Financial Literacy among the Young

Authors


  • The research reported herein was conducted pursuant to a grant from the US Social Security Administration (SSA) to the Michigan Retirement Research Center, funded as part of the Retirement Research Consortium. We also received a generous grant from FINRA Investor Education Foundation. Additional support was provided by the Pension Research Council and Boettner Center at the Wharton School of the University of Pennsylvania. We are very grateful to Dan Black for his help with the data and would also like to thank Anna Paulson for helpful suggestions and comments. Hiroaki Matsuura provided excellent research assistance. Opinions and errors are solely those of the authors and not of the institutions with which the authors are affiliated.

Abstract

We examined financial literacy among the young using the most recent wave of the 1997 National Longitudinal Survey of Youth. We showed that financial literacy is low; fewer than one-third of young adults possess basic knowledge of interest rates, inflation and risk diversification. Financial literacy was strongly related to sociodemographic characteristics and family financial sophistication. Specifically, a college-educated male whose parents had stocks and retirement savings was about 45 percentage points more likely to know about risk diversification than a female with less than a high school education whose parents were not wealthy.

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