The Relationship Between Personal Financial Wellness and Financial Wellbeing: A Structural Equation Modelling Approach

We examined the construct of financial wellness and its relationship to personal wellbeing, with a focus on the role of financial literacy. Gender comparisons are made using a structural equation modeling analysis including personal wellbeing, financial satisfaction, financial status, financial behavior, financial attitude, and financial knowledge. Males ranked higher in financial satisfaction and financial knowledge whereas females ranked higher in personal wellbeing. Joo’s (2008) concept of financial wellness as multidimensional is supported though the result is improved when a causal model of sub-components is estimated. The relationship of all variables to personal wellbeing is mediated by financial satisfaction, with gender differences: In females the main source of financial satisfaction is financial status whereas in males it is financial knowledge.

1. Willis (2008) notes the first US conference in 1934 on consumer education.

2. The scale has been employed in several empirical studies, for example: Gutter and Copur (2011); and Prawitz et al. (2013).

3. In Australia the nomenclature of retirement savings is bound up in the catch-all phrase “superannuation” which is the tax advantaged vehicle for retirement savings. It can be thought of as a 401(k) plan with one notable difference, participation is mandatory. Employers are required to contribute 9 % of earnings on behalf of employees to an eligible superannuation fund. This rate will increase gradually to 12 % by 2019.

4. Australian Bureau of Statistics (2011a), Education and Work, Australia, Cat. No. 6227.0, Canberra.

5. See Rigdon (1996) for the merit of each measure of index fit.

The authors gratefully acknowledge the funding support of the Australian Research Council Linkage Grant—LP0991752, and research partners GESB and the Western Australian Police.

Authors and Affiliations

1. UWA Business School, University of Western Australia, M250 35 Stirling Highway, Crawley, WA, 6009, Australia

   Paul Gerrans

2. School of Psychology and Social Science, Edith Cowan University, Joondalup, WA, Australia

   Craig Speelman & Guillermo Campitelli

Corresponding author

Correspondence to Paul Gerrans.

Appendix

Questions Used in the Structural Equation Modeling Analysis

Personal Wellbeing

The following questions ask how satisfied you feel, on a scale from 0 to 10. Zero means you feel completely dissatisfied. Ten means you feel completely satisfied. The middle of the scale is 5, which means you feel neutral; neither satisfied nor dissatisfied.

1. 1.

   Thinking about your own life and personal circumstances, how satisfied are you with your life as a whole?

2. 2.

   How satisfied are you with your standard of living?

3. 3.

   How satisfied are you with your health?

4. 4.

   How satisfied are you with what you are achieving in life?

5. 5.

   How satisfied are you with your personal relationships?

6. 6.

   How satisfied are you with how safe you feel?

7. 7.

   How satisfied are you with feeling part of your community?

8. 8.

   How satisfied are you with your future security?

9. 9.

   How satisfied are you with your spirituality or religion?

Financial Wellbeing

Now I want to ask some questions about your sense of financial well-being.

1. 1.

   On a scale of 1 to 10 where one is “overwhelmingly stressed” and ten is “no stress at all,” what do you feel is the level of your financial stress today?

2. 2.

   On a scale of 1 to 10 where one is “completely dissatisfied” and ten is “completely satisfied,” how satisfied are you with your present financial situation?

3. 3.

   On a scale of 1 to 10 where one is “feel completely overwhelmed” and ten is “feel very comfortable,” how do you feel about your current financial situation?

4. 4.

   On a scale of 1 to 10 where one is “worry all the time” and ten is “never worry,” how often do you worry about being able to meet normal monthly living expenses?

5. 5.

   On a scale of 1 to 10 where one is “no confidence” and ten is “high confidence,” how confident are you that you could find the money to pay for a financial emergency that costs about twice your weekly income?

6. 6.

   On a scale of 1 to 10 where one is “all the time” and ten is “never,” how frequently do you find yourself just getting by financially and living from payslip to payslip?

Financial Status

1. 1.

   Which of the following best describes your total annual household income from all sources, including returns from investments, before tax?

$20,000 or less; $20,001 to $40,000; $40,001 to $60,000; $60,001 to $80,000; $80,001 to $100,000; $100,001 to $120,000; more than $120,000; don’t know.

1. 2.

   What is the total value of all your assets?

Less than $10,000; $10,000–$49,999; $50,000–$99,999; $100,000–$124,999; $125,000–$249,999; $250,000–$499,999; $500,000–$749,999; $750,000–$999,999; $1 million or more; don’t know.

