In the past, there was limited scientific exploration into how financial capability affects psychological health or well-being. However, there is now increasing evidence that demonstrates the intricate manner in which certain aspects of psychological well-being might affect or may be affected by the way a consumer manages his or her money. There is also a growing recognition that credit unions can have a positive influence on the financial capability and hence the well-being of their members.
What is the research about?
This report plots the interrelationships between financial capability and psychological well-being among a sample of 1,600 adult credit union members in the United States. Not surprisingly, the findings suggest that members who appear to have lower financial capability are also likely to be less happy and more stressed, and have poorer general health and lower self-efficacy. That’s the discouraging part, but the inverse is also true: Healthy financial capability correlates with overall health. And that presents an opportunity for credit unions, which can improve members’ financial capability and, by extension, their overall well-being.
The author created four member profiles with a two-step cluster analysis. The clusters examine how organized respondents feel they are when it comes to managing their money, how much they use their credit union, and how well they make ends meet. Other factors such as stress levels, age, and self-efficacy were also used in the clustering process.
What are the credit union implications?
The more organized members feel they are with managing money day to day, the more they appear to be less stressed, to be happier, and to have better general health. Additionally, it is crucial that members have adequate self-efficacy (i.e., belief in their own abilities) in order to manage and take care of their finances effectively. The research demonstrates that the greater the level of self-efficacy possessed by members, the more likely they are to experience better general health.
Solving the problem is part of the social mission of credit unions. Credit unions should consider initiatives and products like personal financial management (PFM) software that improves financial capability (not just literacy), because higher financial capability has strong links to overall well-being.
This report is sponsored by Fiserv.