluded that being financially literate had a large positive and statistically significant impact on making savings - particularly when correcting for endogeneity effects (48).

3.2.3 Influence of Financial Socialization on Financial Well-Being

The influence of financial socialization on individuals’ financial well-being is another significant theme identified in the study. Drever and colleagues (2015) conducted a comprehensive review of the literature on key moments in human development where avenues of influence are likely to be most impactful on people’s financial well-being. They ascertained that enhancing executive function, notwithstanding its seemingly restricted financial scope, in early childhood; highlighting the development of financial attitudes through dual-generation financial modeling and educational initiatives for elementary and middle school children and their guardians; and teaching practical problem-solving skills and financial competencies in the later stages of adolescence and beyond were crucial moments of for effective financial socialization (67).

Utkarsh et al.’s (2020) study also investigated the influence of financial socialization – particularly, parental socialization, financial literacy, and attitudes towards monetary matters on the financial well-being of young adults with a mean age of 22 years in India. Their research indicated that parental discussions during childhood positively affect young adults' financial well-being. However, they found that the correlation between financial literacy and financial well-being is not statistically significant within this age group (68).

According to Zhao and Zhang's research from 2020, financial socialization from parents can greatly improve a person's financial well-being over the course of their lifetime. The results of the study demonstrated that parental financial socialization had a greater impact on financial self-efficacy and financial competence. The practical and psychological aspects of financial literacy were found to be significant predictors of people's financial behavior and financial well-being. They also discovered that standardized parameter estimates of financial skills and financial self-efficacy on financial behavior and financial well-being were higher than those of financial knowledge. Furthermore, they discovered that parental financial socialization might be greatly impacted by parents' educational attainment (46).

The positive impact of parental influence has also been confirmed by Philippas and Avdoulas (2020). They discovered that Greek university students with fathers who hold a BS degree or an MS/PhD degree have a 1 and 3 times, higher chance of having higher levels of financial well-being, respectively, compared to students whose fathers have no formal education (49).

3.2.4 Financial Literacy, Psychology, and Behavioral Economics

Another interesting area developing in the literature is the interplay of psychology, behavioral economics, and financial literacy. Aydin and Akben Selcuk’s (2019) study incorporated behavioral dynamics into the framework of financial literacy. Their studies revealed that individuals with higher financial knowledge tend to exhibit better financial attitudes and commendable financial behaviors. Additionally, they found individuals with a present-oriented mindset typically possess less favorable financial attitudes compared to their counterparts who prioritize future-oriented considerations. They also identified a strong negative link between people's feelings about money and their financial actions, suggesting that emotional perceptions can significantly influence financial decision-making (69).

The research by Utkarsh et al. (2020) connotes similar findings. The significance of psychological factors in financial outcomes is highlighted by their explanation of how an individual's attitude toward money, which they explain as the propensity of the individual to manage expenses and save money, serves as a strong predictor of financial well-being (68).

The findings of Tahir et al.’s (2021) studies built on the foregoing studies. They found that non-impulsive future-oriented behavior demonstrated a positive moderating effect on both financial literacy and financial well-being (70). Similarly, Kumar et al.’s (2023) study which explored behavioral characteristics affecting financial decision-making revealed impulsiveness weakens the connection between financial capability and making good financial decisions (71).

In another insightful study, Xia et al. (2014), examined the relationship between financial literacy overconfidence and participation in the stock market by incorporating psychological constructs. Measuring overconfidence by the discrepancy between the subjective and objective financial literacy scores of individuals, they found financial literacy overconfidence to be positively correlated with stock market participation, corroborating Chu et al.’s (2017) findings (72). This suggests that individuals who overestimate their financial literacy are more likely to engage in stock market activities.