1. 3.

   What is the total amount of all your debts?

Less than $10,000; $10,000–$49,999; $50,000–$99,999; $100,000–$124,999; $125,000–$249,999; $250,000–$499,999; $500,000–$749,999; $750,000–$999,999; $1 million or more; don’t know.

Financial Behavior

1. 1.

   Have you consulted any of the following people regarding your finances over the last 5 years?

An accountant, a mortgage broker, a stock broker, an insurance broker, a taxation specialist, a financial counsellor, a bank manager or bank employee, a financial planner or advisor, Centrelink financial information service officers, someone else, none of these.

1. 2.

   Have you identified a figure for how much per year you will need to live on when you retire?

2. 3.

   Yes, No.

Financial Attitudes

1. 1.

   In your opinion, how important is it for people like you to keep up to date with what is happening with financial matters generally, such as the economy and the financial services sector?

Very important, quite important, not very important, not at all important.

1. 2.

   Please indicate your level of agreement with the following statements (on a scale of 1 to 5 where one is “disagree strongly” and five is “agree strongly”).

“I don’t think it really matters much about superannuation or planning and saving for retirement because the government will make up the gap.”

Financial Knowledge

Financial General Knowledge

1. 1.

   If the inflation rate is 5 % and the interest rate you get on your savings is 3 %, will your savings have at least as much buying power in a year’s time?

   Yes, No, Don’t know.

2. 2.

   Please indicate whether you think each of the following is true or false about the Goods and Services Tax (GST). (True, False, Don’t know)

   1. (a)

      The national GST percentage rate is 10 %.

   2. (b)

      The federal government will deduct it from your pay.

   3. (c)

      You don’t have to pay the tax if your income is very low.

   4. (d)

      It makes things more expensive for you to buy. Which of the following is the best description of a budget?

      An accounting spreadsheet, spending as little as you possibly can, a plan for what you earn and what you spend, knowing where all your money goes, don’t know.

3. 4.

   Which one of the following is the most accurate statement about fluctuations in market values?

   Investments that fluctuate in value are not good in the long term, good investments are always increasing in value, short-term fluctuations in market value can be expected even with good investments, don’t know.

4. 5.

   Which one of the following would you recommend for an investment advertised as having a return well above market rates and no risk?

   Consider it “too good to be true” and not invest, invest lightly and see how it goes before investing more heavily, invest heavily to maximise your return, don’t know, other—please specify.

Knowledge of Financial Products

1. 1.

   If someone is not able to make the repayments on a secured loan, is the organization that lent them the money allowed to sell the assets that were used as security for the loan?

   Yes, No, Don’t know.

2. 2.

   Which of the following is generally considered to make you the most money over the next 15 to 20 years?

   A savings account, a range of shares, a range of fixed interest investments, a cheque account, don’t know.

3. 3.

   Which of the following term deposits would pay the most interest in total, or would they pay the same amount of interest?

   One-year term deposit at 7 % interest per annum paid at maturity, one-year term deposit at 7 % interest per annum paid quarterly back into the term deposit, they would pay the same amount of interest.

4. 4.

   As far as you know, is each of the following statements true or false?

   1. (a)

      The Australian Securities and Investment Commission checks the accuracy of all prospectuses lodged with it.

      True, False, Don’t know.

   2. (b)

      If providers of professional advice about financial products may receive commissions as a result of their advice, they are required by law to disclose this to their clients.

      True, False, Don’t know.

   3. (c)

      There is a cooling off period after taking out a new house and contents insurance policy during which time you can cancel the policy and have your premium fully refunded.

      True, False, Don’t know.

Superannuation General Knowledge

Please indicate if you think the following statements about superannuation are true or false.

1. 1.

   “Employers are required by law to make superannuation payments on behalf of their employees.”

   True, False, Don’t know.

2. 2.

   “Employees cannot make superannuation payments in addition to any payments made by their employers”.

   True, False, Don’t know.

3. 3.

   Do you know which amount is closest to the payment rate of the government Aged Pension for a single person living alone?

   $7,800 per year = $150 per week, $13,000 per year = $250 per week, $18,200 per year = $350 per week, $23,400 per year = $450 per week, Don’t know.

4. 4.

   As far as you know, is the Australian Aged Pension

   1. (a)

      Income tested?

      Yes, No, Don’t know.

   2. (b)

      Asset tested?

      Yes, No, Don’t know.

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