In previous articles, we have looked at Financial Socialization and Influences of K-12 Education on Adult Financial Decisions, we have also looked at Financial Literacy Around the World. Building on those articles, I will be highlighting some of the factors that influence financial knowledge, factors that affect one’s appreciation of financial concepts, habits, and decisions. Hopefully, these insights will help you reflect on the influences on your own financial knowledge.
Education has been forwarded as a key factor associated with financial knowledge. However, Olivia S. Mitchell and Annamaria Lusardi in Financial Literacy and Economic Outcomes: Evidence and Policy Implications examined various countries including Canada, Germany, the Netherlands, Switzerland, Sweden, Japan, Italy, France, Australia, and New Zealand revealed that even well-educated people are not necessarily savvy about money.
Lusardi and Mitchell found that men were more confident about their financial knowledge than they ought to be. Even when giving wrong answers to the financial literacy questions asked, they were very confident about their answers. In contrast, the women on average answered fewer of the questions asked correctly but were more likely to admit when they did not know how to answer a question. As the paper suggests, gender could be among the factors that influence financial knowledge.
Lusardi and Mitchell also highlighted low levels of financial literacy were found in respondents at the beginning of their work careers, specifically ages 23 -28, and similar findings were reported for millennials ages 23-35, including those who had a college degree.
In the 2022 TIAA Institute – Global Financial Literacy Excellence Center (GLEC) Personal Finance Index, financial literacy levels varied with other socio-demographics in addition to generation (age) and race and ethnicity. Financial literacy was shown to be greater among men, those with more education, those who have received financial education, those employed or retired, and those with higher household incomes. These patterns are consistent with variations identified in previous years of the P-Fin Index and other studies.
Similarly, the Standard & Poor's Ratings Services Global Financial Literacy Survey ( S&P Global Financial Literacy Survey) also indicates that financial literacy levels among US adults vary significantly across sociodemographic groups. For example, about 62 percent of men are financially literate, compared with about 52 percent of women. The data also showed that about 64 percent of adults living in high-income households are financially literate, compared to about 47 percent of adults living in low-income households.
The 2020 P-Fin Index additionally confirmed the results of the S&P Global Financial Literacy Survey, particularly that financial literacy varies significantly across sociodemographic groups. For instance, the number of correct answers in the P-Fin Index is positively correlated with age, income, and education. Financial literacy is also higher among men than among women.
Just as in the two previous studies, the National Financial Capability Study also confirms that financial knowledge varies significantly across sociodemographic groups. It cites that financial knowledge was higher among men than women and was positively correlated with age and income. Moreover, when results are evaluated across race/ethnicity lines, the data indicates that financial knowledge was considerably lower among Black people and Hispanics than among Asians and Whites.
A study on the Impact of Financial Education and Socioeconomic Status on the Undergraduate Students' Financial Literacy, aimed at empirically investigating the determinants of financial literacy such as financial education, parents' socioeconomic status, and gender, concluded that financial education and gender did not prove significant in influencing students' financial literacy. However, the empirical study generated that encouraging parents is one of the essential policy elements in improving students' financial literacy.
It also found that students of higher socioeconomic status tend to have better financial planning and decision-making. In looking at socioeconomic status, the study considered the family net income, types of jobs, educational achievement, marital status, and the number of family members to evaluate financial literacy. The study continued to note a correlation between financial knowledge, attitudes, and behavior, pointing out that parents with higher income contributed to the possibility of increased financial literacy for their children as opposed to parents with lower income levels. Also, that family background promoted a positive correlation toward financial knowledge. In contrast, however, in the United States, research revealed that students in low-income family conditions tend to have a higher level of financial literacy.
Another study, Analyzing the Factors Influencing University Students' Financial Literacy by Sirli Mandmaa analyzed questionnaire survey results of 522 university students to assess the relationships between their financial literacy and students' financial opinions and choices. The study also analyzed the impact of educational and demographical characteristics on the participants' financial literacy, opinions, and choices. Results of the regression analysis showed that there was a statistically significant impact on financial literacy based on factors such as gender, nationality, and academic discipline. In regard to financial choices and opinions, holding a debit card, having a bank loan, planning financial affairs daily, and having an interest in getting more information about financial services were contributing factors. It also noted that students studying science or mathematics-oriented subjects have more financial knowledge.
A report on Financial Literacy in the United States from the Milken Institute highlights that the emergence of financial technologies can play a major role in advancing financial literacy, particularly among younger and more vulnerable populations. By offering new, more engaging ways to teach financial and economic concepts as well as by making financial education, instruction, and training more affordable and accessible. Financial technologies can be the catalyst needed to jump-start financial literacy education across the country. However, the rapid adoption of digital financial services carries new risks and requires greater knowledge on the part of consumers to avoid fraud, data-privacy issues, and other costly mistakes associated with these technologies. It is, therefore, crucial to recognize that greater access to financial technologies must be supported by a new definition of financial literacy—one that incorporates the knowledge and skills required to use digital financial services effectively.
Concluding thoughts:
Several factors can influence one’s financial knowledge, as seen in this and previous articles. Factors like socialization, geographic location, nationality, gender, family income and background, early financial education, and a ton more influence financial knowledge. There are several ways to help improve our own financial knowledge and that of the people around us, these include:
- Evaluating your knowledge or biases on financial concepts
- Sharing your financial knowledge, and
- Creating avenues to get financial education
Valuable resources for you to listen to and share are the Get Savvy Webinar series and Making Cents of Money podcasts we do together with our partners.