Additionally, Riitsalu and Murakas (2019) studied how subjective and objective knowledge of finance, behavior in managing personal finances, and socioeconomic status affect financial well-being in Estonia. Their studies revealed that compared to objective information, subjective knowledge has a stronger correlation with financial well-being; income level and financial behavior score are related to overall financial well-being – later corroborated in Collins and Urban’s (2021) study; a higher knowledge score has little bearing on one's financial well-being; and a higher salary is associated with a better degree of financial well-being (73). Their findings on the impact of financial behavior were corroborated by Zhao and Zhang (2020), who found financial behavior to have the strongest direct impact on individuals in the United States’ financial well-being among the variables they examined (46)

3.2.5 Digital Financial Literacy in Contemporary Contexts

As digital platforms are becoming more necessary for managing finances (47), researchers have begun to explore innovative ways to improve their use for consumers’ financial well-being. Bayuk and Altobello (2019), for instance, investigated the role of gamification in motivating savings. Their research revealed that adding game-like features to financial applications significantly improves users’ motivation and overall financial well-being by fostering greater engagement with these tools (74).

Riitsalu and Murakas’s (2019) study added to the field by underscoring the importance of user experience with digital platforms. They noted that subjective knowledge – how individuals feel about their financial understanding - often has a stronger correlation to financial well-being than objective knowledge. This suggests that how we perceive and interact with digital tools can influence our financial well-being.

Expanding on this concept, Lyons and Kass-Hanna’s (2021) study highlighted that digital financial literacy is an essential catalyst for enhancing access to and engagement with digital financial products and services. When people feel confident in their digital financial skills, they are more likely to manage their finances effectively and make informed decisions (47). Choung et al.’s (2023) research further confirmed the positive impact of digital financial literacy on overall financial well-being. Their study revealed that, among the adult population in Korea aged 25 to 59, digital financial literacy has a positive relationship with financial well-being than traditional knowledge (75).

Additionally, Mahdzan et al. (2022) contributed to this research area by examining the moderating effect of the usage of digital financial services (DFS) on financial behavior and financial stress on subjective financial well-being. Their study found the two metrics of digital financial services’ usage, DFSApps and DFSUse,(especially that which focusses on e-payment systems) weaken the correlation between financial behavior and subjective financial well-being in Malaysian low-income households. DFS usage also lessened the negative effect of financial stress on subjective financial well-being (65).

3.2.6 Emerging Trends

The institutional context of financial well-being is another area of study explored in the literature. This is important for understanding how societal frameworks, infrastructure, and policies influence financial well-being. Fu (2020) explores this relationship by establishing a connection between financial well-being and institutional determinants. His empirical research underscores that, the possession of sufficient financial literacy by individuals notwithstanding, the structural and institutional characteristics inherent to financial sectors may either obstruct or facilitate financial well-being (76).

Alattar et al. (2018) offered a noteworthy summary of the Understanding America Study (UAS) - a valuable resource for panel data accessible in the US. Their study outlines the UAS methodology and offers guidance to researchers on how to adapt their surveys for incorporation into the UAS panel. This initiative aims to expand research on the interplay between financial literacy, personality traits, cognitive abilities, and other factors that shape financial behavior. Furthermore, it highlights the potential for randomized controlled trials (RCTs) to test financial education interventions (77).

Table 2. Themes and their relevant studies

The recommendations from the examined articles form the basis of this section's agenda for further research on the relationship between financial literacy and financial well-being. First and foremost, it is recommended that scholars investigate the long-term impacts of financial literacy on the financial well-being of households. By conducting longitudinal studies, scholars can monitor the ways in which financial education affects family dynamics and decision-making over time. These studies will yield priceless insights about the most successful interventions and how to modify them to suit the different needs of different populations. Additionally, investigating how student debt affects financial well-being is crucial, as there are major policy implications in this area. Understanding the effects of student debt on individuals can empower families with more confidence and competence in navigating their financial situations.

Also, longitudinal research that tracks changes in financial literacy and financial responsibility within relationships over time is crucial. Examining the vulnerabilities that emerge when people who lack formal financial training are compelled to make their own financial decisions is part of this, especially when major life upheavals like divorce or widowhood occur. The results of this study may lead to customized support systems that assist people in making informed decisions during these pivotal moments.

It is crucial to understand how cultural backgrounds impact financial norms and practices as well as how peers affect the financial literacy of young adults. Researchers can develop educational efforts that leverage peer influence and cultural contexts to promote positive financial outcomes by having a better understanding of these linkages. Further, studying the effects of allowances on behavior, financial literacy, and general well-being may shed more light on how financial abilities are developed early in life.

