The Effects of Financial Knowledge, Skill, and Self-Assessed Knowledge on Financial Well-Being, Behavior, and Objective Situation

The effects of certain abilities on financial outcomes have been debated for several years. Some argue that financial knowledge is key to financial success, while others have found financial skill and self-assessed knowledge are more important. This study contributes to this debate by providing a descriptive analysis, whereby regression is used to study the simultaneous effects of financial knowledge, financial skill, and self-assessed knowledge on financial well-being, financial behavior, and objective financial situation. Although our methodology does not allow us to determine if relationships are causal, we show that self-assessed knowledge has little to no relationship with financial well-being, may have contrasting relationships with components of objective financial situation, and is weakly associated with good financial behaviors. Financial skill has the strongest relationship with financial well-being and financial behaviors, as well as some components of objective financial situation. Despite having a relatively weak (compared to financial skill) association with financial well-being and financial behaviors, financial knowledge has the strongest relationship with many components of objective financial situation.