How Much Does State Context Matter in Emergency Savings? Disentangling the Individual and Contextual Contributions of the Financial Capability Constructs

The majority of American families lack the savings necessary to overcome an unexpected financial shock. Sherraden’s (2013) financial capability framework – objective financial knowledge, subjective financial knowledge, financial confidence, and financial access – has been used to explain patterns of emergency savings. To date, research in this vein has been conducted almost entirely using individual level variables, leaving the issue of how context shapes financial capability’s relationships to emergency savings largely unaddressed. Using four waves of the National Financial Capability Study (2009, 2012, 2015, and 2018), we estimate multi-level probit models of emergency saving as a function of objective financial knowledge, subjective financial knowledge, financial confidence, savings account ownership, adjusting for a host of state characteristics and financial inclusion indicators. We decompose financial capability constructs into between- and within-state components and find that financial capability constructs operate mostly at the individual level. State’s levels of savings account ownership and government ideology were positively associated with increased likelihood of holding emergency savings. Financial inclusion measured by bank account and credit union access explained little. Programs that target individual level financial knowledge and confidence and state policies that promote savings account ownership have promise to raise the low rates of emergency savings.