Scholars need to investigate every facet of digital financial literacy as technology continues to influence our daily lives. This entails examining the ways in which various demographic groups' financial behavior and literacy are impacted by digital platforms including social media, online courses, and applications. Future studies ought to assess how well gamification and other digital tactics work in practical contexts. For the purpose of creating inclusive programs that empower people financially, it will be crucial to look into how these digital initiatives affect financial behavior.

4.1 Limitations of the study

One limitation of the study is that it only included publications from the Scopus database, which might not cover all pertinent research on financial well-being and literacy. Significant research that was released in other media or databases (such as books or conference proceedings) were not included. Furthermore, by restricting the search to English-language publications, the study might have missed important research done in other languages, which could have introduced a bias in comprehending financial literacy in other circumstances. Furthermore, the criterion of a minimum annual average citation of 10 (or 5 for studies published in 2024) may have resulted in the omission of worthwhile but under-cited studies that offer crucial insights into financial wellbeing and literacy. Subjectivity could also be introduced into the process of removing papers because various academics may have different ideas about what constitutes a relevant study, which could have an impact on the final selection of articles.

4.2 Conclusion

Notwithstanding its limitations, this systematic literature review has found moderate evidence that answers the research questions. The research has demonstrated that several studies have consistently revealed financial well-being to be significantly influenced by financial literacy (49,60–62).

The following key themes have been observed in the studies: financial literacy and its determinants; the influence of financial literacy on financial well-being; the impact of financial socialization on financial well-being; the interplay of financial literacy, psychology, and behavioral economics; digital financial literacy in contemporary contexts, and emerging trends.

The review also discovered other variables to also have a pronounced effect on financial well-being. Financial behavior was found by Zhao and Zhang (2020) to have a very strong direct influence on an individual’s financial well-being (46). This was confirmed by Collins and Urban’s (2021) study. Additionally, behavioral elements such as non-impulsive future-oriented behavior and impulsiveness have been found to influence financial well-being. Tahir et al.’s (2021) study revealed a positive moderating influence of non-impulsive future-oriented behavior on both financial literacy and financial well-being (70). Drever et al. (2015), Utkarsh et al. (2020), Zhao and Zhang (2020), and Philippas and Avdoulas’ (2020) studies also found family financial socialization to have a significant influence on the financial well-being of various individuals (46,49,49,67,78). More mathematics instruction in high school was also discovered to promote credit management, higher involvement in financial markets, and high investment income (67).

Lastly, this systematic literature review serves as a core resource for ongoing studies into the relationship between financial literacy and financial well-being, and presents important suggestions for future research to enhance the knowledge in the area.

Registration of the protocol: A protocol was not prepared.

Support: No external funding

Conflict of interest: None declared

Availability of data: The authors are prepared to provide data upon formal request. Moreover, the authors express their readiness to deposit the data in an endorsed repository should the journal necessitate such an action.

Author contribution: Prince Kwabena Agyemang Antwi and Dr. Bismark Addai were responsible for the conceptualization of the research. Prince Kwabena Agyemang Antwi and Maxwell Tetteh Kubi were responsible for the descriptive analysis, and together with Bismark Addai applied the PRISMA guidelines for the systematic literature review. Prince Kwabena Agyemang Antwi handled the software analysis with R-Biblioshiny and VoSviewer. Dr. Evans Duah was involved in the investigation process, data/evidence collection. Visualization and writing of the original draft were done by Prince Kwabena Agyemang Antwi. Review and editing pre-publication stages was handled by Prince Kwabena Agyemang Antwi, Maxwell Tetteh Kubi, and Dr. Evans Duah. Dr. Evans Duah handled the project administration, and availability of resources. This research work was supervised by Dr. Bismark Addai. All authors approved the final draft for submission to the journal.

