Financial capability predicts more positive health outcomes, study shows

We hear often about things that can be detrimental to our health, but the lists seldom contain anything financial. New research from the University of Kansas has found that financial capability can in fact be a social determinant of health and those who have it are more likely to have positive health outcomes.

Financial capability, or the combination of financial literacy and financial access, can predict health outcomes when viewed separately from the commonly studied socioeconomic factors of income, education, employment, race and gender, the study found. The results indicate the importance of considering both financial literacy (or the ability to act), and financial access (the opportunity to act) in positive financial ways should be both a larger part of health research and policy to improve population health, the authors said.

Research in financial capability has traditionally focused on individual financial knowledge and skills, and when exploring links between health and finances, has most commonly focused on the aforementioned socioeconomic factors.

Sicong “Summer” Sun, assistant professor of social welfare at KU, led a study to examine the link between financial capability and health and well-being using a nationally representative survey. The findings can help improve understanding of the structural factors of financial capability and its effect on health and well-being.

“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,” Sun said.

The study, written with co-author Yu-Chih Chen of the University of Hong Kong, was published in the Journal of Family and Economic Issues. The authors analyzed data from the 2012 National Financial Capability Study, linked with the 2012 and 2016 American Life Panel Effects of the Financial Crisis Survey.

The nationally representative samples of more than 3,800 Americans measured financial capability by assessing people’s levels of financial literacy, access and education. Access was determined by whether people had checking and savings accounts, retirement plans and credit cards. Literacy was determined by whether people were good at math, good at day-to-day financial matters and self-rated financial knowledge as well as how many of six financial literacy questions they answered correctly.

Health was measured by five indicators: life satisfaction, self-rated health, levels of depression, feelings of being worn out and overall happiness. Respondents answered the questions in 2012 and again four years later. The results showed that people who had higher financial capability also had better health outcomes.

The data also showed respondents who were male, had a college degree, were married, employed and insured had higher levels of financial capability, and that Black, Hispanic and people in other racial groups had lower levels of financial capability, compared to non-Hispanic white participants.

The researchers write that, to their knowledge, the study is the first to examine the link between financial capability and health theoretically and empirically. And the results show the link between the two, supporting the need for further research in the area and its importance in finance and health policy.

“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,” Sun said.

“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 well-being, compared to financial literacy. In other words, both ability and opportunity matter, but structural opportunity matters more.”

In addition to providing empirical evidence of the link between financial capability and health outcomes, the study opens the door for further research on structural, communitywide links between financial measures and health outcomes, Sun said. It also suggests 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 authors wrote. “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.”

Finally, the study shows that policy designed to improve financial inclusion is also important to population health. Financial capability is informed both by individual knowledge and skills as well as the availability of financial policies, products and services. Making sure such services are available to all communities can help address longstanding inequities in wealth and health alike.

“We need to focus on the structural access and not just on skills or knowledge a person might have,” Sun said. “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.”