When (Financial) Knowledge Isn't Power: How Race Disrupts Financial Literacy's Relationship to Health Precarity

Abstract

Financial literacy is often touted as a tool to shield people from unfavorable economic outcomes. Financial literacy programs almost exclusively focus on improving financial competency so individuals can optimize their personal financial wellbeing, but this individualized conceptualization of financial literacy is incomplete. The opportunity to make ideal financial decisions does not occur in isolation from macro-level societal factors. Decontextualized constructions of financial literacy invisibilize the influences that ultimately determine financial outcomes. Relatedly, the promises of financial literacy—helping people navigate complex and potentially costly healthcare decisions, for example—are often promoted without interrogating their efficacy across racial groups. Drawing on data from the 2021 National Financial Capability Study, we test whether financial literacy is universally beneficial in minimizing the risk of healthcare disengagement across racial groups. Our findings reveal that financial literacy reduces the extent to which individuals avoid engaging with healthcare due to cost concerns (i.e., health precarity), but its effects are not equal across racial categories. White and Asian adults emerged as the main beneficiaries of financial literacy, with more financial literacy reducing their risk of healthcare avoidance. Financial literacy conferred no benefit for Black adults and increased the likelihood of experiencing health precarity for Hispanic adults. In short, the relationship between financial literacy and health precarity is conditional upon race. This finding complicates existing claims that higher levels of financial competency protect people from making risky financial decisions, including those related to health. This research amplifies the necessity of considering race and structural factors in assessing the returns of financial literacy.