Abstract
Financial education sans opportunities for hands-on experience and knowledge operationalization may be insufficient for promoting healthy financial behaviors. Financial capability combines financial education with financial inclusion via a savings account, thereby giving an opportunity translate knowledge into practice. This study used data from the 2012 National Financial Capability Study to examine relationships between the financial capability and financial behaviors of United States Millennials (N = 6865). Compared to their financially excluded peers, Millennials who were financially capable were 176 % more likely to afford unexpected expenses, 224 % more likely to save for emergencies, 21 % less likely to use alternative financial services, and 30 % less likely to carry burdensome debt. Interventions that focus solely on financial education or inclusion may be insufficient for facilitating Millennials’ healthy financial behaviors; interventions should instead develop financial capability.
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Notes
All monetary values throughout this paper are reported in US dollars.
Sometimes economic inclusion is used interchangeably with financial inclusion; however, this paper intentionally uses financial inclusion. Financial inclusion is a narrower term that can pertain to the use or ownership of financial products like savings accounts, checking accounts, and credit cards. Economic inclusion is a broader term that can pertain to the economy or distributions of income and wealth.
The original question in the 2012 NFCS asked the extent to which respondents agreed that they carried too much debt on a scale of 1 (strongly disagree) to 7 (strongly agree). Young adults were deemed to carry too much debt when they reported a 5 or higher on the scale.
The correlation between financial education and a savings account, while significant at p < .05, was .13. This suggested that there was a weak relationship between financial education and a savings account.
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Acknowledgment
This research was supported by a grant from the FINRA Investor Education Foundation. All results, interpretations and conclusions expressed are those of the research team alone, and do not necessarily represent the views of the FINRA Investor Education Foundation or any of its affiliated companies. No portion of this work may be reproduced, cited, or circulated without the express written permission of the authors. The FINRA Investor Education Foundation, established in 2003 by FINRA, supports innovative research and educational projects that give underserved Americans the knowledge, skills and tools necessary for financial success throughout life. For details about grant programs and other FINRA Foundation initiatives, visit www.finrafoundation.org.
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Friedline, T., West, S. Financial Education is not Enough: Millennials May Need Financial Capability to Demonstrate Healthier Financial Behaviors. J Fam Econ Iss 37, 649–671 (2016). https://doi.org/10.1007/s10834-015-9475-y
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DOI: https://doi.org/10.1007/s10834-015-9475-y