Longitudinal Changes in Financial Well-Being, Financial Behaviors, and Life Events

Document Type

Issue/Research Brief/Blog

Publication Date



general population, financial status and behavior, life event barriers, economic barriers, financial education


Prior research has examined how financial well-being (FWB) is related to financial knowledge, behaviors, and personal traits, yet little research has explored how FWB changes over time and in response to life events. In this study, we examine how FWB changes over time, which financial behaviors are associated with higher levels of and changes in FWB, and how FWB responds to numerous life events, including financial shocks. In addition, we examine which factors reduce the impacts of negative financial shocks both directly – by reducing the magnitude of the impact of an experienced shock – and indirectly – by reducing the probability a shock occurs.

To address our research questions, we leverage three waves of data from the Understanding America Study, a nationally representative Internet panel, spanning multiple years. We use a descriptive outcome study approach to describe the evolution in FWB over time, and regression analysis to examine: (1) how levels of and changes in FWB are associated with demographic characteristics, protective behaviors, and financial shocks; and (2) whether protective financial behaviors reduce the likelihood of experiencing a negative financial shock, and its impact conditional on occurrence.

We find that:

  • Financial well-being is relatively stable over our 2.5 year window of observation. The median change we observe is zero, and the vast majority of respondents experience single digit changes in the FWB scale;
  • Protective financial behaviors, such as planning ahead and maintaining a manageable debt load, are associated with higher current and future levels of FWB. However, we find no evidence that these protective behaviors are associated with changes in FWB over time;
  • Some protective behaviors are associated with a reduced likelihood of experiencing a negative financial shock, though we find essentially no evidence that individuals who engage in protective financial behaviors are less impacted by these shocks conditional on their occurrence.

Individuals who display protective financial behaviors, such as spending less than income and regularly saving in liquid accounts, tend to have higher FWB than their counterparts who do not. Yet, our evidence suggests that the gap in FWB between these groups does not appear to be changing over time (at least over the length of time that we can observe). Relatedly, our evidence suggests that protective behaviors are “protective” only in so far as they lessen the likelihood of negative financial shocks, but they do not lessen the harmful impacts of negative financial events on FWB when they do occur. It is important to note that the associations we observe may not be causal, and that there may be stronger associations between protective behaviors and increases in financial well-being over longer time horizons than currently available to us. Future research can build on our analysis by shedding further light on both dimensions.