Financial Literacy and Financial Well-Being Amid Varying Economic Conditions: Evidence from the Survey of Household Economics and Decisionmaking 2017–2022

This study examines whether the gaps in four financial well-being (FWB) indicators—emergency fund availability, spending less than income, perceived financial comfort, and no credit card debt—between groups with varying levels of financial literacy changed during the economic disruptions of 2020–2022 compared to the more stable period of 2017–2019. Using data from the 2017–2022 waves of the Survey of Household Economics and Decisionmaking conducted by the Federal Reserve Board, this study applies difference-in-differences and event study methods to explore these trends. Descriptive findings, consistent with prior research, show that respondents with higher financial literacy reported greater FWB across all years. Regression estimates based on respondents who provided definitive answers (correct or incorrect) to the Big Three financial literacy questions suggest that the pre-existing gaps in emergency fund availability and perceived financial comfort between respondents with higher and lower financial literacy widened in 2020–2022, whereas the gap in spending less than income remained unchanged. There is some evidence of a widening gap in the likelihood of having no credit card debt, but the estimates are less conclusive. In general, these results indicate that higher financial literacy might have served as a protective factor for some aspects of FWB amid the challenging economic conditions of 2020–2022. However, results based on respondents who provided either correct or “don’t know” answers to the same questions differ in direction from the results of the earlier analysis. The findings of this study have implications for measuring financial literacy and investigating its role in shaping FWB.