Consumer financial education and financial capability

Jing Jian Xiao,Barbara O'Neill

doi:10.1111/ijcs.12285

Abstract

AbstractThe 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.

Highlights

Consumer financial literacy education is an increasingly prevalent topic in the literature of consumer studies in recent years
The results suggest that financial education may have multiple positive impacts on consumer financial capability by improving financial knowledge, encouraging positive financial behaviors, and enhancing confidence in financial capability
The explaining powers of these models varied by the R2 values, that were, from the highest to the lowest, perceived financial capability, financial capability index, objective financial literacy, subjective financial literacy, and desirable financial behavior

Summary

Introduction

Consumer financial literacy education is an increasingly prevalent topic in the literature of consumer studies in recent years. Researchers have studied this topic from diverse perspectives such as conceptually arguing for and against financial education (Alsemgeest, 2015), positioning education as the foundational discipline in financial education (Baumann and Hall, 2012), designing a financial literacy course for a liberal arts curriculum (Crain and Ragan 2012), emphasizing sustainable financial behavior in financial education (Hira, 2012), and tailoring financial education material to meet individual consumer needs (West, 2012). The purpose of this study was to examine the association between financial education and financial capability using a large national U.S dataset. Financial capability refers to the ability to apply appropriate financial knowledge and perform desirable financial behaviors to achieve financial well-being (Xiao et al, 2014b)

Methods

Results

Conclusion