Using the Right Yardstick: Assessing Financial Literacy Measures by Way of Financial Well-Being

41 Pages Posted: 2 Mar 2012

See all articles by Maximilian D. Schmeiser

Maximilian D. Schmeiser

Amazon Lending

Jason S. Seligman

U.S. Department of the Treasury - Office of Economic Policy

Date Written: March 1, 2012

Abstract

With the shifting of responsibility for retirement planning and risk from employers to employees, as well as the increasing complexity of household finances, researchers, policy makers and practitioners have become increasingly concerned with the financial literacy of the U.S. population. Despite the proliferation of academic studies examining the relationship between financial literacy and a variety of financial outcomes no consistent definition or empirically validated measures of financial literacy exist. Questions currently used to assess financial literacy primarily ask about knowledge of compound interest, inflation, and portfolio allocation/risk, which may have little relevance for low-income/asset populations. Using data from the Health and Retirement Study (HRS) we examine whether existing measures of financial literacy are consistent and effective predictors of successful asset accumulation, resilience to asset loss and changes in retirement expectations. We find no evidence that existing questions predict future financial outcomes, or even that individuals consistently answer these questions across survey waves.

Keywords: financial literacy, asset accumulation, financial resiliance

JEL Classification: D12

Suggested Citation

Schmeiser, Maximilian D. and Seligman, Jason S., Using the Right Yardstick: Assessing Financial Literacy Measures by Way of Financial Well-Being (March 1, 2012). Available at SSRN: https://ssrn.com/abstract=2014444 or http://dx.doi.org/10.2139/ssrn.2014444

Maximilian D. Schmeiser (Contact Author)

Amazon Lending ( email )

Seattle, WA 98144
United States

Jason S. Seligman

U.S. Department of the Treasury - Office of Economic Policy ( email )

1500 Pennsylvania Avenue
Washington, DC 20220
United States
(202) 622-1683 (Phone)

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