The authors of this study, using longitudinal data in the US, investigate the evolution of financial education over time and shed light on the effect of financial knowledge on financial results.
Some of their conclusions are:
- Over a six-year observation period, financial literacy appears to be fairly stable, with a slight tendency to decline at later ages. This implies that financial education improves very little over time, indicating the need to strengthen financial literacy, especially among young and middle-aged people.
- Financial education has significant predictive power for future financial outcomes, especially satisfaction with one’s own financial situation, the ability to cope with shocks, and planning for retirement. These results, combined with the observed stability of financial education over time, suggest that differences in the stock of financial knowledge between individuals may lead to increasing disparities in financial well-being throughout life. Therefore, disparate levels of financial education can contribute to increasing inequality between different segments of the population.
- Women who are more financially educated experience better financial outcomes later than men. This indicates that higher levels of financial education for women can help close the gender gap. Similarly, they find that low-income people who have higher levels of financial literacy are better prepared to deal with unexpected shocks and manage debt.
The study represents progress towards a better understanding of the relationships between household financial behavior and financial education. This knowledge is crucial for designing and implementing interventions that can effectively improve the decision-making and financial well-being of households, particularly among the most disadvantaged and vulnerable groups of the population. The results suggest that financial literacy can make an important contribution to increasing disparities throughout life, highlighting the need to find effective strategies to improve financial literacy early in the life cycle.
Download the full study here.
