Financial fragility and financial optimism linkage during COVID-19: Does financial literacy matter?

COVID-19 and its consequences induced many challenges for individuals, and many of them experienced financial fragility. Financial optimism is crucial in this situation as it helps individuals and organizations recover from such situations. We argue that financial fragility has a long-term consequence on individuals and examined the adverse effect of financial fragility on financial optimism. Using a nationally representative dataset from the USA, we tested if financial literacy could minimize financial fragility's adverse impact on financial optimism. We found a negative linkage between financial fragility and financial optimism; the linkage was stronger for women. To address potential endogeneity, we conducted robustness analyses using instrumental variable regression and propensity score matching. The findings of the study provide implications to increase financial optimism during the pandemic.