PODCAST
National Financial Capability Study: Key Trends and Insights
In 2009, the FINRA Investor Education Foundation launched the first national study of financial capability of adults in the United States. Since its start, the National Financial Capability Study has provided data on multiple indicators of capability, including financial behaviors, attitudes, and knowledge.
National Financial Capability Study survey data is collected every three years. The 2024 survey, which was published in July, represents the sixth wave of data. This report serves as an important barometer of Americans financial health, and it continues to be an essential resource for policymakers, researchers, financial firms, educators, and other stakeholders seeking to better understand and address the financial capability needs of Americans.
On this episode of FINRA Unscripted, FINRA Foundation President Gerri Walsh, the Foundation's research director, Gary Mottola, and senior researcher Olivia Valdes discuss the study's findings and implications.
Resources mentioned in this episode:
National Financial Capability Study (Sixth Wave)
National Financial Capability Study: 2024 State-Level Insights
National Financial Capability Study (Fifth Wave)
The machines are coming (with personal finance information). Do we trust them?
FULL TRANSCRIPT
00:01- 00:46
Joe Atmonavage: In 2009, the FINRA Investor Education Foundation launched the first national study of financial capability of adults in the United States. Since its start, the National Financial Capability Study has provided data on multiple indicators of capability, including financial behaviors, attitudes, and knowledge. National Financial Capability Study survey data is collected every three years. The 2024 survey, which was published in July, represents the sixth wave of data. This report serves as an important barometer of Americans financial health, and it continues to be an essential resource for policymakers, researchers, financial firms, educators, and other stakeholders seeking to better understand and address the financial capability needs of Americans.
00:55 - 01:29
Joe Atmonavage: Welcome to FINRA Unscripted. I'm your host, Joe Atmonavage, and I'm thrilled to be joined today by FINRA Foundation President Gerri Walsh, The Foundation's research director, Gary Mottola, and senior researcher Olivia Valdes. Together, they bring tremendous knowledge and experience to our discussion of the study's findings and implications. But before we dive into the findings, I'd love to give our listeners some context. Gerri, I will start with you. Could you walk us through what the National Financial Capability Study is, and what prompted the FINRA Foundation to launch this research effort originally?
01:29 - 02:20
Gerri Walsh: I'd be happy to, Joe. And just to step back for a second, for anyone who doesn't know, the FINRA Foundation has as its mission to help people build the financial stability that they need and gain the tools and information to participate in our capital markets and to protect themselves while they're doing so. So, in other words, to build wealth and protect wealth. And a big piece of how we can do that is to really understand where people are, what their needs are. And before the financial crisis of 2008 and 2009, in the early days of the Foundation, we decided that it would be an important contribution to the field of financial education if we were to undertake a large-scale research project to benchmark where people are.
02:20 - 02:54
Gerri Walsh: So, as you mentioned, the very first wave was 2009, which was an interesting time in our nation's history. The financial crisis had just hit, and so we were able to benchmark where people were at that point and then see how trends changed over time with respect to different variables. And from that, we're able to garner data driven insights that inform our programming. So, it's a really signature initiative of the Foundation, and we're proud to be able to present the findings today.
02:54 - 03:02
Joe Atmonavage: Thanks, Gerri. And before we move forward and have this discussion about financial capability. What exactly do you mean by financial capability?
03:02 - 03:23
Gerri Walsh: It's a nuanced concept. It's bigger than financial knowledge. It measures attitudes, behaviors, beliefs, experience, and then of course also knowledge. And we measure it along four pillars: making ends meet, planning ahead, managing financial products and financial knowledge.
03:24 - 03:33
Joe Atmonavage: Thanks, Gerri. And Gary, looking back over more than a decade now since its launch. How has the research been used by different stakeholders, and how has it evolved over the years to remain relevant?
03:34 - 04:06
Gary Mottola: Yeah, back in 2009, as Gerri said, when this began, there was nothing like the National Financial Capability Study. So, there was really no way to gauge how Americans were doing. So, the data became immediately valuable to several stakeholders, including policymakers. Policymakers could use the insights from the data to essentially inform their thinking on policy and how to improve Americans financial lives. One great example of this is there's been a trend recently in United States of more and more states offering or requiring financial education be taught in high school.
04:06 - 04:45
Gary Mottola: Well, the National Financial Capability Study provided the state level data and statistics and the national level data and statistics that essentially provided the evidence to say, hey, we really need this financial education. That's one example of how policymakers can use it. There are a couple of other stakeholders I just want to mention quickly: educators. So, educators throughout the country can look to the National Financial Capability Study to see what do Americans know, what don't they know? And that could certainly inform what they teach in terms of financial information. And lastly, and importantly, the researchers, one of the things the FINRA Foundation does is we make the data available free to researchers and actually non-researchers who may want to use it as well.
04:46 - 05:03
Gary Mottola: But this data set has been leveraged by hundreds of researchers. And those hundreds of researchers have produced hundreds, maybe even thousands of papers on financial capability, which essentially broadened our understanding of what's going on in the United States in terms of financial capability. So, there's definitely a multiplier effect going on here.
05:04 - 05:19
Joe Atmonavage: Thanks for that context, Gary. And you mentioned the insights and the findings. So, let's dig into the key findings and trends from this year's report. And Olivia, I want to turn to you on this. Looking at the big picture, could you share some of the key findings from the latest data compared to previous iterations of the study?
05:20 – 07:29
Olivia Valdes: So, looking back, there seems to have been a steady uptick in making ends meet since we first started collecting this data back in the Great Recession. That seems to have ended in 2024. So, when we look at the findings for this year, we're actually seeing large declines in the ability to make ends meet. So, looking at two particular indicators, for instance, the people who say they had no difficulty paying their bills or expenses, that actually dropped quite dramatically. So, in 2021, 54% of adults were saying they found it easy to pay their bills and expenses. Now we're seeing 44%. That is a ten-percentage point drop. So, a pretty big drop in that. We're also seeing that more people are saying that they're spending more than their incomes than ever before. So, 26% of respondents, that's more than a quarter of respondents, are saying that they are spending more than they're actually making. So, we are seeing quite a bit of decline in making ends meet. And speaking of saving versus spending, if we look at people's ability to save for emergencies, that has also dropped dramatically as well. We're seeing that 46% say that they've set aside three months of savings for an emergency. That's down from 53% in 2021. And one thing that we wondered was, well, why is this happening? And we can say it doesn't seem to be driven by income. So, when we look at these different income type of indicators, we don't see really any difference in an unexpected income drop between who was saying that back in '21. Who's saying that now? No real difference there. Again, no real difference in people who are saying that their income occasionally varies. So, it doesn't seem to be an income driven problem that's driving these difficulties making ends meet. Instead, this seems to be driven by inflation.
07:29 - 08:16
Olivia Valdes: So, in this latest data, we asked a couple questions to address the effects of inflation in people's lives. Specifically, we focus on two things. One of the things was whether increases in food costs caused people to cut back on spending. A lot of people are saying yes to that. In the past five years, those increased food costs, 67% said, yeah, this has caused me to cut back other spending. Similar thing with housing costs. So increased housing costs, 50% say that that has caused them to have to cut back on other spending. So basically, what we're seeing is making ends meet that seems to be declining. And a big part of that may seem these higher costs of living.
08:17 - 08:30
Joe Atmonavage: Thanks, Olivia. You mentioned these declines. I would love to talk about that more. They don't seem to be hitting everyone equally. Could you walk us through which groups we're seeing that are most affected? Are there certain populations experiencing a steeper decline than others?
08:30 – 10:40
Olivia Valdes: Yeah, that was something that was really interesting about this data. So, when we look at that squeeze, it's felt particularly heavily by middle- and high-income groups. So, the decline has really affected them the most. We are finding that in those variables that I talked about earlier, those who find it not at all difficult to cover their expenses or paying bills, that has declined most dramatically in the middle-income group and the higher income groups. So, to give specific numbers in those that are earning between $25K and $75K, that has dropped 14 percentage points. In those that earn $75K and over, that has dropped 11 percentage points. So, some pretty dramatic decreases there for those higher income groups. So, if we look at spending less than income, those adults who are saying that they're under spending their income, we also see pretty steep declines in these higher income groups as well. Specifically, those who earn between $25K and $75K, the amount of people who say they spend less than their income, that has decreased by seven percentage points for those who make 75 and over, that decreased by nine percentage points. If we compare those who are making $25K and under those lower income, that decline hasn't changed at all. So now more than ever, the ability to make ends meet has really hit that middle- and high-income group. So, this suggests that even clients who appear on paper that they're okay, higher income clients, maybe they are experiencing significant financial pressure due to these higher costs of living. So, one of the things that we can say to financial professionals who work directly with consumers may be to consider how inflation is affecting these household budgets. There are ways that traditional metrics, income metrics might not really be capturing.