Conger R. The Effects of Poverty and Economic Hardship across Generations. 2005 Jan 1;
Lee H. Family economic hardship and children’s behavioral and socio-emotional outcomes in middle childhood: Direct and indirect pathways. Children and Youth Services Review. 2022 Jul 1;138:106527.
Woodford M, Mammen S. Escaping Poverty: Rural Low-Income Mothers’ Opportunity to Pursue Post-Secondary Education. Career and Technical Education Research. 2010 Jan 1;35(2):81–102.
Becker GS. Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education. University of Chicago Press; 2009. 413 p.
Klapper L, Lusardi A, Panos GA. Financial literacy and its consequences: Evidence from Russia during the financial crisis. Journal of Banking & Finance. 2013 Oct 1;37(10):3904–23.
Lusardi A. Financial Literacy: An Essential Tool for Informed Consumer Choice? [Internet]. National Bureau of Economic Research; 2008 [cited 2024 Sep 28]. (Working Paper Series). Available from: https://www.nber.org/papers/w14084
Schuchardt J, Hanna SD, Hira TK, Lyons A, Palmer L, Xiao JJ. Financial Literacy and Education Research Priorities [Internet]. Rochester, NY; 2013 [cited 2024 Sep 28]. Available from: https://papers.ssrn.com/abstract=2225370
Aren S, Aydemir SD. A LITERATURE REVIEW ON FINANCIAL LITERACY. JFRS. 2015 Jan 27;6(11):33–49.
Ingale KK, Paluri RA. Financial literacy and financial behaviour: a bibliometric analysis. Review of Behavioral Finance. 2020 Jan 1;14(1):130–54.
Mitchell OS, Lusardi A. Financial Literacy and Economic Outcomes: Evidence and Policy Implications. J Retire. 2015;3(1):107–14.
Altman M. What Behavioural Economics Has to Say about Financial Literacy. Applied Finance Letters. 2013 Jun 30;2(1):12–7.
Brüggen EC, Hogreve J, Holmlund M, Kabadayi S, Löfgren M. Financial well-being: A conceptualization and research agenda. Journal of Business Research. 2017 Oct 1;79:228–37.
Hastings JS, Madrian BC, Skimmyhorn WL. Financial Literacy, Financial Education, and Economic Outcomes. Annual Review of Economics. 2013 Aug 2;5(Volume 5, 2013):347–73.
Mahendru M, Sharma GD, Pereira V, Gupta M, Mundi HS. Is it all about money honey? Analyzing and mapping financial well-being research and identifying future research agenda. Journal of Business Research. 2022 Nov 1;150:417–36.
Niţoi M, Clichici D, Zeldea C, Pochea MM, Ciocîrlan C. Financial Well-Being and Financial Literacy in Romania [Internet]. Rochester, NY; 2022 [cited 2024 Sep 29]. Available from: https://papers.ssrn.com/abstract=4058280
Rutledge SL. Consumer Protection And Financial Literacy : Lessons From Nine Country Studies [Internet]. The World Bank; 2010 [cited 2024 Sep 29]. (Policy Research Working Papers). Available from: https://hdl.handle.net/10986/3816
Miller M, Reichelstein J, Salas C, Zia B. Can You Help Someone Become Financially Capable? A Meta-Analysis of the Literature. The World Bank Research Observer. 2015 Aug 1;30(2):220–46.
Sehrawat K, Vij M, Talan G. Understanding the Path Toward Financial Well-Being: Evidence From India. Front Psychol [Internet]. 2021 Jul 21 [cited 2024 Sep 29];12. Available from: https://www.frontiersin.org/journals/psychology/articles/10.3389/fpsyg.2021.638408/full
Arpana D, Swapna HR. ROLE OF PLANNING AND RISK TOLERANCE AS INTERVENING CONSTRUCTS BETWEEN FINANCIAL WELL-BEING AND FINANCIAL LITERACY AMONG PROFESSIONALS. IJEFI. 2020 Sep 1;10(5):145–9.
Prakash N, Alagarsamy S, Hawaldar A. Demographic characteristics influencing financial wellbeing: a multigroup analysis. Managerial Finance. 2022 Jan 1;48(9/10):1334–51.
Riitsalu L, van Raaij WF. Current and Future Financial Well-Being in 16 Countries. Journal of International Marketing. 2022 Sep 1;30(3):35–56.
Chettri DP, Mothey A, Chhetri DM. An Empirical Analysis Of Financial Literacy And Its Impact On Financial Wellbeing. Educational Administration: Theory and Practice. 2024 Mar 14;30(3):2194–203.
