The Contextual Effect of Financial Knowledge on Financial Well-Being in Spain : A Multilevel Approach

This paper studies empirically whether financial knowledge -as a contextual factor- affects financial well-being and whether the influence of contextual financial knowledge differs from that of individual financial knowledge. We perform the analyses using data from the 2016 Survey of Financial Competences in Spain, considering both dimensions of financial knowledge (objective and subjective) at individual and regional level. We also use hierarchical models to capture regional variability and test the contextual effect of financial knowledge on financial well-being. Our results show that individuals who have higher levels of objective financial knowledge and who live in regions with high objective financial knowledge are more likely to have higher financial well-being than are similar individuals living in regions with lower financial knowledge. We find no significant effect, however, of region-level subjective financial knowledge on financial well-being. The evidence thus shows that contextual factors should be considered when analyzing financial well-being