Content area
Full Text
Abstract
This paper examines the hypothesis that low financial literacy scores among young adults, even after they have taken a course in personal finance, is related to a lack of motivation to learn or retain these skills. The research is based upon the latest national Jump$tart survey of high school seniors and uses financial literacy scores after controlling for socioeconomic, demographic, and aspirational characteristics that have historically predicted these scores. We analyze the relation of financial literacy scores to responses to three questions designed to measure motivation to be financially literate. We found that the motivational variables significantly increased our ability to explain differences in financial literacy. © 2007 Academy of Financial Services. All rights reserved.
JEL classification: D14
Keywords: Financial literacy; Motivation and financial education
1. Introduction
The financial service industry has become increasing complex and continues to change, revolutionizing the financial markets. Within this framework, experts recognize the importance of consumer finance and understand that basic finance relationships are key to modern financial security. In recent years the Federal Reserve has focused on the importance of financial education and literacy in the functioning of the financial markets [e.g., see Morton (2005), Greenspan (2003, 2005), Hilgert, Hogarth & Beverly (2003), and Braunstein & Welch (2002)].
Despite the importance of financial literacy, surveys demonstrate that American youth and adults do not possess the basic knowledge needed to make good financial choices [see Chen & Volpe (1998) and Volpe, Chen & Liu (2006) for a review]. A 2001 Harris poll of graduating seniors found that only 8% of college seniors believed that they were "very knowledgeable" about investing and financial planning. In contrast, about half believed that they were "not very" or "not at all" knowledgeable. This lack of basic financial literacy often results in poor financial decision making. Murray (2000) demonstrates students have serious issues with credit card use. Citing a Nellie May report, he states 25% of undergraduate college students have four or more credit cards and about 10% carry outstanding balances between $3,000 and $7,000.
Garman, Leech and Grable (1996) and Joo and Grable (2000) find that in addition to adversely affecting individuals, poor financial decisions negatively influence productivity in the workplace. Volpe et al. (2006) surveyed corporate benefit administrators and...