Does Financial Literacy Reduce the Financial Fragility of Individuals? The Mediating Effect of Financial Capability and Financial Preparedness

This article examines the relationship between financial literacy and financial fragility, particularly investigating the mediating effect of financial capability and financial preparedness. Accordingly, this article offers deeper insight into how financial literacy reduces financial fragility among individuals. For this purpose, the authors employed a quantitative research design and conducted a survey using purposive sampling to gather data from 419 individuals in India. The sample includes individuals aged between 18 and 60, with annual incomes ranging up to 10 lakhs and above 10 lakhs. The outcomes of variance based structural equation modeling (PLS‐SEM) demonstrate that financial attitude, financial socialization and socio‐demographic characteristics positively influence financial literacy. Additionally, financial literacy significantly influences financial preparedness and financial capability. However, financial literacy, financial preparedness and financial capability insignificantly influence financial fragility. The results also show that financial preparedness and financial capability independently and in parallel do not mediate the relationship between financial literacy and financial fragility. The findings of this article help financial institutions develop mechanisms to increase individuals' confidence in their financial activities. This article also provides policymakers and governments with information on raising awareness of effective debt management and implementing initiatives to mitigate financial fragility. Furthermore, it attracts individual interest by integrating unique offerings with innovative and forward‐looking solutions.