FINANCIAL LITERACY AND FINANCIAL OUTCOMES: THE MEDIATING ROLE OF DECISION-MAKING AND A MULTI-THEORETICAL FRAMEWORK

Abstract

Improving financial performance is essential for the economic resilience of individuals and households because it strengthens savings, debt control, and future financial health. This study examines the interaction between financial literacy, financial decision-making, and financial outcomes based on 175 observations, where education and income scales differ. Using structural equation modeling technique, we identify the moderating and mediating roles played by education and decision-making in the complex relationship. The empirical results show that financial literacy has a significant positive effect on decision-making (21.08), but it has a negative direct effect on financial outcomes (−246.26). In the same vein, financial decision-making also has a strong negative effect on outcomes (−0.55). In addition, the interaction of literacy and education (28.00) and literacy and income (51.94) are positive contributors to financial outcomes, highlighting the need for structural conditions. The indirect effects of decision-making demonstrate that financial outcomes are mediated through financial literacy (−11.69), indicating that literacy operates as a comparatively weak financial mediator within the structural framework. The model fit statistics (RMSEA = 0.298, CFI = 0.713, SRMR = 0.100) reflect a relatively poor overall fit; however, they still reveal statistically significant structural paths among the examined constructs. Although the goodness-of-fit indices suggest that the proposed model does not fully align with the observed data structure, the identified relationships provide meaningful empirical insights into the interplay between decision-making behavior, literacy levels, and financial performance. These findings emphasize that financial literacy alone may not be strong enough to effectively channel decision-making into improved financial outcomes. Therefore, these insights are crucial for policymakers in designing comprehensive financial literacy strategies that integrate behavioral education with socio-economic support services, thereby fostering more sustainable and inclusive financial development.