The FSA recently published research results that looks at the relationship between financial capability and psychological well-being. The authors found that moving from low to average levels of financial capability increases psychological well-being by 6%, reduces the probability of an individual suffering a health problem related to  anxiety or depression by 15% and increases reported life satisfaction by 2.4%. By way of comparison, earning an extra £1,000 (around $1,500) a year increases life satisfaction by only 0.2%.

The impact of financial incapability on psychological well-being varies across the population: it is particularly strong for divorced and for unemployed people.

The researchers drew on data from British Household Panel Surveys over the period 1991-2006. The measure of financial capability they used was derived from information provided by respondents relating to their perceived financial well-being; savings behaviour; housing payment problems; and material well-being

This index of financial capability does not directly measure knowledge, understanding and skills (the difficulty for the researchers was the lack of survey data on these aspects). Nevertheless, the research It provides an additional line of argument for those who are looking to persuade Governments and others about the importance of putting in place effective programs to help people to manage their money better.