The Mediating Role of Financial Self-Efficacy in the Financial Capability of Low-Income Families

21 Pages Posted: 20 Aug 2015

See all articles by David Rothwell

David Rothwell

Oregon State University - School of Social and Behavioral Health Sciences; McGill University - School of Social Work

Mohammad Nuruzzaman Khan

University of Manitoba - Faculty of Social Work

Katrina Cherney

McGill University

Date Written: August 14, 2015

Abstract

Social work is leading the development and application of financial capability to promote financial security among low-income families, yet little is known how the components of financial capability theory explain savings. This article operationalizes three constructs of financial capability: objective knowledge and financial self-efficacy as two internal factors, and welfare eligibility restrictions as an external factor. Data is drawn from a sample of low-income families using restricted data from the nationally representative 2009 Canadian Financial Capability Survey (N = 15,519). Path models were analyzed to explain three outcomes: saving for children’s postsecondary education, retirement planning, and inability to manage a $500 expense. Financial self-efficacy fully mediated the relationship between objective knowledge and education saving. For retirement planning and a small expense, the best model was partial mediation with the influence of objective knowledge on outcomes passing through self-efficacy. The external factor was not statistically significant in any model. Findings suggest that improving financial literacy through education may not be sufficient to build financial capability. Financial capability interventions can reinforce learning by explicitly targeting self-perceptions of one’s ability to manage finances. More research is needed to better understand the impact of social welfare policies on savings and asset building practices.

Keywords: financial capability, financial self-efficacy, assets, welfare policies, Canada

Suggested Citation

Rothwell, David and Khan, Mohammad Nuruzzaman and Cherney, Katrina, The Mediating Role of Financial Self-Efficacy in the Financial Capability of Low-Income Families (August 14, 2015). Available at SSRN: https://ssrn.com/abstract=2646966 or http://dx.doi.org/10.2139/ssrn.2646966

David Rothwell (Contact Author)

Oregon State University - School of Social and Behavioral Health Sciences ( email )

Corvallis, OR
United States

HOME PAGE: http://health.oregonstate.edu/people/rothwell-david

McGill University - School of Social Work ( email )

3506 University Street, Suite 300
Montreal, Quebec
Canada

HOME PAGE: http://www.mcgill.ca/socialdevelopment

Mohammad Nuruzzaman Khan

University of Manitoba - Faculty of Social Work ( email )

500D Tier Building
173 Dafoe Road
Winnipeg, Manitoba R3T 2N2
Canada
204-474-9545 (Phone)

HOME PAGE: http://umanitoba.ca/social_work/

Katrina Cherney

McGill University ( email )

1001 Sherbrooke St. W
Montreal, Quebec H3A 1G5
Canada

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