Financial Literacy among the Young

We examined financial literacy among the young using the most recent wave of the 1997 National Longitudinal Survey of Youth. We showed that financial literacy is low; fewer than one-third of young adults possess basic knowledge of interest rates, inflation and risk diversification. Financial literacy was strongly related to sociodemographic characteristics and family financial sophistication. Specifically, a college-educated male whose parents had stocks and retirement savings was about 45 percentage points more likely to know about risk diversification than a female with less than a high school education whose parents were not wealthy.     

Consumer financial education and financial capability

The purpose of this study was to explore potential effects of financial education on the financial capability of American consumers. Data from the 2012 National Financial Capability Study were used to test the hypothesis that financial education is positively associated with financial capability. Four financial literacy and behaviour variables were used to form a financial capability index. Multivariate linear regression results showed that, after controlling for demographic and financial variables, respondents who ever received financial education had higher scores in all financial capability indicators (objective financial literacy, subjective financial literacy, desirable financial behaviour, perceived financial capability and the financial capability index). In addition, high school, college and workplace financial education variables showed positive associations with these financial capability indicators. Additional state comparison analyses provided evidence suggesting high school financial education may have direct impacts and spillover effects on consumer financial capability.     

The influence of consumer socialisation in the home on gender differences in financial literacy

The lower level of financial literacy amongst females relative to males has been well documented in the literature. There has however been a less than compelling argument constructed as to why this discrepancy occurs. This article introduces findings showing the influence the home, particularly financial discussions in the home, has on the financial literacy levels of children and young adults. A key finding is that males have their first financial discussion in the home at a younger age than females on average, with this differential statistically significant across students of differing socioeconomic status. For males, the age of the child when they have their first financial discussion in the home influences their financial literacy levels some years later at university, even accounting for other variables such as socioeconomic status. The findings of this article suggest that financial socialisation in the home may be subject to a gender bias, which over time contributes to differential financial literacy knowledge levels between the genders.     

How Does Financial Literacy Impact Attitude Toward Student Loan Providers?

ABSTRACT

We examined whether financial literacy changes college students' assessments of their student-loan providers. As predictors in our backward regression, we included (a) financial literacy, (b) perceived importance of loan, (c) satisfaction with college, (d) financial optimism, (e) experience using credit cards, and (f) perceived importance of decisions about credit cards. We also included two-way interactions between financial literacy and the other variables. Our regression explained about 24% of the variance in the dependent variable. Our results indicated that financial literacy was a significant predictor of attitude toward the student loan provider—but only in the interaction terms.     

Determinates of financial behavior: insights into consumer money attitudes and financial literacy

As consumer requirements for financial services permeate society, they link various financial institutions more closely together, developing divergent financial products. This research develops a conceptual framework for discussing consumer money attitudes, financial literacy regarding financial decisions, and financial behavior. Study findings suggest that consumers who have retention-planning and achievement-esteem attitudes toward money make high-risk financial decisions; anxiety toward money tends to exist mainly in low-risk investors. Financial literacy affects consumer financial behaviors, and demographic variables play segmentation roles. Theoretical contributions and management implications are provided in the study for related research, education departments and financial firms.     

Earlier financial literacy and later financial behaviour of college students

This study examined the association of earlier financial literacy and later financial behaviour of college students. Financial literacy was measured by both subjective and objective knowledge and financial behaviours were categorized into risky paying and borrowing behaviours. Based on data collected at two time points from a panel of college students at a major state university in the USA, the results showed that the association between earlier knowledge and later financial behaviours differed by the specific type of knowledge (subjective vs. objective), with stronger effect of subjective knowledge, compared with objective knowledge on both composite and individual measures of risky borrowing and paying behaviours. We found that only subjective knowledge was correlated with a reduction in both composite behaviours. Both subjective and objective knowledge, however, reduced some specific risky paying and borrowing behaviours. Finally, we found consistent differences for two of the control variables: higher GPA (Grade Point Average) was associated with fewer risky paying behaviours; and gender (male vs. female) was associated with more of both types of risky behaviours.     

Financial literacy in the digital age—A research agenda

Digital innovations are transforming financial services and resulting changes in consumer behavior and personal money management. Diffusion of pervasive digital technologies offers individuals quick and easy access to various digital services bringing opportunities and challenges into their personal money management. The study aimed to explore how digitalization affects individuals' financial literacy and financial capability. As a result, we identified three main themes in the intersection of finance and digitalization: Fintech, Financial behavior in digital environments, and Behavioral interventions. We propose directions for measuring digital financial literacy, updates to the financial literacy curriculum, and developments of digital learning tools. Further, we highlight collaboration between the public and private sectors to create a fairer and more inclusive economic landscape. Our study contributes to existing research by proposing a framework for digital financial literacy and financial capability and a research agenda for future studies.     

