Modelling Financial Well-Being: A Multinomial Logistic Model to Uncover Policy Implications and Effective Communication for Enhancing Financial Literacy

Cecilia CIOCIRLAN
Cosmin PROSCANU
Miruna PROȘCANU

Keywords

Data science models, Investments, Financial literacy, Multinomial logit

Abstract

Financial well-being (FWB) is generally described as a state of financial stability that enables individuals to feel secure and free from financial stress. A strong financial foundation allows people to meet their financial obligations while making decisions that enhance their quality of life. This study explores the impact of financial literacy and investment choices on FWB. By categorizing financial literacy into different levels of complexity, we found that basic financial knowledge does not significantly affect FWB, while moderate and advanced literacy levels help reduce financial insecurity. The data shows a clear pattern: as financial literacy improves, so does financial well-being. Additionally, most financial assets contribute positively to FWB, particularly savings deposits and cash savings. These findings suggest that financial education programs should be structured progressively, with a focus on achieving at least an intermediate level of literacy. Policy design and communication strategies for financial education should be tailored to specific behavioral traits and delivered through a progressively challenging curriculum.