Using data collected by the National Financial Capability Study, a survey recently commissioned by the Financial Industry Regulatory Authority, this paper investigates the correlations between subjectively and objectively assessed measures of financial knowledge, and the probability of having savings adequate to cover 3 months of typical expenses. Results indicate that households who are more financially knowledgeable or more confident in their financial ability are significantly more likely to report having emergency funds. These findings support the growing literature on the relationship between financial knowledge and economic behaviors and have wide policy implications.
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Low saving rates are a distinct characteristic of the US society relative to other developed economies. Some authors (e.g., Garon 2011) attribute this to the US 20th-century culture of mass consumption and reliance on credit.
All dollar signs denote US currency.
The NFCS interviewed a total number of 28,146 respondents, out of which 668 (2.37 %) replied “Don’t know” and 379 (1.35 %) replied “Prefer not to say” to the emergency savings questions.
The differences in means/percentages between the group of respondents who reported having emergency savings and the group of respondents who reported not having emergency savings were statistically significant at the 0.05 level for all variables included in the analysis.
Collins and O’Rourke (2010) provide a comprehensive synthesis of literature that evaluates the effects of financial education programs.
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See Table 4.
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Babiarz, P., Robb, C.A. Financial Literacy and Emergency Saving. J Fam Econ Iss 35, 40–50 (2014). https://doi.org/10.1007/s10834-013-9369-9
- Financial literacy
- Financial knowledge
- Emergency savings
- Precautionary savings