Financial literacy is widely assumed to be a factor that contributes to household financial stability, growth in gross domestic product, and the likelihood of someone reaching out for help from a financial service professional. This column provides a summary of what is meant by the term financial literacy, while also showing a simple way policy makers often measure financial literacy. As described here, the financial literacy of Americans may be better than what has generally been reported, but this conclusion comes with a caveat: the most widely used test to measure financial literacy may not be as reliable or valid as it could be.
John E. Grable, PhD, CFP, holds an Athletic Association endowed professorship at the University of Georgia where he conducts research and teaches financial planning. Dr. Grable is best known for his work related to financial risk tolerance assessment and behavioral financial planning. He serves as the director of the Financial Planning Performance Laboratory.
Abed Rabbani, PhD, CFP, is an assistant professor in the department of Personal Financial Planning at the University of Missouri. Dr. Rabbani’s research interests include financial risk tolerance, financial wellness, and household emergency funds.