The Big Three of Financial Literacy: Analyzing its Influences on Financial Well-being

Abstract

This study attempts to identify the key components of financial literacy and its constituent factors, and to examine influences of people’s financial literacy on their financial well-being. The study is mainly based on the primary data collected from 384 randomized samples from the Indian state of Assam. Data analysis was carried out using statistical techniques such as factor analysis, regression analysis, and correlation analysis. A thorough review of the empirical literature, and findings of the present study reveal three major components– "financial knowledge, financial behavior, and financial attitude" –that constitute people’s financial literacy, which are coined as “the big three of financial literacy.” Financial literacy and its three major components are found to have strong and significant influences on people’s financial well-being. It is concluded that an increase in people’s financial literacy results in an increase in their financial well-being, and vice versa.