T G, Ganesan S. Impact of Financial Education and Literacy on Investment Behaviour. IJRASET. 2023 Nov 30;11(11):2668–87.
Page MJ, McKenzie JE, Bossuyt PM, Boutron I, Hoffmann TC, Mulrow CD, et al. The PRISMA 2020 statement: an updated guideline for reporting systematic reviews. BMJ. 2021 Mar 29;372:n71.
Schotten M, Aisati M el, Meester WJN, Steiginga S, Ross CA. A Brief History of Scopus: The World’s Largest Abstract and Citation Database of Scientific Literature. In: Research Analytics. Auerbach Publications; 2017.
Alfandari R, Taylor BJ. Systematic Bibliographic Database Searching for Literature Reviews: Case Study on Child Protection Decision-Making. The British Journal of Social Work. 2022 Jan 15;52(1):518–35.
Dhingra B, Batra S, Aggarwal V, Yadav M, Kumar P. Stock market volatility: a systematic review. Journal of Modelling in Management. 2023 Jan 1;19(3):925–52.
Yadav M, Saini M. Environmental, Social and Governance Literature: A Bibliometric Analysis. International Journal of Managerial and Financial Accounting. 2022 Jan 1;1.
Cao Y, Gong F, Zeng T. Antecedents and Consequences of Using Social Media for Personal Finance. J Financ Couns Plann. 2020;31(1):162–76.
Antwi SA, Antwi PKA, Adarkwa SA, Mensah KB, Woode E. The impact of diclofenac suppositories on postcesarean section pain: a systematic literature review [Internet]. 2024 [cited 2024 Sep 27]. Available from: https://www.researchsquare.com/article/rs-4969765/v2
Suhrcke M, Stuckler D, Suk JE, Desai M, Senek M, McKee M, et al. The Impact of Economic Crises on Communicable Disease Transmission and Control: A Systematic Review of the Evidence. PLOS ONE. 2011 Jun 10;6(6):e20724.
Braun V, Clarke V. Conceptual and design thinking for thematic analysis. Qualitative Psychology. 2022;9(1):3–26.
Braun V, Clarke V. Thematic analysis. In: APA handbook of research methods in psychology, Vol 2: Research designs: Quantitative, qualitative, neuropsychological, and biological. Washington, DC, US: American Psychological Association; 2012. p. 57–71. (APA handbooks in psychology®).
Clarke V, Braun V. Thematic analysis. The Journal of Positive Psychology. 2017 May 4;12(3):297–8.
Fitz-Koch S, Nordqvist M, Carter S, Hunter E. Entrepreneurship in the Agricultural Sector: A Literature Review and Future Research Opportunities. Entrepreneurship Theory and Practice. 2018 Jan 1;42(1):129–66.
Ejaz H, Zeeshan HM, Ahmad F, Bukhari SNA, Anwar N, Alanazi A, et al. Bibliometric Analysis of Publications on the Omicron Variant from 2020 to 2022 in the Scopus Database Using R and VOSviewer. International Journal of Environmental Research and Public Health. 2022 Jan;19(19):12407.
Fan J, Gao Y, Zhao N, Dai R, Zhang H, Feng X, et al. Bibliometric Analysis on COVID-19: A Comparison of Research Between English and Chinese Studies. Front Public Health [Internet]. 2020 Aug 14 [cited 2024 Sep 30];8. Available from: https://www.frontiersin.org/journals/public-health/articles/10.3389/fpubh.2020.00477/full
Nurdin BV, Hutagalung SS, Yulianto, Kurniawan RC, Hermawan D. Bibliometric Analysis on Governance Index Topics Using Scopus Database and Vosviewer. J Phys: Conf Ser. 2021 Jun;1933(1):012047.
Shah SHH, Lei S, Ali M, Doronin D, Hussain ST. Prosumption: bibliometric analysis using HistCite and VOSviewer. Kybernetes. 2019 Jan 1;49(3):1020–45.
Huston SJ. Measuring Financial Literacy. J Consum Aff. 2010;44(2):296–316.
Kumar P, Pillai R, Kumar N, Tabash MI. The interplay of skills, digital financial literacy, capability, and autonomy in financial decision making and well-being. Borsa Istanbul Review. 2023 Jan 1;23(1):169–83.
Xiao JJ, Porto N. Financial education and financial satisfaction: Financial literacy, behavior, and capability as mediators. International Journal of Bank Marketing. 2017 Jan 1;35(5):805–17.
