‘Financial capability’ key to a longer, healthier life

LAWRENCE, Kan. — Money may not buy happiness, but it just might help with health. Researchers from the University of Kansas report that financial capability can act as a social determinant of overall health.

Defined as the combination of both financial literacy and financial access, financial capability appears to predict health outcomes when viewed separately from other commonly studied socioeconomic factors like income, education, employment, race, and gender. Study authors say their findings strongly reinforce the importance of accounting for both financial literacy (or the ability to act) and financial access (the opportunity to act) when considering the whole of health research and the development of future policies aimed at improving health across populations.

Prior financial capability research had largely focused on individual financial knowledge and skills. Similarly, when considering possible links between health and finances, these projects have mostly focused on socioeconomic factors. So, Sicong “Summer” Sun, assistant professor of social welfare at KU, decided to conduct a study analyzing the link between financial capability and well-being using a nationally representative survey.

“Marginalized people have historically been excluded from mainstream financial services. All individuals and households should have accessible and affordable ways to deposit, save, invest and access affordable credit and insurance products they need. My argument is that improving people’s financial capability is actionable, practical and modifiable in ways that may advance racial, social, economic and health equity in society,” Prof. Sun says in a university release.

Who’s struggling with financial capability?

This study, co-authored by Yu-Chih Chen of the University of Hong Kong, featured an analysis encompassing data from the 2012 National Financial Capability Study, linked with the 2012 and 2016 American Life Panel Effects of the Financial Crisis Survey. These nationally representative samples of more than 3,800 Americans allowed researchers to measure financial capability through the assessment of people’s levels of financial literacy, access, and education. The team measured access by asking participants if they had checking and savings accounts, retirement plans, and credit cards. They measured literacy by determining if each person was good at math, good at day-to-day financial matters, and through self-rated financial knowledge and responses to a six-question financial literacy test.

The researchers assessed the group’s health according to five factors: life satisfaction, self-rated health, levels of depression, feelings of being worn out, and overall happiness. The participants answered these questions once in 2012, and then again in 2016. The ensuing results suggest those who had higher financial capability also had better health outcomes. Participants who were male, had a college degree, were married, employed, and insured displayed especially higher levels of financial capability. Also, in comparison to non-Hispanic white participants, Black, Hispanic, and those belonging to other racial groups showed lower financial capability levels.

Which is more important? Access or literacy?

As far as study authors can tell, this project is the first ever to analyze the link between financial capability and health both theoretically and empirically. The findings display a clear link between the two, emphasizing the need for more research on these topics.

“Focusing on both individual skills and knowledge and structural access, we considered historical drivers of unequal distribution of financial access and resources. We also discussed theoretical framework of how financial capability can be considered as upstream, fundamental determinants of health.” Prof. Sun explains. “I think we need to look at financial capability on a wider scale, both at a structural and individual level. In a related study, I found that financial access plays a more pronounced role in shaping financial stability and wellbeing, compared to financial literacy. In other words, both ability and opportunity matter, but structural opportunity matters more.”

What do people need to gain more financial health?

Besides just adding further empirical evidence indicating a link between financial capability and health outcomes, this project also opens up the possibility of further research on structural, community-wide links between financial measures and health outcomes. Study authors add this work also highlights the value of social work and public health practitioners and policy makers integrating financial services and health services.

“For example, services could provide financial coaching, credit counseling, financial resources and guidance in clinic settings,” the study authors write. “Financial assessments could be integrated alongside health and psychological assessments into human service protocols, given the fundamental role of financial capability in shaping people’s physical and psychological health outcomes.”

This project also emphasizes that policies constructed to improve financial inclusion are key to population health. An individual’s financial capability is determined by both their personal knowledge and skills as well as the availability of financial policies, products, and services. Such services should be widely available to all communities across demographics.

“We need to focus on the structural access and not just on skills or knowledge a person might have,” Prof. Sun concludes. “And it’s important for researchers to continue gathering data in this area. I see financial capability as a universal need, not just to improve people’s financial well-being, but for improving population health and well-being.”

The study is published in the Journal of Family and Economic Issues.

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