Financial Capability : Literacy, Behavior, and Distress

In this piece of research, we inspect the influence of individual financial knowledge and financial behavior on the probability of experiencing financial distress. Using the 2015 National Financial Capability Study, we examine three measures of financial distress related to bill payment, retirement saving, and being late with a mortgage payment. Financial literacy and financial behavior indices are constructed using questions from the survey pertaining to financial knowledge (ranging in complexity) and financial decision-making. In addition to the influence of socioeconomic factors, the conclusion suggests that financial literacy is important for the prevention of financial hardships, albeit, financial behavior emerges as having a stronger impact.