Chiaramonte L, Dreassi A, Piserà S, Khan A. Mergers and acquisitions in the financial industry: A bibliometric review and future research directions. Research in International Business and Finance. 2023 Jan 1;64:101837.
Mende M, Van Doorn J. Coproduction of Transformative Services as a Pathway to Improved Consumer Well-Being: Findings From a Longitudinal Study on Financial Counseling. Journal of Service Research. 2015 Aug;18(3):351–68.
Remund DL. Financial Literacy Explicated: The Case for a Clearer Definition in an Increasingly Complex Economy. Journal of Consumer Affairs. 2010;44(2):276–95.
Zhao H, Zhang L. Talking money at home: the value of family financial socialization. Int J Bank Mark. 2020;38(7):1617–34.
Lyons A, Kass-Hanna J. A Methodological Overview to Defining and Measuring “Digital” Financial Literacy. Financial Planning Review. 2021 Jun 9;4:1–19.
Gilenko E, Chernova A. Saving behavior and financial literacy of Russian high school students: An application of a copula-based bivariate probit-regression approach. Child Youth Serv Rev [Internet]. 2021;127. Available from: https://www.scopus.com/inward/record.uri?eid=2-s2.0-85108297428&doi=10.1016%2fj.childyouth.2021.106122&partnerID=40&md5=6978dd760f677e8be2e894610e0ec8b1
Philippas ND, Avdoulas C. Financial literacy and financial well-being among generation-Z university students: Evidence from Greece. The European Journal of Finance. 2020 Mar 23;26(4–5):360–81.
Karakurum-Ozdemir K, Kokkizil M, Uysal G. Financial Literacy in Developing Countries. Soc Indic Res. 2019 May 1;143(1):325–53.
Mavlutova I, Fomins A, Spilbergs A, Atstaja D, Brizga J. Opportunities to Increase Financial Well-Being by Investing in Environmental, Social and Governance with Respect to Improving Financial Literacy under COVID-19: The Case of Latvia. Sustainability. 2022 Jan;14(1):339.
Ward AF, Lynch JG. On a need-to-know basis: How the distribution of responsibility between couples shapes financial literacy and financial outcomes. J Consum Res. 2019;45(5):1013–36.
Meier S, Sprenger CD. Discounting financial literacy: Time preferences and participation in financial education programs. Journal of Economic Behavior & Organization. 2013 Nov 1;95:159–74.
Mahendru M. Financial well-being for a sustainable society: a road less travelled. Qualitative Research in Organizations and Management: An International Journal. 2020 Jan 1;16(3/4):572–93.
Collins JM, Urban C. Measuring financial well-being over the lifecourse. In: Financial Literacy and Responsible Finance in the FinTech Era. Routledge; 2021.
French D, McKillop D. Financial literacy and over-indebtedness in low-income households. Int Rev Financ Anal. 2016;48:1–11.
Cole S, Paulson A, Shastry GK. High school curriculum and financial outcomes: The impact of mandated personal finance and mathematics courses. J Hum Resour. 2016;51(3):656–98.
Lusardi A, Mitchell OS. Financial Literacy and Planning: Implications for Retirement Wellbeing [Internet]. National Bureau of Economic Research; 2011 [cited 2024 Sep 18]. (Working Paper Series). Available from: https://www.nber.org/papers/w17078
van Rooij M, Lusardi A, Alessie R. Financial literacy and stock market participation. Journal of Financial Economics. 2011 Aug 1;101(2):449–72.
Chu Z, Wang Z, Xiao JJ, Zhang W. Financial Literacy, Portfolio Choice and Financial Well-Being. Soc Indic Res. 2017;132(2):799–820.
Thomas A, Gupta V. Social Capital Theory, Social Exchange Theory, Social Cognitive Theory, Financial Literacy, and the Role of Knowledge Sharing as a Moderator in Enhancing Financial Well-Being: From Bibliometric Analysis to a Conceptual Framework Model. Front Psychol [Internet]. 2021 May 21 [cited 2024 Aug 28];12. Available from: https://www.frontiersin.org/journals/psychology/articles/10.3389/fpsyg.2021.664638/full
Sconti A. Having Trouble Making Ends Meet? Financial Literacy Makes the Difference. Italian Economic J. 2024;10(1):377–408.
