The Relationship between Budgeting and Indicators of Financial Well-Being

Abstract

Financial well-being is an emerging topic among financial literacy practitioners. Financial well-being is linked to financial behaviors such as day-to-day money management, and planning and saving for the future, both of which are influenced by an individual's ability to apply their financial knowledge and skills in order to manage their expenses. Such courses of action can be linked to the development of a budget. It is the goal of this research to explore the role that budgeting, in addition to further financial behaviors, has on the achievement of financial well-being outcomes. An analysis of the 2014 Canadian Financial Capability Survey was used to explore the relationship between how budgeting and financial behaviors impact indicators of financial well-being. This analysis finds always staying within a household budget helps individuals control their spending by imposing restraints while also encouraging savings practices. Together, this aids individuals in achieving positive financial well-being outcomes. The findings of this paper also suggest that individuals who partake in budgeting practices do so because they are facing constraint. However, this constraint affects the probability an individual will always stay within their household budget. Finally, this paper finds that other predictors of financial well-being are financial confidence, financial knowledge, and impulsivity.