Academy of Financial Services Annual Meeting 2022

financial knowledge, financial resiliency, clustering

The effects of financial knowledge on household finance have been debated for several years. This study contributes to this debate using two approaches: clustering and regression. By clustering on scores for financial knowledge, financial skill, and financial well-being from a 2016 American survey, we identify four groups that differ not only with respect to the three components of household finance they are based on, but also with respect to their financial behaviors and objective situation. They illustrate a disconnect between financial well-being and objective situation and suggest that financial knowledge may affect objective situation. Through a series of regressions motivated by our clustering results, we show that self-assessed knowledge has contrasting relationships with components of objective financial situation and that financial knowledge has a relatively strong association with objective situation compared to financial skill, despite financial skill having a stronger association with financial well-being and several financial behaviors.