Financial Capability in Older Adults: Gender and Racial/Ethnic Differences

Background: Financial capability (FC), a combination of financial literacy, financial access, and financial functioning, has received greater attention especially in older population. The 2015 White House Conference on Aging specifically chooses FC as one of the important themes other than healthy aging, caregiving, and elder justice. Additionally, the United States Senate Special Committee on Aging has held at least seven hearings regarding strengthening FC of older Americans. However, current evidence tends to focus on a single aspect of FC without systematically considering the dynamics between these three key components. Further, we know little about the role of gender and race/ethnicity in these relationships. Guided by the financial capability framework and life course perspective, this study examines how financial literacy and financial access affect financial functioning in later life, and how these associations may vary by gender and race/ethnicity.

Method: We selected 9,888 respondents aged 55+ from the 2015 National Financial Capability Survey. Latent path analysis via structural equation modeling was employed to examine how financial functioning (long-term saving and planning, and future financial goals) was influenced by financial literacy (self-reported financial knowledge, objective and subjective financial literacy) and access (checking & savings account, investment account, retirement account, and credit card). Multi-group comparison technique was further used to investigate gender and race differences in measurement and structural models. Specifically, an incremental model testing approach, including configural-, weak-, strong-, and strict-invariance test, was applied. Weighted least square estimator was used. All analyses were controlled for age, gender, race, income, education, and marital status.

Results: Results of measurement models showed an acceptable fit when models were examined independently by gender and race (CFI =0.958–0.977; TLI = 0.941–0.966; RMSEA = 0.051–0.067). The combined results using multi-group comparison method showed that both gender and race had the same factor structure, supporting a configural model. However, the weak-invariance model was not supported as factor loading differed significantly across gender and race. Therefore, latent path analyses were conducted separately in each subgroup of gender and race. Standardized coefficient results showed that both financial literacy (for gender: β = 0.149-0.304; for race: β = 0.206–0.256) and access (for gender: β = 0.647–0.762; for race: β = 0.533–0.695) were positively associated with financial functioning, but the effects were much stronger for older males and whites.

Conclusion: There is clearly a gender and race difference in FC. Therefore, the constructs, effects, and relationships of FC may not be appropriate to compare directly across gender and race. Interpretations based on each subgroup can be useful in understanding the role of FC in later life. Findings suggested that financial literacy and financial access may operate differently for financial functioning, with much stronger impacts for older males and whites compared to their female and non-white counterparts. As FC is a precursor to financial well-being, the gender and race/ethnicity heterogeneity in FC should be addressed by a more structured life-course program and policy in order to promote gender and racial equity in financial well-being in later life.