Integration of a Financial Literacy Curriculum in a High School Economics Class: Implications of Varying the Input Mix from an Experiment

We taught a mere seven‐period financial literacy curriculum to two 12th grade economics classes, where one treatment was Financial Fitness for Life^® (FFFL)‐intensive and the other was “stock market learning” (SML)‐intensive. Two control groups received no financial literacy treatment—an 11th grade group with no exposure to economics and a 12th grade economics class. The 12th grade economics classes, i.e., the two treatment groups and one control group, also worked on identical stock market portfolio assignments that their teachers required independently of our curriculum. In a test of overall financial knowledge, the FFFL‐intensive group outscored both control groups and the SML‐intensive groups, even on questions that were not taught in our curriculum. We conclude that an FFFL‐intensive input mix was beneficial in directly adding to financial knowledge and also in terms of leading to spillovers in such knowledge.     

Financial literacy education and behaviour unhinged: combating bias and poor product design

The growth of products available in the consumer financial market has provided more choice and formal control over household financial decisions than ever before. Financial literacy education programs are generally assumed to improve consumer behaviour in relation to financial products and services. However, there is scant evidence that demonstrates the causal link between education, literacy and behaviour. Through the use of a sample study, we show that the actions of individuals who are financially literate do not necessarily mean they will demonstrate good financial behaviour. We propose that in order to improve the financial behaviour of consumers, two critical areas need to be addressed. Firstly, the objectives of financial literacy programs should be not only to educate consumers about financial markets and products but highlight to individuals the psychological biases and limitations that they as humans cannot easily avoid. Secondly, the regulation of financial products sold to consumers needs alteration to meet the aim of protecting retail consumers from complex financial products that are confusing, ambiguous and inappropriate. We propose regulation and redesign of product information offerings using techniques employed in ecological interface design models to derive a suitability test for consumer financial products.     

How Financially Literate Are Women? An Overview and New Insights

We document strikingly similar gender differences in financial literacy across countries. When asked to answer questions that measure knowledge of basic financial concepts, women are less likely than men to answer correctly and more likely to indicate that they do not know the answer. Both young and old women show low levels of financial literacy. Moreover, women for whom financial knowledge is likely to be very important—for example widows or single women—also know little about concepts relevant for day‐to‐day financial decisions. The gender differences are present for very basic as well as more advanced measures of financial literacy. This is important because financial literacy has been linked to economic behavior, including retirement planning and wealth accumulation. Women live longer than men and are likely to spend time in widowhood. Thus, improving women's financial literacy is key to helping them prepare for retirement and promoting their financial security.     

Financial literacy and savings decisions by adult financial consumers in Zimbabwe

We use survey data from a sample of 4000 adult financial consumers in Zimbabwe to analyse the determinants of financial literacy and its effect on individual's savings decisions. Results show that women have lower financial literacy than men. Furthermore, individuals' residing in rural areas exhibit lower financial literacy compared with urban financial consumers. Financial literacy and financial services interventions targeting women and rural individuals should be strengthened. Econometric results show that financial literacy positively influences savings behaviour for both rural and urban individuals. Furthermore, financial literacy positively influences informal and formal savings. Policy interventions that foster financial literacy are needed to improve individuals saving behaviours.     

School and family environments promote adolescents' financial confidence: Indirect paths to financial literacy skills in Finnish PISA 2018

This study investigates the associations of adolescents' financial socialization factors—financial education in school and families—with financial confidence (i.e., confidence in using financial and digital financial services). In addition, we examine how financial socialization factors indirectly relate to financial literacy skills through financial confidence and the role of demographic factors (adolescent gender, grade level, parental education, family wealth) on financial socialization, financial confidence, and financial literacy scores. We used data on the 4328 Finnish 15-year-olds participating in the 2018 Programme for International Student Assessment (PISA). We measured financial literacy by cognitive test items and assessed financial socialization and financial confidence by adolescent questionnaires. First, the results showed that financial education in school positively predicted adolescents' confidence in using financial and digital financial services. Second, financial education at schools and in families indirectly predicted students' financial literacy through confidence in using digital financial services. Third, older adolescents were more exposed to financial education at school and in families, whereas adolescents from wealthier families and girls (vs. boys) were exposed to a more frequent discussion of financial matters with parents at home. Furthermore, the boys were more confident in using financial services than the girls, although the financial literacy score did not differ by gender; older adolescents were more confident in using financial services and achieved better financial literacy than younger ones. Finally, higher parental education in the family related to higher financial literacy but not to higher financial confidence, whereas family wealth was related to higher financial confidence but not financial literacy.     

Measuring Financial Literacy

Financial literacy (or financial knowledge) is typically an input to model the need for financial education and explain variation in financial outcomes. Defining and appropriately measuring financial literacy is essential to understand educational impact as well as barriers to effective financial choice. This article summarizes the broad range of financial literacy measures used in research over the last decade. An overview of the meaning and measurement of financial literacy is presented to highlight current limitations and assist researchers in establishing standardized, commonly accepted financial literacy instruments.     

