U.S. Household Financial Access and Financial Behaviors: A Latent Class Analysis

Background and Purpose

Exhibiting strong consumer household management is a complicated, yet essential task for financial well-being. Household financial management is of increasing importance as consumers seek to avoid financial mistakes that have short- and long-term financial implications. Consumer financial management is influenced by many factors, including financial literacy and household financial access (hereafter, “financial access”). Three recent systematic reviews and meta-analysis have resulted in mixed results about the effectiveness of financial literacy interventions on financial behaviors (Fernandes et al., 2014; Kaiser & Markhoff, 2017; Miller, Reichelstein, Salas, & Zia, 2014). The relationship between financial access and financial behaviors related to household financial management is important, yet understudied. This relationship can inform consumer financial literacy initiatives, such as financial education courses, as well as financial access initiatives, such as advocacy to improve the affordability and accessibility of products and services from formal financial institutions. Thus, attention brought to the association of groups with varying levels of financial access and consumer financial behavior holds the potential to influence related policy and practice. This study explores the relationship between groups (or classes) of consumer financial access and consumer financial behaviors related to household financial behavior.

Methods

Using the 2015 National Financial Capability Study, the current study conducted latent class analysis of financial behaviors to identify latent classes (N=27,564). The proportion of the distal outcome of financial access was investigated among latent classes, which were regressed on covariates using multinomial logistic regression.

 

Results

Four classes of U.S. consumers were identified. Traditional High Investors (25% of the population) have ownership of basic and more advanced financial products and services. Wired Investors (13.5%) heavily use relevant technology. Ordinary Working Families (29.6%) have mortgage/equity loans and employer-sponsored retirement accounts, but lack IRAs or other investments. Approximately one-third of the U.S. consumers (31.8%) are Thinly Banked, with less access to checking accounts, and little access to retirement, mortgage loans, and investments. Results suggest that financial behavior is associated with the heterogeneity of financial access.

 

Implications and Conclusion

In sum, these results suggest that the majority of U.S. consumers have fair to strong financial access, with the exception of self-sponsored retirement and other investments. However, results also point to the importance of financial management behaviors for all consumers, but especially for those with the least financial access. Policy implications related to financial management include consideration of financial management training related to those groups that struggle with low management and low access. Targeting financial management behavior training toward those groups with the least financial access may have the most benefit. Policy and practice efforts to promote financial access, such as those provided by the national Bank On movement (Caplan, 2014), the FDIC through its Safe Account Standards (Federal Deposit Insurance Commission, 2012), and Cities for Financial Empowerment through its Account Standards (Cities for Financial Empowerment, 2015) may consider including components beyond those that facilitate becoming more deeply banked.