Financial Literacy and Emergency Saving

Using data collected by the National Financial Capability Study, a survey recently commissioned by the Financial Industry Regulatory Authority, this paper investigates the correlations between subjectively and objectively assessed measures of financial knowledge, and the probability of having savings adequate to cover 3 months of typical expenses. Results indicate that households who are more financially knowledgeable or more confident in their financial ability are significantly more likely to report having emergency funds. These findings support the growing literature on the relationship between financial knowledge and economic behaviors and have wide policy implications.

[1]  Daniel Schneider,et al.  Financially Fragile Households: Evidence and Implications , 2011 .

[2]  J. Skinner,et al.  Precautionary Saving and Social Insurance , 1994, Journal of Political Economy.

[3]  Diego C. Nocetti,et al.  Uncertainty, the Demand for Health Care, and Precautionary Savings , 2010 .

[4]  Soyeon Shim,et al.  Antecedents and Consequences of Risky Credit Behavior among College Students: Application and Extension of the Theory of Planned Behavior , 2011 .

[5]  O. Mitchell,et al.  Financial Literacy: Implications for Retirement Security and the Financial Marketplace , 2012 .

[6]  Sondra G. Beverly,et al.  Household financial management: the connection between knowledge and behavior , 2003 .

[7]  Patti J. Fisher,et al.  Differences in Household Saving Between non-Hispanic White and Hispanic Households , 2012 .

[8]  C. Robb,et al.  The demand for financial professionals' advice: The role of financial knowledge, satisfaction, and confidence , 2012 .

[9]  Annamaria Lusardi,et al.  Financial Literacy and Planning: Implications for Retirement Wellbeing , 2005 .

[10]  M. Kazarosian.  Precautionary Savings—A Panel Study , 1997, Review of Economics and Statistics.

[11]  Lauren E. Willis.  Against Financial Literacy Education , 2008 .

[12]  Catherine P. Montalto,et al.  Loss Aversion and Saving Behavior: Evidence from the 2007 U.S. Survey of Consumer Finances , 2011 .

[13]  L. Kotlikoff.  Health Expenditures and Precautionary Savings , 1986 .

[14]  C. Carroll,et al.  The Nature of Precautionary Wealth , 1995 .

[15]  M. Sherraden,et al.  Can the Poor Save?: Saving and Asset Building in Individual Development Accounts , 2005 .

[16]  Tullio Jappelli,et al.  Earnings Uncertainty and Precautionary Saving , 1992 .

[17]  Patti J. Fisher.  Is There Evidence of Loss Aversion in Saving Behaviors in Spain? , 2012, Journal of Family and Economic Issues.

[18]  Michael T. Marsden,et al.  The Value of Seeking Financial Advice , 2011 .

[19]  O. Mitchell,et al.  Baby Boomer Retirement Security: The Roles of Planning, Financial Literacy, and Housing Wealth , 2006 .

[20]  Gong-Soog Hong,et al.  Emergency Fund Adequacy of Asian Americans , 1997 .

[21]  Sheldon Garon.  Beyond Our Means: Why America Spends While the World Saves , 2011 .

[22]  S. Zeldes,et al.  The Importance of Precautionary Motives in Explaining Individual and Aggregate Saving , 1993 .

[23]  Mich. Codebook,et al.  Survey of consumer finances. , 1973 .

[24]  S. Loveridge,et al.  Interactional Associations of Gender on Savings Behavior: Showing Gender’s Continued Influence on Economic Action , 2013 .

[25]  E. Wolff,et al.  Asset Poverty in the United States, 1984-99: Evidence from the Panel Study of Income Dynamics , 2002 .

[26]  Patti J. Fisher.  Black-White Differences in Saving Behaviors , 2010 .

[27]  R. Widdows,et al.  Borrowing to cope with adverse health events: liquidity constraints, insurance coverage, and unsecured debt. , 2013, Health economics.

[28]  C. Robb,et al.  Financial Knowledge and Best Practice Behavior , 2011 .

[29]  Chuanyi Tang,et al.  The ant and the grasshopper revisited: The present psychological benefits of saving and future oriented financial behaviors , 2012 .

[30]  C. Carroll,et al.  How Important Is Precautionary Saving? , 1995, Review of Economics and Statistics.

[31]  A. Lusardi.  Financial Literacy: An Essential Tool for Informed Consumer Choice? , 2008 .

[32]  Agnar Sandmo,et al.  The Effect of Uncertainty on Saving Decisions , 1970 .

[33]  J. Hogarth,et al.  Does Financial Education Affect Soldiers’ Financial Behavior? , 2009 .

[34]  J. Collins,et al.  Financial Education and Counseling — Still Holding Promise , 2010 .

[35]  L. Kotlikoff.  What Determines Savings , 1989 .

[36]  Annamaria Lusardi,et al.  Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education , 2007 .

[37]  Tansel Yilmazer,et al.  Effectiveness of Financial Education on Financial Management Behavior and Account Usage: Evidence from a ‘Second Chance’ Program , 2008 .

[38]  H. Leland..  Saving and Uncertainty: The Precautionary Demand for Saving , 1968 .

[39]  V. Dardanoni,et al.  Precautionary savings under income uncertainty: a cross-sectional analysis , 1991 .

[40]  Martin Browning,et al.  Household Saving: Micro Theories and Micro Facts , 1996 .