Netemeyer RG, Warmath D, Fernandes D, Lynch JG. How Am I Doing? Perceived Financial Well-Being, Its Potential Antecedents, and Its Relation to Overall Well-Being. Fischer E, Toubia O, editors. Journal of Consumer Research. 2018 Jun 1;45(1):68–89.
Lone UM, Bhat SA. Impact of financial literacy on financial well-being: a mediational role of financial self-efficacy. J Financ Serv Mark. 2024 Mar 1;29(1):122–37.
Mahdzan N, Sabri MF, Abd. Rahim H, Magli A, Chowdhury N. Digital financial services usage and subjective financial well-being: evidence from low-income households in Malaysia. International Journal of Bank Marketing. 2022 Dec 26;41.
Zhu T, Xiao JJ. Consumer financial education and risky financial asset holding in China. Int J Consumer Studies. 2022 Jan;46(1):56–74.
Drever AI, Odders‐White E, Kalish CW, Else‐Quest NM, Hoagland EM, Nelms EN. Foundations of Financial Well‐Being: Insights into the Role of Executive Function, Financial Socialization, and Experience‐Based Learning in Childhood and Youth. Journal of Consumer Affairs. 2015 Mar;49(1):13–38.
Utkarsh D, Pandey A, Ashta A, Spiegelman E, Sutan A. Catch Them Young: Impact of Financial Socialization, Financial Literacy and Attitude Toward Money on Financial Well-being of Young Adults. International Journal of Consumer Studies. 2020 Mar 31;44.
Aydin AE, Akben Selcuk E. An investigation of financial literacy, money ethics and time preferences among college students. International Journal of Bank Marketing. 2019 Jan 1;37(3):880–900.
Tahir MS, Ahmed AD, Richards DW. Financial literacy and financial well-being of Australian consumers: a moderated mediation model of impulsivity and financial capability. IJBM. 2021 Oct 28;39(7):1377–94.
Kumar P, Islam MA, Pillai R, Sharif T. Analysing the behavioural, psychological, and demographic determinants of financial decision making of household investors. Heliyon [Internet]. 2023 Feb 1 [cited 2024 Aug 27];9(2). Available from: https://www.cell.com/heliyon/abstract/S2405-8440(23)00292-X
Xia T, Wang Z, Li K. Financial Literacy Overconfidence and Stock Market Participation. Soc Indic Res. 2014 Dec;119(3):1233–45.
Riitsalu L, Murakas R. Subjective financial knowledge, prudent behaviour and income: The predictors of financial well-being in Estonia. International Journal of Bank Marketing. 2019 Jan 1;37(4):934–50.
Bayuk J, Altobello S. Can gamification improve financial behavior? The moderating role of app expertise. International Journal of Bank Marketing. 2019 Feb 28;37.
Choung Y, Chatterjee S, Pak TY. Digital financial literacy and financial well-being. Finance Research Letters. 2023 Dec;58:104438.
Fu J. Ability or opportunity to act: What shapes financial well-being? World Development. 2020 Apr 1;128:104843.
Alattar L, Messel M, Rogofsky D. An introduction to the understanding America study internet panel. Soc Secur Bull. 2018;78(2):13–26.
Utkarsh D, Pandey A, Ashta A, Spiegelman E, Sutan A. Catch Them Young: Impact of Financial Socialization, Financial Literacy and Attitude Toward Money on Financial Well-being of Young Adults. International Journal of Consumer Studies. 2020 Mar 31;44.

The authors declare no competing interests.

Appendix1.OverviewofmaininformationfromBiblioshiny.docx
Appendix 1. Overview of main information from Biblioshiny
Appendix2.Mostinfluentialscholarsinthefield.docx
Appendix 2. Most influential scholars in the field

Download PDF

Version 1

posted

You are reading this older preprint version

Read the latest preprint version →

The impact of financial literacy on financial well-being: a systematic literature review

Status:

Version 1

Abstract

Figures

1.0 Rationale

2.0 Methods

3.0 Results

4.0 Recommendations for future research

Declarations

References

Additional Declarations

Supplementary Files

Status:

Version 1