The Relationship Between Financial Satisfaction and Financial Literacy: A Structural Equation Modeling Approach

ABSTRACT This study examines the relationship between financial literacy and financial satisfaction in Singapore, focusing on possible behavior‐based paths to satisfaction. We establish a conceptual framework building on past theories to address the possible interconnections among financial knowledge, behaviors, and attitudes and their relationships with satisfaction, and empirically test the model using national‐representative data and structural equation modeling. Results highlight the importance of financial knowledge as a key driver of satisfaction through behavior‐based pathways. We find that the association between knowledge and satisfaction is largely indirect: financially knowledgeable individuals tend to engage in financial planning behaviors, which in turn improve satisfaction. Furthermore, financial attitude serves as a separate mediating factor in the path from knowledge to satisfaction. Financially savvy respondents are more likely to exhibit rational financial attitudes, which contribute to positive behaviors that, ultimately, increase satisfaction. These results are robust to alternative empirical specifications. The observed relationships are stronger for males than females. Our findings underscore the importance of behavioral and psychological factors as mediators, which bear implications for financial education initiatives and public policy.