Debt Literacy and Debt Literacy Self‐Assessment: The Case of Poland

It is well documented that financial literacy is at best moderate around the world and that the cost of ignorance in this field may be high on both microeconomic and macroeconomic levels. We surveyed a representative sample of Poles to measure their debt literacy—a little‐studied aspect of financial literacy—and therefore obtain insight into the factors predicting it. Our study evidenced low levels of debt literacy and its overestimation by respondents in their self‐reports. We also confirmed some of the patterns found in former studies, including the gender gap and a positive relationship between the level of educational attainment and debt literacy. Finally, our examination provides compelling outcomes with regard to the segmentation of the sample on the basis of objective and subjective debt literacy scores. They show large heterogeneity of debt literacy and thus confirm the need for far‐reaching customization of debt‐oriented education.     

Gauging the Financial Capability of Americans

There is an increasing interest in the economic and financial knowledge of the public. Former Federal Reserve Chairmen Greenspan and Bernanke often stressed the importance of improved economic and financial knowledge of the general public. Recent survey results from the 2012 National Financial Capability Study provide a rich source of information on the state of financial capability of Americans. In this paper we examine the actual knowledge of individuals, investigate how they self-assess their financial capability and knowledge, and analyze the way these relate to financial outcomes. We also examine the way these measures relate to demographic variables. We find that there is room for improvement in financial knowledge, decisions, and capability, which varies among demographic groups and suggest measures for such improvement.     

What Explains the Gender Gap in Financial Literacy? The Role of Household Decision Making

Using newly collected data from the RAND American Life Panel, we examine potential explanations for the gender gap in financial literacy, including the role of marriage and who within a couple makes the financial decisions. Blinder–Oaxaca decomposition reveals the majority of the gender gap in financial literacy is not explained by differences in the characteristics of men and women—but rather differences in coefficients, or how literacy is produced. We find that financial decision making of couples is not centralized in one spouse although it is sensitive to the relative education level of spouses.     

The Effects of Financial Literacy Overconfidence on the Mortgage Delinquency of US Households

This study investigated the effect of objective and subjective financial literacy on mortgage payment delinquency using the 2015 National Financial Capability Study dataset. A hierarchical model showed a substantial negative effect of objective literacy on delinquency, but subjective literacy did not have a significant effect. The predicted likelihood of delinquency at the 10th percentile of objective literacy was over three times as high as the likelihood at the 90th percentile. In a model with combinations of high or low objective and subjective financial literacy, those who were overconfident had a delinquency likelihood three times as high as those who had high objective and subjective literacy. Subjective literacy had substantial effects on delinquency both for high- and low-objective literacy levels. In financial education, attention should be focused not only on objective learning but also making sure consumers are aware of the limitations of their understanding.     

Can behavioral nudges and incentives help lower-income households build emergency savings with tax refunds? Evidence from field and survey experiments

Tax refunds are an opportunity for lower-income households to accumulate emergency savings so they have cash on hand to cover expenses when income is insufficient. Our field experiments testing different behavioral interventions to encourage refund saving via online tax filing show small effect sizes (0.12–0.14) and a low aggregate savings rate (12%) that might be increased were filers to receive financial incentives. We test a key provision of the Refund to Rainy Day Saving and Financial Security Credit Acts using a survey experiment, finding that hypothetical refund saving jumps from 16% with no financial incentive, to 71% and 80% with 25% and 50% matches, respectively, findings which are mostly insensitive to refund size. Our results suggest that public policies to provide greater financial support—including stronger income supports—will better prepare lower-income households for financial emergencies than behavioral interventions to nudge refund saving.     

Small‐Dollar Credit Lending: The Effect of Financial Burden on Personal Asset Misvaluation

Small‐dollar credit lenders offer consumers quick access to cash in the form of products, such as pawn loans. The consumers who tend to use these small‐dollar credit products are more likely to face financial burden and potential for default—particularly when loan‐to‐value ratios are high. However, the cognitive effects of financial burden can impair financial decision making. If financial literacy educators are to empower consumers, more consumer‐centric evidence is necessary to determine how small‐dollar credit consumers make decisions when purchasing loans. One critical decision consumers make is accepting how lenders value their assets in exchange for credit. Three lab studies assess how consumers facing financial burden value their own assets. We find that, due to cognitive constraints of financial burden, consumers can undervalue functional assets and overvalue symbolic assets. Importantly for financial literacy efforts, however, we show that framing a symbolic asset in terms of other‐benefit construal helps attenuate asset overvaluation.     

Propensity to plan,financial capability,and financial satisfaction

Propensity to plan is an indicator of financial capability that contributes to consumer financial well‐being. Previous research has shown that propensity to plan is positively related to objective financial well‐being but little research was found to examine its association with subjective financial well‐being. Using financial satisfaction to measure subjective financial well‐being, this study addressed this research gap and had three objectives: (1) to explore factors associated with propensity to plan, (2) to examine the association between propensity to plan and financial capability factors, and (3) to examine the association between propensity to plan and financial satisfaction. Using data from the 2015 US National Financial Capability Study, the results showed socioeconomic differences in propensity to plan. The results suggest consumers with more economic resources had higher scores in propensity to plan. In addition, propensity to plan was positively associated with financial capability factors, suggesting financial planning is a desirable financial behavior. Finally, propensity to plan made unique contributions to financial satisfaction after controlling for socioeconomic and other financial capability factors.