Is Financial Capability a Determinant of Health?

Background. Financial capability recently has received greater attention by both policymakers and social work practitioners given the financialization nature of everyday life, yet its health consequence is unknown. It is well documented that socioeconomic position (SEP) is a fundamental cause of health inequalities. Link & Phelan (1995) defined fundamental causes as access to resources that help individuals avoid diseases and their negative consequences through a variety of mechanisms. It is hypothesized that financial capability, which is comprised of ability to act (financial literacy) and opportunity to act (financial access), is associated with more access to resources, and thus leads to desirable health effect. To the authors’ knowledge, no research has empirically investigated the relationship between financial capability and health independent of common SEP indicators such as income, employment, and education. This paper combined 3 national longitudinal surveys in the RAND American Life Panel to investigate the relationship between financial capability and its health outcomes 4 years later in the general U.S. population. This paper advances current research by (1) separating financial capability from income poverty and other SEP indicators and (2) assessing impact of financial capability on health over time.

Methods. This study used data from the 2012 National Financial Capability Study linked with the 2012 and 2016 RAND American Life Panel (N = 2004). Confirmatory Factor Analysis was used to create latent constructs for both financial capability and health. Financial capability was measured by the combination of financial education, financial literacy (including three subjective assessment questions and six objective questions), and financial access (measured by bank account, credit card, and investments). Health outcome was measured by self-rated health, happiness, life satisfaction, worn-out, and depression. Covariates included income, employment, education, race/ethnicity, age, gender, children, health insurance, and marital status. Structural Equation Modeling was used to test the relationship between financial capability in 2012 and health outcome in 2016, controlling for health outcomes and covariates in 2012 (baseline). WLSMV estimator was used to handle ordinal and dichotomous indicators. Results are weighted to be nationally representative.

Results. Results showed a satisfactory fit for both measurement model (CFI = .976; TLI = .971; RMSEA = .044, 90% CI: .042, .047) and structural model (CFI = .924; TLI = .910; RMSEA = .042, 90% CI: .040, .044). Controlling for the baseline covariates and lagged health, financial capability was positively associated with health in 2016 (β=.146, p<.01); health status in 2012 was positively associated with health outcome in 2016 (β=.830, p<.001).

 

Implications. Finding shows that financial capability has a long-term positive impact on health, suggesting that financial capability may be a modifiable factor to improve population health. This study offers insights for future research on exploring the mechanism on the positive link between financial capability and health. Moreover, this study suggests that policies and programs that enhances financial capability could lead to potential positive health effects that are worth examining.