An integrated role of cognitive and psychological mechanisms in shaping financial well-being: Evidence from Sri Lankan Public Sector Physicians

Financial literacy has become a national priority in Sri Lanka, particularly in light of the country’s persistent economic challenges. Despite decades of increased focus on financial education, the nationwide financial literacy survey conducted in 2021 reported that although Sri Lankans have a satisfactory level of financial knowledge, their financial attitudes and actual financial behaviour lag behind their financial knowledge. Hence, financial literacy can no longer be considered to be directly associated with financial well-being, and there is a need to examine mechanisms that convert financial literacy into positive financial behaviour and thereby improve financial well-being. Concerning the widely held belief in the significance of psychological processes in making behavioural changes, this study attempts to examine whether individuals’ psychological states, in particular financial self-efficacy and financial resilience, can help in explaining the gap between financial literacy and their financial well-being. The study is particularly concentrated among Sri Lankan public sector physicians, as they often lack formal financial education or training; however, they are expected to be financially secure due to their high-income status. Data collected from a sample of 101 government-employed physicians in Sri Lanka were analysed using regression analysis with the PROCESS macro available in the IBM SPSS software. The findings show that financial literacy influences financial well-being only when financial self-efficacy and financial resilience act as mediators. These results highlight the significant role of financial self-efficacy and financial resilience as psychological mechanisms in translating financial literacy cognitions into financial well-being of the public sector physicians. This study makes a theoretical contribution by extending the conceptualisation of financial capability as integrative of both cognitive and psychological mechanisms that guide financial behaviours, leading to financial well-being. From a practical standpoint, the findings highlight that financial literacy interventions should be designed beyond the dissemination of financial knowledge to strengthen individuals’ confidence in applying financial knowledge and their capacity to withstand financial shocks. Accordingly, these implications are especially pertinent to the execution of Sri Lanka’s National Financial Literacy Road-map.