Uncovering the factors of financial well-being: the role of self-control, self-efficacy, and financial hardship
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hernandez-perez2025 - p. 2
Scheier and Carver’s Self-Regulation Theory [6] provides a robust foundation for understanding how individuals set goals, monitor their progress, and adjust their behaviors to achieve desired outcomes. Central to this theory is the concept of feedback loops, where individuals continuously assess their current state in relation to their goals and implement corrective actions to mitigate discrepancies. This dynamic process is particularly relevant in the context of personal finance, where effective self-regulation, such as budgeting, saving, and adjusting spending habits, can significantly enhance financial stability [10, 11]. However, when self-regulation fails, individuals may fall into patterns of impulsive spending, excessive debt accumulation, and financial distress [12, 13].
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Complementing this perspective, the Behavioral Life-Cycle Hypothesis [7, 8] highlights the role of selfcontrol in financial decision-making. Unlike traditional economic theories that assume rational decision-making aimed at optimizing utility, this hypothesis recognizes hat individuals often prioritize immediate gratification over long-term benefits, leading to suboptimal financial behaviors [14]. For instance, present bias, i.e., the tendency to favor immediate rewards over future gains, can undermine savings and retirement planning, exacerbating financial vulnerability [15]. This theory is particularly salient in elucidating the impact of a lack of financial self-control on financial well-being, as it provides a framework for analyzing how individuals manage their resources over time and navigate financial challenges.
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Bandura’s Self-Efficacy Theory [9] further enriches this framework by emphasizing the role of individuals’ beliefs in their ability to successfully execute actions to achieve specific goals. Within the context of personal finance, financial self-efficacy—defined as an individual’s confidence in their capacity to manage their finances effectively—plays a critical role in shaping financial behaviors and outcomes [16]. Research has demonstrated that individuals with high financial self-efficacy are more likely to engage in positive financial behaviors, such as budgeting, saving, and investing, which contribute to long-term financial stability [1, 4]. Conversely, low selfefficacy has been demonstrated to undermine financial well-being by reducing individuals’ ability to plan, save, and cope with financial difficulties [17].
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This study utilized data derived from the Spanish Survey of Financial Literacy, a reliable and comprehensive source of information on financial literacy within Spain. The survey was designed and administered by the Bank of Spain in collaboration with the National Securities Market Commission.
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The sample was designed to be representative of the general population aged from 18–79 residing in Spanish households, thus ensuring adequate representation across the 17 Spanish regions and various educational levels.
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These constructs were operationalized formatively, with indicators reflecting their multidimensional nature
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entral to this framework is the concept of self-regulation [9], which involves setting realistic economic objectives and securing the necessary resources to achieve them.
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lack of self-control was operationalized through five indicators: present bias, present hedonism, spender behavior, defaulter behavior, and financial overwhelm. These indicators collectively reflect a shared characteristic: a temporal prioritization of financial behavior toward the present.
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Present bias referred to the tendency to prioritize immediate rewards over future gains, leading to decision-making processes which emphasize shortterm gratification at the expense of potential long-term outcomes [30].
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inancial overwhelm was defined as the experience of being burdened by financial obligations which exceed an individual’s capacity for effective management
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The determination of lack of financial self-efficacy was guided by the components of the Financial SelfEfficacy Scale developed by Lown [38], which integrates principles from Bandura’s self-efficacy theory [9] and the Transtheoretical Model (TTM) of Behavior Change [39].
hernandez-perez2025 - p. 8
This scale identifies six key components of the financial dimension: (1) progress toward financial goals, (2) adherence to a spending plan, (3) difficulty in resolving financial challenges, (4) use of credit for unexpected expenses, (5) lack of confidence in financial management, and (6) concern about money during retirement.
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Financial illiteracy was defined as a lack of knowledge or understanding of the fundamental financial concepts and skills required to make informed and effective financial decisions.
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Subjective financial illiteracy referred to an individual’s self-perceived lack of understanding or confidence in managing financial matters, regardless of their actual level of financial literacy. This perception might be influenced by an individual’s self-assessment of their financial knowledge, previous experiences or anxiety associated with financial decision-making.
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Financial incapability was defined as the inability to effectively manage one’s finances due to a lack of requisite knowledge, skills, confidence or the behavioral habits necessary for sound financial decision-making. In contrast to financial illiteracy, which was concerned with a lack of comprehension, financial incapability is more closely tied to the practical constraints encountered when attempting to apply financial knowledge to effectively manage money, create a budget, save and plan for future financial needs [44].
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An individual who is not engaged in home budgeting was defined as someone who does not regularly plan, track, or organize their household income and expenses through a structured budget. This means that they typically lacked a systematic approach to determine the proportion of their income to be allocated toward spending, saving or debt repayment on a regular basis.
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An individual who has not taken proactive steps to prepare financially for retirement is defined as a nonretirement planner.
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The latent variable financial hardship is grounded in the OECD Framework for Statistics on the Distribution of Household Income, Consumption, and Wealth (OECD, 2013), which provides guidelines for measuring household income, consumption, and wealth as three distinct yet interrelated dimensions of economic wellbeing.
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The latent variable financial hardship was operationalized through two exogenous variables: subjective financial hardship and objective financial hardship. The former reflects perceived financial strain, while the latter captures tangible financial difficulties, such as expenses exceeding income or insufficient funds for mortgage or bill payments.
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The subjective financial hardship variable was operationalized by using the item “My financial situation limits my ability to do things I consider important,” which was rated on a 5-point Likert scale, with 1 indicating strong disagreement and 5 indicating strong agreement.
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Two indicators were used to assess objective financial hardship. The first indicator, budget deficit, was employed to identify instances where household expenses exceeded income. This was measured with the item “In the last 12 months, have your expenses been greater than your income?” Responses were dichotomized as either true or false.
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The second indicator, delayed payment, addressed the inability to meet debt obligations in a timely manner. This exogenous variable was measured through the following question: “In the last 12 months, has your household encountered financial challenges that have resulted in the deferred payment of debt?” Responses were dichotomized as true or false.
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Financial well‐being The latent variable financial well-being is grounded in two complementary frameworks: the InCharge Financial Distress/Financial Well-Being Scale [37] for the subjective perspective, and the CFPB Financial WellBeing Scale [48] for the objective perspective.
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The latent variable financial well-being was operationalized through three indicators: one subjective indicator, financial satisfaction, and two objective indicators, financial buffer and income.
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Financial satisfaction was defined as the extent to which an individual experiences contentment with their present economic and financial circumstances.
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The financial buffer was defined as the savings or reserve which an individual maintains to address unforeseen circumstances or financial emergencies, typically covering a period from three to six months of basic expenses.
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The indicator of income was measured with a multiplechoice question: “Please estimate the total annual gross household income for your household as a whole.”
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To account for potential confounding effects, sociodemographic control variables were incorporated, by including gender, age, educational level, employment status, employment status changes, and household structure.
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The structural model was evaluated by examining the multicollinearity of path coefficients and their statistical significance. VIF values for all paths were below 3.0 (ranging from 1.0 to 1.3), confirming the absence of multicollinearity concerns
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Lack of self‐control → Financial hardship 0.430 40.111 0.409–0.450 0.226 1.098
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Lack of self‐efficacy → Financial hardship 0.199 18.543 0.173–0.214 0.043 1.098
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Financial hardship → Financial well‐being –0.410 –40.964 –0.430 to –0.397 0.246 1.378
hernandez-perez2025 - p. 13
Lack of self‐control → Financial hardship 0.471 40.111 0.409–0.450 0.220 1.00
hernandez-perez2025 - p. 13
Lack of self‐efficacy → Financial hardship 0.201 18.543 0.173–0.214 0.043 1.00
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Financial hardship → Financial well‐being –0.437 –46.760 –0.455 to –0.422 0.246 1.30
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Lack of self‐control → Financial hardship 0.450 0.429* 0.433 0.430* 0.434 0.425*
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Lack of self‐efficacy → Financial hardship 0.193 0.197 0.123 0.218* 0.142 0.179*
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Financial hardship → Financial well‐being –0.404 –0.395* –0.400 –0.390* –0.389 –0.381*