10:42 - 11:00
Joe Atmonavage: Thanks, Olivia. And as you mentioned, this decline could potentially be taking an emotional toll on people. So, Gary, I want to turn to you to talk about the emotional side of all this data. What does the research from the report reveal about how Americans are actually feeling about their financial situation right now? How does this compare to other years?
11:00 - 11:38
Gary Mottola: Yeah, well, for the most part, we're seeing a similar trend downward in terms of how people are feeling about their finances. That very much mirrors what Olivia just described. For example, one question we often look to is we asked respondents, how satisfied are you with your personal financial situation? So back in 2021, about a third of U.S. adults said they were satisfied. Now that's number is low. But don't focus on that for the moment because it's about to get lower. In 2024, only about a quarter, 24%, of U.S. adults say they're satisfied with their personal financial situation. That's a pretty big drop in a short period of time, three years. So that's a little troubling.
11:38 - 12:21
Gary Mottola: We also see people are more anxious about their financial situation. A separate question has essentially asked just that how are you? And we're seeing a significant uptick in the percentage of Americans saying they're anxious. That said, I'll throw out the first piece of fairly good news in terms of the data. Americans seem to be a somewhat resilient bunch because we have a question that says, hey, how confident are you that you can meet your financial goals in the future? And despite the downward trends in both behavior and attitudes and feelings, 7 in 10 U.S. adults are confident that they're going to meet their financial goals in the future. So that was one positive piece of information I think is interesting in light of the trends we're seeing.
12:22 - 12:44
Joe Atmonavage: Thanks, Gary, I appreciate that. Now let's turn to one section of the report that focuses on financial knowledge, which is an important component of financial capability. And the National Financial Capability Study has been tracking Americans financial knowledge since its start. I'm curious about how exactly you measure financial knowledge. Gerri, what specific topics or concepts do you test people on?
12:45 - 14:01
Gerri Walsh: The 2024 study has seven questions that measure financial knowledge and they build on what's known as the Big Five. These are five core concepts - basic financial literacy knowledge questions that don't require anybody to have any math skills, but measure whether they understand things like the impact of interest on savings, the impact of inflation on savings, and the ability to spend money. What types of products might be riskier than other types of products? How mortgages work. Bond prices. So basic financial concepts that again, don't require any math. We did ask a couple of additional questions on probability and the impact of compound interest on debt. So, the positive side of interest compounding and the negative side of interest compounding. But again, you don't have to have math skills. You just have to understand these concepts, and these are day to day concepts. Two of the questions do deal with investing, which gives us some insights into potential customers for any of the firms or financial professionals who are tuning in.
14:01 - 14:19
Joe Atmonavage: Thanks, Gerri. Now that we have an understanding of what the quiz entails, Olivia, I want to turn to you to talk about what the data has shown over the years. Have we seen any meaningful shifts in financial knowledge, and are there any specific concepts Americans are improving on or maybe particularly struggling with?
14:19 - 15:12
Olivia Valdes: Yeah, so one thing that we've been seeing since we first started collecting this data in 2009 is a pretty steady decline in financial knowledge. So, we've found that the people who can answer four out of those core five questions correctly has dropped from 42% in 2009 to 32% in 2021. And I'm talking about 2021 because we have sort of good news here that while 32% is concerningly low, that rate has not fallen any further. So, it seems to have stabilized in 2024 to 32%, which is somewhat encouraging. So, it seems like we may have reached a plateau rather than continuing to see an erosion in financial knowledge.
