Financial Literacy and Financial Wellbeing: Dual Capability Pathways and Contextual Moderation in Portugal

This study examines how two forms of financial literacy—objective financial literacy (OFL; demonstrated knowledge of interest rates, inflation, and diversification) and perceived financial literacy (PFL; self-assessed confidence in financial matters)—relate to financial wellbeing through distinct capability pathways, and whether self-regulation conditions these links. We use three nationally representative cross-sections from Portugal (2015, 2020, 2023; N = 3648), a European setting marked by declining objective literacy and constrained market participation. Guided by capability theory, we propose a dual-lane model in which OFL operates through behavioural capability (BC; enacted saving, investing, and planning behaviours) to shape objective financial wellbeing (OFW; resilience, assets, and saving), while PFL operates through perceived capability (PC; financial self-efficacy and perceived control) to shape subjective financial wellbeing (SFW; perceived security, satisfaction, and freedom from financial stress). We also test whether non-impulsive, future-oriented behaviour (NIB) strengthens the associations along the objective lane. Structural equation models provide partial support for the dual-lane model, revealing three asymmetries with implications for European policy: (1) the link between behavioural capability and objective financial wellbeing weakens in 2023, suggesting that macroeconomic conditions can undercut even prudent financial behaviour; (2) perceived financial literacy directly predicts subjective financial wellbeing, but perceived capability does not mediate this association, indicating that financial confidence shapes wellbeing independently of self-efficacy; and (3) non-impulsive, future-oriented behaviour amplifies the association between objective literacy and objective wellbeing in 2015 and 2023 but not in 2020, showing that the benefits of self-regulation are context-dependent. The findings inform financial education and policy across Europe by distinguishing intervention levers for objective versus subjective outcomes and identifying conditions under which behavioural interventions are most effective.