Financial Capability and Psychosocial Well-Being James Kunz, PhD, Associate Professor, McDaniel College, and Christine Callahan, PhD, LCSW-C, Research Assistant Professor, University of Maryland School of Social Work/Financial Social Work Initiative BACKGROUND A growing body of research has been aimed at understanding and improving financial capability, defined by Johnson and Sherraden (2007) as the ability to act (knowledge, skills, confidence, and motivation) combined with the opportunity to act (access to beneficial financial services and products). While it is known that financial capability is associated with socio-economic status and other demographics (FINRA Investor Education Foundation, 2013), very little is known about the connection between financial capability and psychosocial well-being. Recent research has begun to relate subjective well-being, a component of psychosocial well-being, to issues of financial capability. For instance, Ifcher and Zarghamee (2011) found that individuals with lower well-being and negative affect were less willing to forego a smaller benefit in the present to obtain a larger benefit in the future. Guven (2012) found that those with lower subjective well-being tended to spend more, save less, and also to take less time when making important financial decisions. Together, these two studies suggest that low levels of subjective well-being are associated with diminished financial capability. These studies used data from the Netherlands and Germany, and while useful, neither study is generalizable to the U.S. population. The researchers do not know of any nationally representative U.S. study to date that examines the relationship between subjective well-being and financial capability. This poster reports findings from a research project, funded by the FINRA Investor Education Foundation, to explore the relationship between financial capability and psychosocial well-being. In particular, we examine the relationship between two measures of financial capability and subjective well-being. We hypothesize that lower levels of subjective well-being are associated with diminished financial capability. METHODOLOGY Data Sources & sample characteristics: We use data that was obtained in 2012 when the National Financial Capability Survey (which was designed and implemented by the FINRA Investor Education Foundation to measure financial capability and status) was administered to RAND’s American Life Panel (ALP), a nationally representative sample of adults 18+ who have agreed to participate in occasional online surveys. We merged this data with earlier waves of the ALP that contains information about the psychosocial well-being of the respondents. Our sample consists of 1,758 individuals who were administered both waves. Variables & Analysis: To measure subjective well-being, we use Diener’s Satisfaction with Life Scale, a five- item scale that yields a score of 5 to 35. Following earlier work, we distinguish between those who were dissatisfied or extremely dissatisfied (scores of 5 through 14), those who were satisfied or extremely satisfied (scores of 26 through 35), and those who were neither (scores of 15 through 25) (Diener, Emmons, Larsen, & Griffin, 1985). We examine two measures of financial capability: (1) whether respondents agreed that they were good at dealing with day-to-day financial matters; and (2) whether they had ever tried to figure how much they needed for retirement (asked of those not yet retired). We use chi-square analysis to compare the association between our measure of subjective well-being and each of our two measures of financial capability. RESULTS Subjective well-being was negatively associated with both measures of financial capability. Overall, 75% of sample respondents agreed that they were good at dealing with day-to-day financial matters. As shown below, however, 60% of those who were dissatisfied with life agreed with this statement, 70% of who were neither dissatisfied or satisfied agreed, and 83% of those who were satisfied with life agreed that they were good at dealing with day-to- day financial matters (p<.001). Life satisfaction was also associated with having figured out how much was needed for retirement. Overall, 44% of sample respondents had made this calculation: 33% of those who were dissatisfied, 39% of those who were neither satisfied or dissatisfied, and 52% of those who were satisfied with life (p<.001).. IMPLICATIONS Results suggest that interventions aimed at improving financial capability need to take into account the psychosocial well-being of individuals and families that are the target of these interventions. From a practice perspective, the results suggest that it is important to assure that vulnerable families have access to financial services, but equally important that their ability to act to improve their financial situation is enhanced. Practitioners should incorporate psychosocial well-being into their work as well. This research was supported by a grant from the FINRA Investor Education Foundation. All results, interpretations and conclusions expressed are those of the research team alone, and do not necessarily represent the views of the FINRA Investor Education Foundation or any of its affiliated companies. No portion of this work may be reproduced, cited, or circulated without the express written permission of the author(s). REFERENCES Diener, E., Emmons, R. A., Larsen, R. J., & Griffin, S. (1985). The Satisfaction With Life Scale. Journal of Personality Assessment, 49(1), doi: /s jpa4901_13 FINRA Investor Education Foundation. (2013). Financial capability in the United States: Report of findings from the 2012 National Financial Capability Study. Washington, DC: Author. Johnson, E., & Sherraden, M.S. (2007). From financial literacy to financial capability among youth. Journal of Sociology and Social Welfare, 34(3), The FINRA Investor Education Foundation, established in 2003 by FINRA, supports innovative research and educational projects that give underserved Americans the knowledge, skills and tools necessary for financial success throughout life. For details about grant programs and other FINRA Foundation initiatives, visit