15:13 - 16:13
Olivia Valdes: And if we zoom in a little bit more on the specific questions and the topics that Gerri was mentioning, we do see some improvements in the inflation question. So, more people are answering that question correctly in 2024 than in '21. So, we saw a slight increase from 53% to 58%. And who did better? That was also pretty interesting. So, we saw that younger people seem to be doing better than before. So, performance on that inflation question. It improved by ten percentage points. For those between the ages of 18 and 34, and six percentage points for those between 35 and 54. So those improvements were really concentrated on this younger population. It seems perhaps, that living with inflation might actually be helping people understand how it affects purchasing power. So, some bittersweet news there.
16:14 - 17:12
Olivia Valdes: And I think that beyond this being interesting to researchers, there are a couple of takeaways for those who are working with other stakeholders. So, one thing that we can say is financial knowledge is pretty low. So that low rate does mean that we can't assume that people fully understand financial concepts. So, this is an opportunity to think about the importance of clear jargon free communications. That is very, very important. And then the second thing is these improvements that we're seeing in inflation knowledge that suggests that inflation is really top of mind for people. So, consumers are clearly actively trying to understand the impact of inflation on their finances. They may be receptive to education. They may be receptive to solutions in this area. So, for those of us who work with consumers addressing these concerns, you might find a pretty engaged audience.
17:14 - 17:40
Joe Atmonavage: Absolutely. I appreciate that, Olivia. Something that struck me was the gap your study finds between how financially knowledgeable people think they are and their actual performance on the financial knowledge quiz. Gary, I want to turn to you on this. What are the real-world implications when people don't accurately assess their own financial understanding? How can stakeholders work to help consumers develop realistic views of their knowledge without discouraging them?
17:41 - 18:14
Gary Mottola: So, in addition to those financial knowledge questions that Gerri and Olivia spoke about. We also asked respondents, hey, how would you rate your own financial knowledge? So now we can compare their objectively measured knowledge to their self-rated subjective knowledge and see if they aligned. And well, they often don't align. And when they don't align, usually the self-assess knowledge is higher than the actual objectively measured knowledge. So essentially what we're talking about here is overconfidence. There's a potential that there's a fairly large swath of the US population is a little overconfident with their financial knowledge.
18:14 - 18:41
Gary Mottola: So, what are the implications of this? Overconfidence has been a heavily researched topic in the financial knowledge space. And let's just take investing for example. Overconfidence is tied to trading more frequently. If you're overconfident you're more likely to trade more frequently, often to your own detriment. From an investing standpoint, it's also been tied to under diversification. So, if you're overconfident, you tend to have an under-diversified portfolio, which is going to increase the volatility and risk of the portfolio and potentially your long-term returns.
18:42 - 19:05
Gary Mottola: And outside of the investing world. We also see that they're overconfident in terms of the financial knowledge, they're less likely to, say, work with a financial professional, or they're less likely to even seek out information on different financial topics. So, it is potentially a problem that we need to keep our eye on, and essentially find ways to try to align people's actual knowledge with their self-assess knowledge.
19:06 - 19:11
Joe Atmonavage: And Gary, how has the National Financial Capability Study evolved over the years to remain relevant?
19:11 - 20:02
Gary Mottola: Keeping it relevant is both important and challenging. It's important because, as we know, and I think somebody alluded to already, the financial services landscape changes and sometimes it changes pretty quickly. So, what we need to do when we're thinking ahead is we need to think about what are the emerging issues, and how can we write questions that really get at these emerging issues in a good way. But that's challenging. How do you predict what's going to be the emerging issues and how do you get at them accurately? And luckily, we don't do that alone. We work with a really talented group of experts from federal agencies, from think tanks and from academia. And collectively we talk about it and we figure out what should we be assessing? What's going to be important and how do we get at that? So, we're very, very grateful to all these people that help us out in many ways, makes the National Financial capability study a better product.
20:03 - 20:29
Joe Atmonavage: Thank you, all three of you, for the information on the financial knowledge part of the National Financial Capability Study. Now let's turn to looking at some of the emerging issues. Throughout each wave of the National Financial Capability Study, the FINRA Foundation highlights various emerging issues. The sixth wave has been updated to include new questions on timely topics, including artificial intelligence, Buy Now, Pay Later, borrowing and inflation, among other topics.
