FINRA Investor Education Foundation | October 2020
Summary: We administered the FINRA Investor Education Foundation’s National Financial Capability Study (NFCS) questionnaire to members of the RAND American Life Panel (ALP) in 2012 and 2018. Using this longitudinal data set, we investigate the evolution of financial literacy over time and shed light on the causal effect of financial knowledge on financial outcomes. Over a six-year observation period, financial literacy appears to be rather stable, with a slight tendency to decline at older ages. We find that financial literacy has significant predictive power for future financial outcomes, even after controlling for baseline financial characteristics and a wide set of demographic and individual characteristics that influence financial decision making.