A growing number of Americans overestimate their level of financial literacy
The number of people who think they are financially savvy but really aren’t has increased over time.
Researchers, in a recent study, found that not only do many people overestimate their financial literacy, but that the number of such people has increased over the years. The study authors (from Ohio State University, University of Alabama and York University in Toronto) examined data from National Financial Capability Study, which polls Americans in every state every three years about their financial knowledge and behavior. The survey asked five multiple-choice questions to measure objective financial knowledge. The questions cover interest rates, inflation, bond prices, mortgages and financial risks.
The researchers looked specifically at data from the 2009, 2012, 2015 and 2018 surveys, each of which included between 25,000 and 29,000 Americans. What they found was that average test scores declined steadily between 2009 and 2018. Despite this, however, the percentage of those who thought they were above average in financial literacy, but who actually scored below average on the test, rose from around 15% in 2009 to almost 21% in 2018.
The study controlled for characteristics such as age, race and ethnicity, as well as education to see if changes in the composition of respondents from one survey to the next may have influenced the results. but even then, financial knowledge still declined in all four waves of the surveys analyzed.
“The findings raise the question of whether we are doing enough or doing the right things to educate the public about the basics of finances needed to run a household,” said Sherman Hanna, co-author of the study and professor of consumer science at OSU, in a statement. “Not only are scores on a measure of financial knowledge declining, but an increasing number of people think they know more than they do.”