20:30 - 20:55
Joe Atmonavage: I want to touch on a few of these. Olivia, the financial world is continuously evolving. We mentioned earlier that the study adapts to better capture these changes. I'm particularly interested in what your data reveals about how Americans are adopting financial technologies, from mobile banking to payment apps to newer innovations like Buy Now, Pay Later borrowing. What should we pay attention to with these changing consumer patterns?
20:56 - 21:59
Olivia Valdes: Thanks, Joe. So, we're seeing some pretty dramatic increases in terms of the adoption of financial technologies, especially mobile technologies. So, we're seeing that nearly four out of five adults with bank accounts, they're accessing their bank online. And a similar percentage is using their mobile device to do so. And that mobile revolution that has been pretty extraordinary. So, since we began tracking in 2018, mobile banking adoption has really exploded among young adults especially. That penetration is pretty much universal. We're seeing 94% of young people use a mobile device to access their account. That's virtually all of them. And it's not just banking either. We're seeing that half of adults are using their mobile device to pay at stores, nearly two thirds using it to transfer money to other people. So, we're just seeing very clear adoption of financial technologies.
21:59 - 22:45
Olivia Valdes: And it's not just it was mobile banking, but we're seeing that the way that people are interacting with financial services is also changing with newer technologies like you mentioned, Buy Now, Pay Later, that also seems to be gaining steam. So BNPL (Buy Now, Pay Later), it allows consumers to split the cost of purchase into a few, typically four or fewer equal payments over a short period of time. When we asked in 2024 how many respondents had used that in the past 12 months, 23% are saying that they do. So, this is still early days, but that is over a fifth of respondents saying that they do use or have used BNPL.
22:45 – 24:05
Olivia Valdes: Like with mobile technologies, we're seeing that younger populations are adopting BNPL at higher rates. So nearly a third of 18- to 34-year-olds are using buy now, pay later. So essentially understanding this pattern or these different patterns is important for a couple of reasons. First, we're seeing that these technologies are pretty much changing how consumers interact with the financial services. So, engaging with services really has shifted to a way to engage that's more on demand. That is more continuous, presumably. So, understanding that change can really help inform how financial services approach their customer experience, how they communicate, how they build relationships. And something else that we're seeing, especially with this adoption of mobile payments and BNPL, is that consumers are increasingly comfortable with financial innovation if it offers convenience, if it offers flexibility. It seems that a lot of people, especially younger people, are adopting these technologies. So, we're seeing some opportunities here to maintain clients, to seek clients, to work with consumers in whatever capacity that we may be engaging with them.
24:05 - 24:44
Joe Atmonavage: Well, since you mentioned innovative technology, let's talk about something that's generating a lot of buzz right now. And that would be artificial intelligence in finance. This year's study asks about people's interest in getting financial advice from artificial intelligence. And the Foundation also released additional research on this topic last June. Gerri, I want to turn to you for this question. What are you learning about how comfortable Americans actually are with AI powered financial guidance? And with all these technological changes we've discussed, have we reached a tipping point in how consumers use technology to manage their money, and what should firms and other stakeholders understand about this evolving relationship between their clients and technology?
24:45 - 26:00
Gerri Walsh: I think the big takeaway here, and this underscores what Olivia was saying about other innovations in fintech is that, yes absolutely, people are increasingly interested in using technology and specifically artificial intelligence to help them with their finances. So, the previous study that we had done in 2024, it was an experimental study that took a look at the extent to which people trusted AI as an information source. So, it wasn't so much about their intent to use it. But if they knew that a statement, a hypothetical financial statement, came from AI or came from a financial professional, which would they be more likely to trust? And the range of trust depended on the type of content, whether it was about housing and interest rates or whether it was about investing in portfolio asset allocation. But what we saw is that about 5% of people in that study knew that they were using AI, so people didn't seem to realize that they might be getting information through AI.
26:00 - 26:59
Gerri Walsh: And that was part of the reason that we wanted to assess in the 2024 survey, to go a little deeper, to find out, well, how interested would you be? And about 1 in 5 people said that they would be interested in getting information about their finances from AI. That's really important for the industry to be aware of. The rate of interest was much higher among the 18- to 34-year-old crowd. About 30% of that age demographic was interested in receiving information through AI. So, I think it's really good for firms to be aware of this interest and to understand that it's less the source, AI versus a financial professional, but the content that really matters. And so, the wealth management industry might be able to use that data as they're thinking about their approaches to customer communications and customer education.
