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The relationship between financial knowledge and behavior : evidence from a survey of Federal Reserve Bank of Kansas City employees

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Author Info
Mary Gillett Fisher
Kelly Edmiston

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Abstract

The changing income and debt patterns among Americans and an increasingly complex financial services environment have led many to wonder about the average consumer’s ability to make good personal financial decisions without formal training. This paper introduces a new theoretical model to explain the increased incidence of overspending and under-saving in the United States. The model is influenced by the level of advertising put forth by firms and consumers’ level of financial knowledge. Analysis of an original dataset collected at the Federal Reserve Bank of Kansas City is used as support for the influence of financial knowledge in this conceptual framework. The effects of financial education are discussed at great length as it is a likely means of increasing financial knowledge. On the whole, study results support our contention that financially literate individuals demonstrate financial behaviors that are considered to be more optimal in the context of our theoretical model.

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File URL: http://www.kansascityfed.org/comaffrs/GillettFisher_Edmiston_Financial_Education_April_2006.pdf
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Paper provided by Federal Reserve Bank of Kansas City in its series Community Affairs Research Working Paper with number 2006-02.

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Date of creation: 2006
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Handle: RePEc:fip:fedkcw:2006-02

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Related research
Keywords: Financial literacy;

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  1. Robert L. Clark & Ann McDermed & Kshama Sawant & Madeleine B. d'Ambrosio, 2003. "Financial education and retirement savings," Proceedings, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  2. Patrick J. Bayer & B. Douglas Bernheim & John Karl Scholz, 1996. "The Effects of Financial Education in the Workplace: Evidence from a Survey of Employers," Working Papers 96011, Stanford University, Department of Economics. [Downloadable!]
    Other versions:
  3. Banks, James & Blundell, Richard & Tanner, Sarah, 1998. "Is There a Retirement-Savings Puzzle?," American Economic Review, American Economic Association, vol. 88(4), pages 769-88, September. [Downloadable!] (restricted)
    Other versions:
  4. Kenneth Arrow et al., 2004. "Are We Consuming Too Much?," Journal of Economic Perspectives, American Economic Association, vol. 18(3), pages 147-172, Summer. [Downloadable!] (restricted)
  5. B. Douglas Bernheim & Jonathan Skinner & Steven Weinberg, 2001. "What Accounts for the Variation in Retirement Wealth among U.S. Households?," American Economic Review, American Economic Association, vol. 91(4), pages 832-857, September. [Downloadable!] (restricted)
    Other versions:
  6. Michael E. Staten & Gregory Elliehausen & E. Christopher Lundquist, 2003. "The impact of credit counseling on subsequent borrower credit usage and payment behavior," Proceedings, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  7. Bernheim, B. Douglas & Garrett, Daniel M., 2003. "The effects of financial education in the workplace: evidence from a survey of households," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1487-1519, August. [Downloadable!] (restricted)
  8. Chen, Haiyang & Volpe, Ronald P., 1998. "An Analysis of Personal Financial Literacy Among College Students," Financial Services Review, Elsevier, vol. 7(2), pages 107-128. [Downloadable!] (restricted)
  9. Bernheim, B. Douglas & Garrett, Daniel M. & Maki, Dean M., 2001. "Education and saving:: The long-term effects of high school financial curriculum mandates," Journal of Public Economics, Elsevier, vol. 80(3), pages 435-465, June. [Downloadable!] (restricted)
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  10. Marianne A. Hilgert & Jeanne M. Hogarth & Sondra G. Beverly, 2003. "Household financial management: the connection between knowledge and behavior," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jul, pages 309-322. [Downloadable!]
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