Impact of financial literacy on financial well-being: a mediational role of financial self-efficacy

Abstract

The purpose of this paper is to explore the impact of financial literacy on financial well-being among the business school faculties. Both the variables (financial literacy and financial well-being) are operationalized as multi-dimensional constructs to undertake the study. Moreover, the paper also endeavored to examine the mediating role of financial self-efficacy between financial literacy and financial well-being. The paper adopts a survey by questionnaire method to gather data from 203 business school faculty members through the simple random sampling (SRS) technique. Confirmatory factor analysis was used for scale validation, and structural equation modeling was used for hypotheses testing. Mediation was tested using percentile bootstrap with a 95% confidence interval. The study found a significantly positive impact of financial literacy as well as its dimensions on financial self-efficacy and financial well-being. It was also found that financial self-efficacy partially mediates the effect of financial literacy on financial well-being. Measurement of the constructs was done on subjective measures, and the study is limited to business school faculties only. The present research findings could be employed in crafting educational programs for business schools. These programs shall guide such institutions in imparting the knowledge and skills among students regarding their personal finances in terms of savings and retirement planning. The study was focused on the business school faculties of the Jammu and Kashmir region, who are less exposed to the financial literacy programs due to factors like frequent lockdown and internet shutdowns. Moreover, it is generally witnessed that salaried class people in Jammu and Kashmir pay less attention to long-term financial planning for retirement, which makes the present study more relevant. Therefore, this study will prove beneficial to all the employees, especially the business school faculties, to understand the importance of financial literacy and its subsequent effect on financial well-being.

Financial self‐efficacy of consumers: A review and research agenda

“…The antecedents of FSE shape consumers' perceptions, thoughts, and beliefs about their financial capabilities and have a notable impact on the advancement and sustenance of the research field. Following a thorough review of the literature, we identified numerous predictors of FSE, including financial literacy (Brady et al, 2021; Herawati et al, 2020), financial knowledge (Salas‐Velasco, 2022), student loan literacy (Brady et al, 2021), financial awareness (Lone & Bhat, 2022; Mindra & Moya, 2017), financial experience (Hoffmann & Plotkina, 2021; Lone & Bhat, 2022), among others. In an ever‐evolving and complex financial landscape, financial literacy and self‐efficacy have emerged as essential skills for consumers to navigate economic challenges successfully (Herawati et al, 2020).…”

“…Consumer Financial Protection Bureau (CFPB) (2015) defines FWB as “a state of being wherein a person can fully meet current and ongoing financial obligations, can feel secure in their financial future, and is able to make choices that allow them to enjoy life.” However, the literature provides limited insights regarding the causal relationship between FSE and FWB. Despite this, a limited number of studies (Lone & Bhat, 2022; Oquaye et al, 2022) have explored the association between FSE and FWB, indicating a positive relationship between the two constructs. Brüggen et al (2017) conducted a comprehensive study that expounds on the intricate and dynamic construct framework of FWB.…”

“…However, the literature provides limited insights regarding the causal relationship between FSE and FWB. Despite this, a limited number of studies (Lone & Bhat, 2022;Oquaye et al, 2022) appears as a significant predictor of beliefs about CSR initiatives. Consequently, the confluence of these elements plays a critical role in developing the cognitive framework within which individuals form their perceptions and evaluations of a bank's engagement in CSR initiatives.…”

“…This section discusses the methodology and several analytical techniques utilized in 64 empirical investigations succinctly outlined in (Brooks & Williams, 2022;Furrebøe et al, 2023;Grimes et al, 2022;Noor et al, 2020;Reyers, 2019) and Ordinary Least Squares regression (Asebedo & Seay, 2018;Brady et al, 2021;Montford & Goldsmith, 2016;Salas-Velasco, 2022) followed by structural equation modeling (Asebedo et al, 2022;Bhatia et al, 2021;Fan, 2023;Hentzen et al, 2022;Kim, Falconier, & Conway, 2023;Lone & Bhat, 2022;Mathew et al, 2022;Oquaye et al, 2022).…”

“…However, FSE has been observed to fully mediate the relationship between individual investors' personality traits and their intention to invest in the Indian stock markets (β = .59, p < .05;Akhtar & Das, 2019). Another study conducted byLone and Bhat (2022) revealed that financial literacy exerted a considerable positive influence on FWB, both directly and indirectly, through the mediating role of FSE (β = .234, p < .001). Like-…”