Beyond Traditional Metrics: Developing and Validating a Multidimensional Scale for Consumer Financial Well‐Being

Summary

This paper develops and validates a new Consumer Financial Well-Being (CFW) scale that moves beyond debt-focused measures to capture a multidimensional, consumer-centred construct. Using a rigorous five-study process (qualitative item generation, exploratory and confirmatory factor analyses, cross-national validation and experimental tests), the authors settle on a 20-item, four-factor, second-order reflective scale comprising: Financial Wisdom, Financial Security, Financial Preparedness & Satisfaction, and Financial Resilience. The scale was developed in India and validated in the United Kingdom, shows strong psychometric properties (high reliability and convergent validity), and sits within theoretical frameworks such as dual-process theory and multiple discrepancies theory. Empirical tests demonstrate that CFW predicts mindful consumption and life satisfaction, and that prevention-focused consumers are more likely to score highly on CFW than promotion-focused consumers.

Key Points

New 20-item CFW scale with four dimensions: Financial Wisdom, Financial Security, Financial Preparedness & Satisfaction, and Financial Resilience.
Developed through five studies: item generation (literature, focus groups, interviews), EFA/CFA in India, cross-validation in the UK, nomological testing (mindful consumption & life satisfaction), and an experiment on regulatory focus.
Financial Wisdom is introduced as a novel dimension that blends knowledge, self-control and ethical/socio-emotional judgement—distinct from plain financial literacy.
CFW is modelled as a second-order reflective construct; the four factors load onto a unified latent variable representing overall financial well-being.
Psychometric evidence: strong internal consistency (Cronbach’s α and composite reliability high), acceptable AVE, and converging results from maximum-likelihood and Bayesian SEM.
Nomological validity: higher CFW is positively associated with mindful consumption (β ≈ 0.47) and life satisfaction (β ≈ 0.60).
Regulatory focus matters: prevention-focused participants scored higher on all four CFW dimensions than promotion-focused participants, especially on financial wisdom and security.
Practical implications for policymakers, financial advisers and marketers: measure CFW to design interventions that foster financial wisdom, encourage mindful consumption and improve life satisfaction.

Content summary

The authors open by situating CFW amid ongoing macro shocks—post-2008 instability, COVID-19, geopolitical conflict, inflation and cost-of-living pressures—that make accurate measurement of consumer financial well-being increasingly important. They identify limitations in existing instruments (over-emphasis on indebtedness, lack of consequences, limited geographic scope) and set out to build a more comprehensive measure with robust validation.

Study 1 generated 136 items via literature review, focus groups and interviews, reduced to 100 after expert review. Study 2 (India) applied descriptive filters, item response theory, EFA and CFA to arrive at a 20-item, four-factor solution. Study 3 replicated the factor structure using UK data. Study 4 used PLS-SEM to show CFW predicts mindful consumption and life satisfaction; Study 5 experimentally tested regulatory focus and found prevention orientation increases engagement with CFW. The scale demonstrates strong convergent and discriminant validity against benchmark scales (CFPB and AUS).

Context and relevance

Why this matters: policymakers and practitioners need reliable, multidimensional measures to target financial education, product design and consumer protection effectively. By introducing financial wisdom and linking CFW to sustainable consumption and subjective well‑being, the scale connects finance, ethics and behaviour—useful for researchers testing interventions and for advisers measuring clients’ holistic financial health. The cross-national validation (India and UK) strengthens its generalisability across emerging and developed contexts facing cost-of-living stress.

Why should I read this?

Short version: if you care about measuring what really makes people financially well (not just how much debt they have), read this. It gives you a tested 20-item scale, shows it works in two very different countries, and proves it links to real-world outcomes like mindful buying and life satisfaction. It’s handy for policy folk, financial planners and researchers who want a practical, psychometrically sound tool without getting bogged down in jargon.

Author style

Punchy. The authors take the debate beyond narrow metrics and make a case that financial well‑being must include wisdom, security, resilience and satisfaction. If you care about designing interventions or measuring impact, the paper underlines why a broader construct is both theoretically and practically superior.

Implications (brief)

Use the scale to:

Assess client or population-level CFW and tailor financial education to build wisdom, not just literacy.
Design marketing or behavioural interventions that encourage mindful consumption and reduce impulsive debt accumulation.
Inform policy tools aimed at improving population well‑being during cost-of-living crises.