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Angelita Williams (202) 728-8988

New Research: Financial Literacy Is Significant Indicator of Positive Future Financial Outcomes and Behaviors

Varying Levels of Financial Knowledge Among Americans May Deepen Inequality

WASHINGTON – Financial literacy is a strong indicator of positive financial outcomes for the future, but differing levels of financial literacy among Americans may contribute to widening inequality among different segments of the population, according to a new study by the FINRA Investor Education Foundation (FINRA Foundation), the University of Southern California's Center for Economic and Social Research (CESR) and The George Washington University's Global Financial Literacy Excellence Center (GFLEC).

The research brief, The Stability and Predictive Power of Financial Literacy: Evidence From Longitudinal Data, was published today in recognition of World Investor Week 2020, a global weeklong campaign held Oct. 5-11, but celebrated throughout the entire month of October due to the ongoing pandemic. The campaign seeks to raise awareness about the importance of investor education and protection.

"This study represents one of the nation's first efforts to collect and analyze longitudinal data linking financial literacy to the financial outcomes of individual Americans over a multi-year period," said FINRA Foundation President Gerri Walsh. "These findings reinforce the importance of financial literacy and suggest that differing levels of financial knowledge may contribute to increasing disparities over the life course."

For example, answering one additional question correctly on a five-question financial literacy quiz administered in 2012 increased the likelihood that a respondent could meet a $2,000 unexpected expense in 2018 by eight percent. Answering two questions correctly increased the likelihood by 16%, and three by 24%.

"Such unique data allows us to examine the extent to which financial literacy changes over time and for which groups in the population. We also assess how levels of financial knowledge affect financial decisions in the short- and medium-run, a key research question that cannot be tackled in most available data sets," said CESR researchers Marco Angrisani and Jeremy Burke.

However, researchers noted that financial literacy in 2012 was not statistically related to any of the negative financial outcomes documented in 2018, such as costly credit card behaviors or the use of alternative financial services, including auto title or payday loans, rapid refunds, pawn shops or rent-to-own shops. This suggested that poor financial decision-making may not be driven primarily by differences in financial knowledge, but instead may be attributed mainly to other factors like negative financial shocks and resource scarcity.

Longitudinal studies track the same type of information on the same subjects at multiple points in time. During this six year study, researchers surveyed a panel of 1,500 Americans in 2012 and the same individuals again in 2018 using a five-question quiz from the FINRA Foundation National Financial Capability Study (NFCS) covering fundamental concepts of economics and finance. The quiz includes simple calculations of interest in a savings account, the workings of inflation, the relationship between interest rate and bond prices, the relationship between the length of a mortgage and the overall interest paid over the life of the loan, and the concept of risk diversification.

"We hope that our study findings will be incorporated into the policies and programs developed to help individuals and families navigate the current economic crisis and rebuild resilience," says Annamaria Lusardi, Academic Director of GFLEC and University Professor at the George Washington University. "We found that people with greater financial knowledge were more likely to plan for retirement and be able to cope with a $2,000 unexpected shock. Financial education and workplace financial wellness programs need to be fundamental pieces of rebuilding the financial well-being of Americans."

Center for Economic and Social Research (CESR) CESR is a center within the University of Southern California's Dana and David Dornsife School of Letters, Arts and Sciences. At CESR, our scientists, colleagues and staff pursue compelling, data-driven research in the social sciences and economics that further understanding, policy making and quality of life. Our research explores the impact of social services and public policy, shifting population trends and their implications, and how human behavior -- our attitudes, actions, and ability to make decisions -- affects our well-being now and as we age. For more information, visit

Global Financial Literacy Excellence Center

The Global Financial Literacy Excellence Center (GFLEC) is dedicated to advancing research and solutions that open the door to universal financial literacy. In working toward that mission, GFLEC has positioned itself as the world's leading incubator for financial literacy research, policy, and solutions. GFLEC launched in 2011 at the George Washington University School of Business in Washington, D.C. Since then, it has pioneered breakthrough tools to measure financial literacy, developed and advised on educational programs, and crafted policy guidelines aimed at advancing financial knowledge in the United States and around the world. For more information on GFLEC, visit

About the FINRA Investor Education Foundation
The FINRA Investor Education Foundation supports innovative research and educational projects that give underserved Americans the knowledge, skills and tools to make sound financial decisions throughout life. For more information about FINRA Foundation initiatives, visit

About FINRA FINRA is a not-for-profit organization dedicated to investor protection and market integrity. It regulates one critical part of the securities industry—brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit