Consumption pattern, financial literacy and financial well-being: the course of retirement

Although well-being has been broadly analysed, financial well-being is still an emerging research area. Consumption behaviour and financial literacy are primary factors in determining personal financial well-being in retirement. Based on unique survey data concerning elderly Australians, we analyse and combine changes in actual consumption and consumption needs over retirement to examine how meeting consumption needs influences financial well-being. The role of financial literacy in the relationship between meeting consumption needs and financial well-being is also analysed. We find that meeting both essential and non-essential consumption needs significantly improves financial well-being. The positive effect is strongest for non-essential consumption. While financial literacy is independent of the relationship between meeting essential consumption needs and financial well-being, it helps strengthen the positive relationship between meeting non-essential consumption needs and financial well-being.