Financial Knowledge is Power: Exploring the Protective Benefits of Financial Self-Efficacy Among Young Adults

Personal finances are an essential part of adulthood, yet we find that many Americans have low financial literacy (Financial Industry Regulatory Authority Investor Education Foundation, 2016). This phenomenon is especially true for young adults (18-25 years old) (Lusardi, 2019). Lusardi, Mitchell, and Curto (2009) found that fewer than one-third of young adults possess basic financial knowledge. The present study examined whether financial self-efficacy and financial hardship were moderators between financial literacy and financial anxiety among a young adult sample (18-25 years old; Arnett, 2000). The current study utilized moderated moderation analyses to explore the associations between financial literacy, financial anxiety (i.e., the concern and worry about finances), financial self-efficacy, and financial hardship for young adults( N = 549, 71.6% female, Mage = 20.49). Based on survey data from the Financial and Social Stress Study (Tran & Mintert, n.d.), moderated moderation results show (a) an inverse association between financial literacy and financial anxiety (direct effects) and (b) financial self-efficacy and financial hardship moderate this relationship. Specifically, for young adults experiencing high financial hardship with high financial self-efficacy, there was a strong inverse association between financial literacy and financial anxiety. This study contributes to our knowledge of the vital role of financial literacy and its association with financial anxiety for young adults. Further, these findings highlight financial self-efficacy as a potential factor for mental health providers to consider when working with young adults experiencing high financial hardship.