27:00 - 27:26
Joe Atmonavage: Thanks, Gerri. And thank you, all three of you, for discussing those key insights and data points in this year's study. I would certainly encourage all of you to go check out the National Financial Capability Study and really dig through it. Let's look ahead. How does the FINRA Foundation plan to build on the findings from this report and the previous iterations to drive positive change and empower Americans with the knowledge, skills, and tools to achieve financial security and success?
27:27 - 28:01
Gerri Walsh: Well, consistent with FINRA corporate goals of being a data driven organization, the Foundation uses the information that we glean from the National Financial Capability Study and the other research projects that we have to better understand the consumers that we're helping. We reach out to consumers a variety of ways at the workplace, through libraries, through schools, through partners that we collaborate with. And so, this data will help us as we consider our strategic planning moving forward.
28:02 - 28:15
Joe Atmonavage: And to wrap it up, could each of you share one key insight you hope listeners will take away, whether they're working with clients, educating consumers, developing policy, or maybe navigating their own financial journey? Gary, let's start with you.
28:15 - 28:59
Gary Mottola: It won't be an insight, but it's a piece of information that I think the listeners will find valuable. So, we didn't talk much about it. But the National Financial Capability Study has really good data on the percentage of U.S. Adults that have a retirement investment account, the percentage of US adults that have a taxable or nonretirement investing account. So armed with that information you could cross that with all the demographic variables we have, all the psychographic variables we have, all the behavioral variables we have. And you could paint a really detailed picture of what investors look like and how they differ from non-investors. So, what I'll say is that we are going to do just that. So later this year we are going to release a report that uses the NFCS data, focuses on investors to really get a granular understanding of what investors look like and how they behave.
29:00 - 00:29:02
Joe Atmonavage: Thanks, Gary. And how about you, Gerri?
29:02 - 29:44
Gerri Walsh: Well, this data, but also, I'm going to give a sneak preview. We have a subset of the National Financial Capability Study that will be coming out in December that takes a deeper dive into investing and investor behavior. There's an 11-question quiz that's part of that, which I think could be useful for firms. They might want to use it on their clients, but I really think that this large data set over time, and particularly the 2024 wave, can really help firms better understand their clients and also their prospective clients, the people that they're trying to cultivate. So, we really commend the data sources to you.
29:44 - 29:47
Joe Atmonavage: Thanks, Gerri. And, Olivia, I'll turn to you for the final word.
29:48 - 30:34
Olivia Valdes: Sure. So, I just want to leave everyone with where you can find these resources that we've talked about and a couple other valuable tools as well. So, all of this information, everything that we've talked about is on FINRAFoundation.org/NFCS. NFCS for National Financial Capability Study. And there you can download the full report. Everything that we discussed here is going to be there. You can also access the full data sets. Again, that's at no cost. So, if you want to dig into the data, if your firm has some data analytic capabilities, you can see everything there. We also have the survey questionnaires, the methodology documentation. And we're always happy to answer any questions.
30:35 - 31:25
Olivia Valdes: For local firms, state offices, something that we find pretty exciting that we have available is an interactive map. So, you can actually look at the map of the U.S. And see how states are doing in terms of financial capability. So, if that's of interest, you can also find that on our website. And I'll just say that we provide all of the updates of our research, what we're doing on social media. So, we hope financial professionals, educators and policymakers use this wealth of data not just to understand the challenges that consumers face, but to develop effective solutions. So the financial landscape continues to evolve. It's evolving rapidly, and we're committed to providing insights that can help Americans build strong financial futures.
31:25 - 31:53
Joe Atmonavage: Well, thank you, Gerri, Gary and Olivia, so much for joining us today to talk about the National Financial Capability Study. That's it for today's episode of FINRA Unscripted Listeners. If you don't already, please be sure to subscribe to FINRA Unscripted wherever you listen to podcasts, and all of the resources mentioned in today's podcast will be included on the homepage for the podcast episode. Today's episode was produced by me, Joe Atmonavage and engineered by John Williams. Until next time.
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