January 2022
Abstract: This paper examines the complex nature of financial vulnerability in the United States through the adoption of factor analysis to identify the underlying constructs of financial security. Using data from the FINRA Foundation’s 2018 National Financial Capability Study (NFCS), we identify three underlying factors of financial vulnerability: (1) debt and cash flow management, (2) wealth building and planning, and (3) an understanding financial risks and financial literacy. A composite vulnerability index is created based on the three factors. Linear Probability Regression analyses are used to examine the association between sociodemographic characteristics (e.g., age, race/ethnicity, and income) and vulnerability scores.