Document Type

Article

Date of Original Version

2026

Department

Human Development and Family Science

Abstract

Purpose: Previous research shows that the capability approach is association with lower poverty rates and higher well-being. Nonetheless, little research applied this approach to understanding economic hardship. To fill this gap, this study applies this approach to explore whether financial capability mitigates racial/ethnic disparities in economic hardship in the U.S.

Design/methodology/approach: Data were from the U.S. 2022 Survey of Consumer Finances. Multivariate logistic and ordered regressions were used to examine of the association between financial capability, measured both through individual components and a composite index, and pandemic-induced economic hardship. Oaxaca-Blinder decomposition analyses were used to evaluate the extent to which financial capability explain racial/ethnic disparities in economic hardship.

Findings: Logistic results indicated that compared to Whites, Blacks were 134-143% more likely, Hispanics 47-50% more likely, and other racial groups 93-115% more likely to experience hardship. Financial capability was consistently and negatively associated with hardship. Decomposition analyses further revealed that the financial capability index explained 8-12% of the Black-White disparity, 19-21% of the Hispanic-White disparity, and 5-7% of the difference between Whites and other racial groups.

Research limitations/implications: This study used data from a single country, which limits the generalizability of the findings to nations with different economic trajectories and cultural contexts. The cross-sectional nature of the data provides only suggestive than conclusive evidence of reduction effects of financial capability factors on economic hardship.

Practical implications: Financial institutions can apply these insights to design products and services that better meet the needs of minority groups. By recognizing the significant association between economic hardship and financial behavior, lenders and financial advisors may benefit from tailoring guidance, underwriting practices, and outreach strategies to the diverse circumstances of different racial/ethnic groups.

Social implications: Policymakers should take note of the significant contributions of financial capability, education, occupation, and credit access to the disparities observed among racial/ethnic groups. These findings suggest the need for policies that enhance financial capability, especially among minority groups. For example, expanding access to financial education programs that are culturally and linguistically appropriate could help bridge knowledge gaps. Additionally, policies aimed at expanding access to credit for minority groups, such as regulating fair lending practices and offering support for first-time homebuyers, may help mitigate economic hardship.

 

Originality/value: This study applies the capability framework to investigate the extent to which financial capability contributes to economic hardship across racial/ethnic groups. Using Oaxaca-Blinder decomposition analysis, we dissect relative contributions of financial literacy, financial behavior, and demographic factors to economic hardship.

Publication Title, e.g., Journal

International Journal of Bank Marketing

Comment

Article is currently unavailable on the publishers website, but this page will be updated with a DOI when available. 

Download

Share

COinS