ISER Working Paper Series 2011-18
Financial capability, income and psychological wellbeing
15 Jul 2011
We examine whether financial capability has impacts on psychological health independent of income and financial resources more generally using a nationally representative survey. British Household Panel Survey data are used to construct a measure of financial capability, which we relate to respondents‟ psychological health using the 12-item General Health Questionnaire. We find that financial capability has significant and substantial effects on psychological health over and above those associated with income and material wellbeing more generally. The sizes of these impacts are considerably larger than those associated with changes in household income. Furthermore having low financial capability exacerbates the psychological costs associated with unemployment and divorce.